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- 1 Kava is a software protocol and an emerging DeFi project that runs on Tendermint Core.
- 2 It allows its users to borrow and lend assets without the need for intermediaries.
- 3 KAVA is the native governance and utility token of the Kava Network Protocol.
Kava is a DeFi platform for crypto assets with a Layer 1 blockchain that aims to combine the speed and interoperability of Cosmos with the developer power of Ethereum.
It is a software protocol that uses multiple cryptocurrencies to facilitate the borrowing and lending of assets to its users without the need for a traditional financial intermediary.
It was designed from the basics to optimize its resources for protocol growth, leveraging its Cosmos EVM technology to enable maximum scalability, speed, security, and developer support. It is built on Tendermint Core, a design decision its team argues adds additional functionality.
Multiple independent international foundations support Kava’s ecosystem, which provides protocol-level resources to participants to maintain the health and continued development of decentralized networks and systems.
100 application protocol teams and many more have collectively developed the Kava blockchain ecosystem.
Brian Kerr, Runaridh O’Donnell, and Scott Stuart founded Kava in 2018. They established Kava Labs, a for-profit company with the goal to develop and drive the creation of the Kava platform.
Its decentralized lending platform went live in June 2020.
Kava users lock cryptocurrencies into smart contracts on Kava so that they can borrow loans denominated in USDX, one of the native tokens of the Kava lending platform.
Working Mechanism of Kava
Kava enables users to lock assets in special smart contracts and borrow USDX.
On the back end, it creates a collateralized debt position (CDP), a contract designed to ensure the value of USDX remains pegged to the U.S. dollar.
Steps to set up a CDP
Users deposit crypto: Users can connect their wallets to deposit cryptocurrencies.
Users create a collateralized debt position: Kava locks the deposited currencies in a smart contract.
Create USDX: Users are issued USDX loans based on the value of their collateralized debt position.
Close a CDP: Users repay the debt and a fee to unlock their collateralized cryptocurrencies.
Withdraw crypto: Once the crypto is returned to the user, Kava burns the USDX.
Collateralization Ratio
The collateralization ratio can be thought of as the mechanism that helps protect the protocol from volatility that would reduce the value of the collateral.
On the Kava platform, USDX is over-collateralized, which means that borrowers must deposit an amount that is higher than the value of USDX minted in the protocol. The ratio of debt-to-collateral is then used to calculate the liquidation price.
Kava operates on a Tendermint-based proof-of-stake (PoS) consensus mechanism that uses a network of validator nodes to confirm transactions. These validator nodes provide collateral to validate transactions. If it fails to meet minimum requirements or if it behaves dishonestly, participants’ stake will be penalized. It also incentivizes users to remain honest and efficient.
Kava holders can also run a staking node to receive KAVA rewards directly from the protocol. However, only the top 100 Kava nodes, also known as validators, are eligible to receive these rewards.
Multiple independent blockchain audits of Kava’s smart contracts and crypto security firms ensured the integrity of the network.
Uses of Kava
The unique structure enables seamless interoperability between Cosmos and the
Ethereum Virtual Machine (EVM). It allows developers to build in any environment they prefer without sacrificing access to users and assets.
Kava Rise, an on-chain incentive program, aims to ensure that the builders in the Ethereum and Cosmos ecosystems are properly rewarded for facilitating growth on Kava.
Its architecture also enables the flow of users, assets, and projects between Kava and other industry ecosystems at scale, all powered through the Tendermint Core Consensus engine.
Kavya’s unique co-chain architecture supports seamless asset transfers and connections between the Ethereum and Cosmos ecosystems, unlocking new opportunities and broadening access for developers and users alike.
Kava Protocol
Kava Labs is responsible for developing and maintaining Kava Mint, Kava Lend, Kava Swap, and Kava Earn.
Kava Mint
It is a CDP protocol that allows users to deposit their tokens as collateral and receive Kava’s native decentralized stablecoin.
Kava Lend
It is a borrowing and lending market protocol that enables users to supply or borrow any token accepted in the protocol.
Kava Swap
It is a decentralized exchange protocol that allows users to swap any token accepted in the protocol. Providing liquidity through the Pools product of Kava Swap allows users to earn pool APY and reward APY.
Kava Earn
It is a native protocol that aims to simplify complex DeFi strategies. It allows users a straightforward supply-and-withdraw user experience. The only assets that Kava Earn accepts are KAVA, bKAVA, BUSD, and USDC. It provides an APY incentive for bKAVA token holders to lock their bKAVA.
The Kava Token
KAVA is the native token of Kava. It was first launched in 2019 at an educational event. All vesting in KAVA has been unlocked, and Kava’s PoS consensus mechanism emits tokens to incentivize validators to increase the security of the network.
A portion of the emitted tokens are utilized in initiatives like Kava Rise to improve the decentralization, security, and stability of the Kava ecosystem. The priority of Kava is security and decentralization.
Conclusion: Kava Foundation and Governance
The Kava Foundation is responsible for the security and growth of the network. It aids in deploying $200 million in assets from the Kava community pool. Kava DAO governs the pool and aims to safeguard the growth of the following layers proof-of-stake security, infrastructure security, and financial reserve security.
The source of capital for the Kava Rise program is the Financial Reserve security layer.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
