Bitcoin (BTC) and Ethereum (ETH) are the largest cryptocurrencies in terms of market capitalization. They also contribute more than half of the entire cryptocurrency market share. It is hardly surprising that they are by far the most popular cryptocurrencies. However, these prominent tokens have some major limitations due to their consensus mechanisms: the proof-of-work consensus, a method of validating transactions on the blockchain by solving a complex computational code. Solving these ‘puzzles’ is called mining, and it requires an enormous supply of power, thus driving costs and emission of carbon dioxide.
Aside from the mining demands of proof-of-work coins, transactions on the POW network are not quite scalable and fast. Fortunately, the cryptocurrency landscape is rapidly changing and innovative cryptocurrencies like Kava.io are proving to be faster and more scalable.
What is Kava.io?
Kava.io is a DeFi service created by Kava labs in 2018 to function as a lending and borrowing platform. The protocol offers loans in USDX only, but users can loan different cryptocurrencies. USDX is Kava’s USD native token, while KAVA is Kava.io’s utility token.
Kava is used as a reserve pool to ensure there is always sufficient collateral. Kava also functions as a governance token that community members use for decision-making on the platform, such as in governance activities like voting for desired changes. It works on a network built using a unique design that combines two different blockchain functionalities to emerge as a co-chain with improved capacity. These blockchains are the Ethereum and Cosmos blockchains.
Kava utilizes the Ethereum Virtual Machine to deploy Kava’s smart contract. It works with the Inter-Blockchain Communication protocol (IBC) and functions with an Ignite-based Proof-of-Stake (PoS) consensus mechanism, formerly Tendermint PoS.
The Kava project provides other DeFi services, such as borrowing synthetics or derivatives. The protocol uses a collateralized debt position system to ensure that the loans remain collateralized. Asides from borrowing and lending on Kava, users can also stake multiple tokens to earn a yield.
Kava.io in a Nutshell
Users that collateralized their crypto assets to mint USDX get a weekly reward which the network distributes in the form of KAVA. The size of the reward users gets is based on the amount of USDX they mint and the cryptocurrency they choose to use as collateral. In essence, Kava.io provided many digital assets in their borrowing & lending platform like BTC, ETH, and ADA.
Kava labs launched the blockchain’s mainnet 19th of January, 2022. The upgrade brought the integration of the Inter-Blockchain Communication protocol (IBC) from Cosmos SDK, which facilitates the transfer of KAVA to other chains. Kava.io plans to launch a Ripple-backed stable coin to support its collateralized debt system.
How Does Kava.io Work?
Kava is a borrowing and lending protocol that allows its users to borrow USDX after locking up an amount of crypto as collateral. The network simultaneously creates a collateralized debt position, making the locked crypto collateral for the borrowed loan.
Members of the Kava ecosystem have access to several loans, enabling them to create synthetic leverages for any cryptocurrency that the system supports. For example, if users lock up Bitcoin or Binance coin (BNB), they will receive a corresponding amount of their asset in USDX. They can use the newly received USDX to buy more Bitcoin or BNB and gain leveraged position in the cryptocurrency market.
- The process of borrowing on the Kava.io platform includes the following:
- Users connect their wallets to kava.io and deposit some amount of cryptocurrency.
- The network locks the deposited crypto in a smart contract creating a collateralized debt position.
- The users receive a portion of USDX as loans equivalent to their CDP value.
- To access the locked asset, users need to refund the loan, which comes with an added transaction fee.
- After repaying the loans, the Kava network releases the locked assets and simultaneously burns the USDX.
Kava network users can earn profits from lending, borrowing against their collateral, and staking with the added benefit of participating in the networks’ governance activities.
Collateralization Ratio
The collateralization ratio is a strategy used to preserve the network from the volatility that can decrease the value of the borrower’s collateral. Kava.io requires users to deposit a higher amount of assets than the amount of USDX the protocol makes available after minting. The process describes how USDX is over-collateralized to hedge against volatility. After which, the debt-to-collateral value specifies the liquidation value. For example, a 300% collateralization ratio means that liquidation will occur once the user’s locked asset is below 3times that of the borrowed USDX value. If the debt-to-collateral ratio falls below the given threshold and liquidation occurs, the entire crypto-locked asset will be burned.
source: kava.io
The KAVA Token
The KAVA token represents the native token of the Kava ecosystem. It serves as a utility and governance token for the Kava blockchain. Kava’s governance functionality for validation processes during decision-making in the community. Each user with an amount of KAVA token can vote to determine network-related activities like network upgrades. The token symbolizes community power and enables each member to vote on different aspects of the system, such as the debt system, collateralization ratios, etc.
Security
The KAVA token uses an Ignite-based Proof-of-Stake (PoS) consensus mechanism to validate transactions on the blockchain to prevent security attacks on the network. The process involves users staking Kava, after which the protocol’s algorithm determines the highest 100 nodes on the platform. The users who rank among the highest nodes receive some cryptocurrencies as rewards depending on their staked amount.
Staking Asset
Users can earn rewards on Kava by staking tokens for some time. Users get commissions based on the staking ratio, the commission rate, and the total trading volume. The network’s validators decide the staking ratio, and the trading volume indicates higher trading activity which determines staking rewards. Hence, the bigger the transaction volume, the higher the commissions given to individuals that staked their crypto.
Last Resort Lender
The reserve pool for Kava.io is the blockchain’s native currency, KAVA. The protocol mints new tokens to make more USDX available to maintain the value of its stable coins. Nevertheless, users receive the corresponding amount of their staked assets in USDX. And in case the total amount staked by users is low, the Annual Percentage Rate (APR) for validating the coins rises to a max of 20%. But if there are robust tokens staked, the APR will reduce to a minimum of 3%.
USDX-Kava.io
Kava.io has a stable coin called USDX, the currency given as loans to borrowers. USDX works faster due to its enhanced features making it standard for payment purposes. Users can lock different types of cryptocurrencies, but their loans are in the form of USDX tokens.
Margin Trading/ Leverage
Kava protocol provides a platform for margin trading where users can trade USDX/KAVA to buy other crypto assets. The opportunity for margin trading allows users to leverage their assets for other earning options.
Hedging with Interest
USDX can also be used as a digital asset that serves to hedge against market volatility. Holding USDX for a sustained period yields accumulated interest for the investor.
Team Behind Kava.io
Kava labs began full-scale operation in 2018, and the protocol’s team includes:
Scott Stuart, the Co-Founder, and Chief Executive Officer
Kevin Davis, the Co-founder, and Chief Technology Officer
Ruaridh O’Donnell, Co-Founder & Layer-1 Protocol Engineer
Terry Chen, the Chief Operating Officer & Advisor
Tammy Carandini, the Senior Vice President of Finance
Aaron Choi, the Vice President of Global Business Development
The founders launched in 2017 and have since added innovative features to the protocol. For example, the team released the lending arm of kava.io in June 2020, which contributed significantly to the use case of the protocol.
Why Does Kava.io Have Value?
The value of coins in the crypto space depends on the principle of supply and demand. The less the supply of KAVA, the more the coin’s value. Kava created a maximum supply of 100 million KAVA, which implies a limit to the volume of KAVA that can be in circulation.
Validators in the KAVA network also use KAVA as the governing token and allow users to vote on policies and rules that apply to the blockchain. The protocol also releases the coin as a reward for minting USDX.
What Makes Kava.io Unique?
Unlike other Defi services that provide a lending platform, Kava.io allows users to interact with cross-chain assets such as Ethereum (ETH), Ripple( XRP), and BNB. The protocol that enables this interoperability is based on the Cosmos blockchain.
Kava users can earn profits from staking directly on the platform or minting USDX tokens. However, only the first 100 validators are rewarded with minted cryptocurrencies. The protocol preserved the value of its stable coins using a mechanism to burn the tokens to decrease their circulating supply.
Why Use Kava.io?
Kava.io is a blockchain protocol that provides Defi services such as decentralized lending. Kava.io uses a unique mechanism to ensure that users remain the sole owners of their digital assets. Kava’s lending protocol operates by buying users’ digital assets and releasing another asset that users can use for other transactions. Investors that prefer financial services which exclude intermediaries as seen in conventional financial systems may find Kava an appealing cryptocurrency to invest in.
Modules Used In Kava.io Ecosystem
Kava.io utilizes four major modules to improve the effectiveness of its network. These modules provide special financial tools, and they include the following:
Price-feed Module
The price-feed module is the first module in the four modules used on Kava.io. It operates as an aggregator of price oracles that generates the real-time price of various coins. The tool calculates the median value of the provided prices and displays the result as the cryptocurrency’s price. In summary, the price-feed module is responsible for providing updated prices of various cryptocurrencies.
Auction Module
The auction module contains two protocols; the forward and reverse auction. The forward auction is a mechanism that converts excesses to stable coins. In this conventional auction approach, the buyer requests to raise a bid for a crypto asset.
The reverse auction system is the opposite of the regular auction system. There is a single buyer while different prospective sellers bid for the amount they’re willing to get paid. This system is used to sell governance tokens for new stable coins and make up for variations that occur with failed collateral.
Collateralized Debt Position(CDP) Module
The CDP module allows network users to open and close collateralized positions. It also contains the coding used to create the collateralized-debt-position system.
Liquidator Module
The liquidator module works closely with token information from the price-feed module. Commonly referred to as the reporter, this module responds to seize collaterals from positions with a collateralization ratio beneath the threshold value.
Kava.io Review Conclusion
Kava.io is a double-chain-based protocol built using the Ethereum Virtual Machine and Comos blockchain. It provides defi services ranging from borrowing, lending, and staking to margin & leverage trading. It operates using four different modules and differs from other layer-1 blockchains offering similar services in that it allows users to interact with diverse tokens and facilitates operation across different blockchains.
Buy Kava (KAVA)
The best way to buy KAVA at the best rate is from a decentralized aggregator like Swapzone. On Swapzone, different crypto exchanges display the price of KAVA, and the aggregator selects the one with the best rate and lowest transaction fees. Choose the coin you wish to swap with KAVA, and different exchange offers will pop up.
After picking the best offer, proceed to add your wallet and complete the exchange. The network will complete your transaction and release your KAVA tokens to your wallet.
