Getting a loan from traditional banks and financial institutions is quite a hectic task. The customers need to complete detailed paperwork to get a loan from the bank. They need to maintain a stable credit rating to qualify for a loan. Similarly, they need to give something as collateral when they’re applying for the loan.
If the bank loan gets rejected, they look for other financial institutions to get the loan. These financial institutes charge a very high-interest rate. Moreover, their terms are stricter than the banks. Crypto lending platforms like Kava can be a useful alternative for users who want to get a loan without dealing with an intermediary.
What is Kava?
Kava is a blockchain-based solution that offers permissionless lending and borrowing with seamless interoperability. Unlike traditional banks, Kava provides attractive earning opportunities for users who provide liquidity for the platform. The unique thing about this project is that it’s built on the Cosmos SDK.
Thus, it provides fast transaction speed and seamless interoperability while delivering the power of Ethereum Co-Chain.
Key Features of Kava
Ethereum Co Chain
Ethereum Co Chain is designed to fix the scalability issue that users usually experience on the EVM-Compatible decentralized applications. This protocol enables developers to write the code for smart contracts with Solidity, Ethereum’s programming language. Thus, these codes can be run on both platforms.
Cosmos Co Chain
Unlike most Defi protocols, Kava is built using Cosmos SDK, a blockchain development framework. Kava network is connected to the Cosmos ecosystem with Cosmos Co-chain. Thus, it can interact with other blockchains connected to the Cosmos ecosystem.
Kava DAO is a team of network validators and other users who stake their KAVA tokens within the platform. This team is responsible for monitoring the robust co-chain architecture of Kava. This decentralized autonomous organization smoothly runs different options of the Kava network.
Kava Brief History
Kava was co-founded by Ruaridh O’Donnell, Brian Kerr, and Scott Stuart in 2018. The team raised around $3 million through a public sale on Binance in 2019. The team sold around 6.5% of the total supply during this sale.
The team also established a for-profit organization, Kava Labs, that will be responsible for the development of the platform. The lending platform was officially launched in June 2020. The users could borrow USDX from the platform by locking BNB tokens.
As of August 2020, the users had borrowed 8 million USDX by locking while $24 million worth of BNB tokens were locked in the smart contracts.
How Does KAVA Work?
Kava enables users to borrow USDX, a stablecoin pegged to U.S Dollar, by locking their crypto assets in specific smart contracts. The collateral amount helps with maintaining USDX’s value over time.
The users are required to connect their crypto wallet to Kava to deposit cryptocurrencies. The network issues USDX tokens by locking the deposited cryptocurrencies. The locked tokens are released once the user has repaid the debt. And the USDX tokens are burnt to reduce the supply.
Kava consists of three important products.
The users can mint USDX tokens by locking their crypto tokens as collateral in Kava Mint. They need to pay the interest that is distributed among USDX holders who help with keeping the coin’s price stable. The users can get 67% of the collateral value as a loan. The network automatically liquidates the collateral if its value goes below the minimum borrow ratio.
The network then auctions the liquidated amount to recover the loan.
Collateral Auction – USDX holders can participate in the bidding process. The winning bidder’s tokens are used to pay off the debt.
Surplus Auction – A small portion of the interest amount is dedicated to the Kava protocol. The network auctions this amount for KAVA tokens. The network then burns the KAVA tokens to maintain a balance between supply and demand.
Debt Auction – The bidder can earn Kava tokens by paying the debt in the form of USDX tokens.
Kava Lend, formerly known as Hard Protocol, is used to borrow popular crypto tokens including BTC, XRP, BUSD, and BNB. This protocol uses Interledger technology to send payments across different networks.
Thus, it manages to offer fast transaction speed with lower fees. The HARD token is the governance token of the Kava Lend protocol.
Kava Swap has its own governance token called SWP. It inherits liquidity from Kava Mint and Kava Lend. This automated market maker protocol enables traders to swap different crypto tokens for a reasonable fee.
Kava team is working on connecting Ethereum to Binance Smart Chain. Thus, it will be able to provide cross-chain trading opportunities for traders.
Kava Network consists of four native tokens called KAVA, USDX, HARD, and SWP.
KAVA token holders can vote on governmental decisions within the platform. They’re also responsible for securing the network by participating in the transaction validation process. Furthermore, these token holders also vote for the development of Kava Mint because Kava Mint is also governed by KAVA.
USDX is a stablecoin that is pegged to the US Dollar. The users can mint this token by locking their crypto assets into specific smart contracts.
The HARD token is rewarded to the lenders and borrowers for their participation in the Kava Lend protocol. Hard token holders can vote for certain decisions of the Kava Lend protocol.
SWP token is rewarded to the users who provided liquidity within Kava Swap.
Kava is a decentralized lending platform that provides a considerable amount of loans in exchange for cryptocurrencies. The users can lock their crypto tokens in the smart contracts to mint USDX. The network offers a set of features for users who want to earn passive income from their crypto holdings.
Feel free to get in touch with us if you need more information about how Kava works.