Introducing KAVA cryptocurrency
What is KAVA?
Introducing KAVA cryptocurrency: It’s no secret DeFi is smoking hot right now.
That sentiment is hard to quibble with seeing that the entire DeFi ecosystem has over 3.5 billion dollars in value locked up in it.
However, the biggest DeFi projects like maker compound synthetics and AVE all have one thing in common.
They all operate on the Ethereum blockchain.
Now wouldn’t it be great if there was a project that could bring all that DeFi goodness to assets outside of the Ethereum ecosystem.
Well there is a project that does exactly that and its name is KAVA.
KAVA’s vision is to become a cross-chain DeFi platform which offers stable coins and lending services to the holders of major cryptocurrencies.
Basically KAVA is all about opening up access to liquidity for different crypto assets to people like you and me and,
doing that in a decentralized way.
That’s all done by providing open access to loans in the form of a stablecoin USDX which is soft pegged to the US dollar.
In short KAVA aims to extend a lot of DeFi’s current capabilities that Ethereum currently enjoys and bring that over to other blockchains.
Read about other cryptocyrrency:
How do you access that liquidity?
Well you can send your crypto collateral over to KAVA’s platform and the asset is then escrowed,
in the smart contract run on KAVA.
Then a us dollar price for the asset is determined by the oracle system which is essentially a collection of price feeds.
Whatever the median price of the asset is across the different price feeds that’s the price used by KAVA,
to determine the USD value of the collateral.
The awesome thing with KAVA is that you can customize the collateralization ratio.
So you can open a collateralized debt position CDP with a hundred dollars in BNB collateral and twenty dollars in USDX can be minted if you wanted to get a loan for the minimum amount.
This would give you a collateralization ratio of five.
The important thing to know is that a CDP must maintain a collateralization ratio of above 1.5 or it will be liquidated.
So in this example if the value of my BNB tokens hit 30 then I would have my BNB liquidated.
To get your crypto collateral back all you need do is repay the loan plus the stability fee,
to unlock your collateral at any time.
Yes, stability fee is a fancy term but all it refers to is a variable fee based on market dynamics.
The primary factor for determining the fee level is the volatility risk of the asset hence the name stability fee.
The more volatile the asset the higher this fee will be.
So to get your collateral back you’ll need to settle that stability fee in KAVA tokens.
What is this fee?
Well for Binance coin you’ll be paying five percent to unlock that BNB collateral.
So I know what you’re thinking, what blockchains and assets does KAVA currently support?
Well the platform was launched very recently and only supports BNB coin right now.
However, Bitcoin and XRP are coming soon and it’s theoretically possible to support all major crypto assets.
Basically if you mint USDX using BNB collateral then you’ll get a share of 74 000 KAVA tokens a week.
How are those minting rewards distributed?
In our example let’s say that there is a total of 1 million USDX globally and I minted 100 000 USDX.
That would mean that I’d get 7400 KAVA tokens or a tenth of the weekly KAVA rewards.
Here’s the thing though to be eligible for your share of those rewards you will not only have to mint USDX,
but you need to keep your BNB staked during the week too.
Now while these rewards seem pretty neat it does make me wonder whether KAVA loans,
could be applicable to your average person.
After all, at face value it looks kind of crazy to entertain the idea of putting up 200 in crypto collateral and only getting issued with a 100 stablecoin loan.
So let’s take a closer look at that.
Here’s the deal if you take out one of these over collateralized loans you effectively get that amount of margin to use to buy more crypto then you can put that loan back into another loan and further leverage your exposure to the asset this way.
The reason why many people find over collateralized loans confusing is that most traditional loans don’t require you to put up collateral at all.
Instead you’re borrowing against your future cash flows.
The downside of that system is that you need to hand over a ton of identity documents to a third party have a reasonable credit score and find someone who’s willing to give you the credit in the first place.
That’s all well and good if you want to borrow a few thousand dollars.
However, I can nearly guarantee that if you ask your bank to lend you a pretty hefty amount say half a million dollars then, most people will have to put up their house in a reverse mortgage as collateral.
But here’s the thing the house is always worth more than the loan they give out.
If that weren’t the case, then the chances are the lender could not be in business for very long.
Over collaterized loans in crypto work in a similar way and the same is true at KAVA.
Your crypto is always going to be worth more than the loan you get.
What’s neat about offering over collateralization is that it allows KAVA to offer these loans algorithmically?
What makes KAVA algorithmically stable
and speaking of algorithms I’d love to spend a few moments to tell you about KAVA’s tech.
KAVA is built using the cosmos SDK which is an open source framework for building public proof of stake blockchains.
This means that KAVA uses the Tendermint core consensus engine this is a byzantine fault tolerant engine,
that’s designed to support proof-of-stake systems.
Another thing that this SDK brings to the party is interoperability.
That means that KAVA can bring all its utility functions to other blockchains.
That interoperability is a huge deal in my book.
Think about maker and how it can only accept eth or erc20 tokens for example.
That is quite limiting and ties the future of the project to the growth of the Ethereum ecosystem.
With KAVA on the other hand you don’t have to rely on one ecosystem.
Another neat thing about using the cosmos SDK is that KAVA can leverages cosmos’s modularity.
What that means is that as new open source modules are developed by the cosmos ecosystem then,
KAVA can choose to implement useful modules easily.
Now if it sounds like KAVA have just used off-the-shelf solutions then you would be dead wrong.
KAVA’s core architecture modules
Basically there are four key modules that make up KAVA’s core architecture the auction module implements,
three auction types that control the supply of bad debt and any surplus in KAVA’s CDP system.
The first is a forward auction which acts the same way as you would bid for an item on eBay.
The second is reverse auctions and finally there is something known as a forward reverse auction.
A price feed module has been developed to post accurate prices on the KAVA platform.
Another awesome feature is that the addition and removal of assets and oracles are controlled by community governance proposals.
The CDP module basically allows kava users to create modify and close CDP’s for any collateral type within,
the price feed module.
And finally you have something called the liquidator module which tracks the status of CDPs based on prices in the price feed module.
This makes sure that collateral is seized from CDPs whose collateralization ratio is below the threshold set for that asset.
The collateral seized is then sent to the auction module that i mentioned earlier which then sells off the collateral for stablecoins.
What happens if the auction module cannot sell off enough collateral to cover the loan?
Well if this happens KAVA tokens will then be auctioned off by the auction module for stable coins using the reverse auction system.
This will be done until the collateral ratio is eventually reached.
What this means is that in the event of under collateralization the KAVA token is the backup plan for the platform.
And that is now a perfect segue for us to talk about KAVA’s token or should I say tokens.
The first token is KAVA with ticker K-A-V-A.
This is the staking and government’s token on the platform.
On the government side of things, the token works in a similar way to maker, in the make a DAO ecosystem.
KAVA holders can vote on proposals to make changes to the blockchain or set system parameters.
This includes things like supported collateral types collateral debt ratios etc.
Now while voting is a great way to take part in the ecosystem you’re not obligated to do it yourself.
Kava holders can delegate their voting rights to validators who also secure the network.
If you want to see who the top KAVA validators are and what sort of commission they take, then you definitely want to check out mintscan.io .
When it comes to staking rewards KAVA is currently earning holders around 5.5 per year yes that’s not the highest staking reward out there but it’s not too shabby either.
Of course this staking reward is variable.
Like other staking coins the more funds that are staked the lower the returns and vice versa.
So if not a lot of people are staking then the maximum reward will be twenty percent and if a ton of tokens,
are staked then the reward will fall to a minimum of three percent.