Kava is a decentralised finance (DeFi) platform that allows users to safely borrow, lend, and earn interest on their cryptocurrency holdings. Built on the Cosmos SDK, Kava leverages the interoperability and scalability of the Cosmos ecosystem to offer robust DeFi services like collateralized loans, token swaps, and earnings on deposits.
Since its launch in 2019, Kava has grown to become one of the top 20 DeFi platforms with over $1 billion locked in value. Its key features include cross-chain support, CDP loans, and staking rewards, providing an easy onramp for crypto holders to access DeFi without having to sell their assets.
In this beginner’s guide, we will explore exactly how Kava works, its key features and services, the KAVA token utility, and how to use Kava for lending, borrowing, and earning yields.
What is Kava?
Kava is a decentralized finance platform that allows users to use their cryptocurrency holdings as collateral to borrow assets or take out loans. Much like MakerDAO and Compound, users can lock up crypto assets like BTC, BNB, or XRP in collateralized debt positions (CDPs) to mint stablecoin loans.
The Kava platform is built natively on the Cosmos SDK blockchain framework. This gives it the ability to connect with other blockchains and digital assets to provide cross-chain financial services. For example, Kava users can deposit BTC on the platform while borrowing against that BTC collateral in the form of a USDX stablecoin loan.
The native token of the platform is KAVA, which is used to pay transaction fees, secure the network via staking, and govern the platform via voting rights. KAVA holders can stake their tokens in validation nodes to earn staking rewards from transaction fees.
Key Features of Kava
Here are some of the key features that set Kava apart in the DeFi space:
Cross-Chain Functionality: One of Kava’s major advantages is that it works across multiple major crypto assets like BTC, XRP, Binance Coin, etc. This cross-chain functionality is possible thanks to the Cosmos IBC protocol.
CDPs: Like MakerDAO, Kava uses collateralized debt positions to facilitate loans. Users can lock up crypto as collateral to borrow against it. This provides access to stablecoin loans while avoiding the need to sell assets.
Lending and Borrowing: The Kava platform enables both lending and borrowing of supported crypto assets. Lenders can earn interest on supplied digital assets, while borrowers can access loans by staking collateral.
High Security: Kava employs institutional-grade security safeguards including regular audits and formal verification. This helps protect user funds from technical risks or exploits.
Interoperability: Being built on Cosmos SDK means seamless interoperability with other ecosystem partners and DeFi applications.
Benefits of Using Kava
There are several advantages to utilizing Kava’s DeFi services:
- Earn passive income on crypto holdings via staking KAVA tokens or supplying assets to lending pools.
- Access loans and stablecoins without needing to sell collateral and create tax events.
- Low liquidation risk compared to other DeFi lending platforms.
- Participate in governance votes to steer the direction of the platform.
- Potential for significant growth as the DeFi and Cosmos ecosystem expands.
KAVA Token Explained
The KAVA token plays some key roles in the functioning of the Kava DeFi platform:
- Used as a staking and governance token – KAVA holders can stake tokens to run validation nodes and vote on governance proposals.
- Payment of fees – Transaction fees on the platform are paid in KAVA. Higher demand for the platform drives more fees and token burn.
- Incentive alignment – The Kava team holds a significant portion of KAVA tokens, aligning their incentives with platform growth.
KAVA currently has a circulating supply of 84 million out of a maximum supply of 300 million. It is inflationary, with an annual inflation rate of 3.9% that rewards stakers and validators. The tokenomics are designed to incentivize participation in the DeFi ecosystem.
Using Kava DeFi Services
Here is a simple step-by-step guide to start using Kava’s lending and borrowing services:
- Download a compatible wallet like Cosmostation or Keplr browser extension.
- Purchase KAVA tokens on a spot exchange if you want to stake and earn rewards.
- Transfer crypto assets you want to use as collateral to your wallet.
- Connect your wallet to the Kava platform.
- On the dashboard, select “Borrow” and choose your desired collateral asset and loan asset.
- Input your desired loan amount and collateral ratio then click “Borrow”.
- Stablecoin loans get deposited into your wallet. You can now use them or earn interest on Aave.
- When ready to close the loan, repay your borrowed amount plus interest fees. You collateral gets released.
- Users can also supply assets to earn interest on Kava via the lending pools.
The Future of Kava
As a leading DeFi platform on the Cosmos network, Kava has strong potential for continued adoption and growth. Here are some of the developments to look forward to:
- Integrations with major DeFi ecosystems like Terra to improve cross-chain interoperability.
- Launch of derivatives like options and futures to expand platform capabilities.
- Expanding lending pools across a wider range of digital assets.
- Partnerships with CeFi companies and institutions to bridge the gap between DeFi and traditional finance.
- Enabling collateralization of real-world assets like invoices, real estate, etc. on the platform.
- Implementing optimizations like ParaSwap integration to improve rates and capital efficiency.
Kava provides a robust array of DeFi services in a secure, user-friendly package. Leveraging the interoperability of the Cosmos network, Kava solves some of DeFi’s biggest challenges like high gas fees and fragmented liquidity. With staking incentives and strong technical foundations, Kava is positioned to continue capturing market share in the DeFi space.
By leveraging crypto collateral to borrow stable coins or earn yields, Kava users can unlock the full potential of their assets. For both DeFi beginners and experienced users, Kava offers an accessible onramp and attractive yields. As the platform expands via integrations, derivatives, and institutional adoption, KAVA also provides upside potential as a governance and reward token.
- Helen is a passionate and knowledgeable writer with a keen interest in all things crypto. With a background in finance and technology, she delves into the world of cryptocurrencies, blockchain, and decentralized finance, translating complex concepts into accessible and engaging content. Helen's writing not only informs but also empowers readers to navigate the rapidly evolving landscape of digital assets. Through her work, she seeks to promote financial literacy and foster a deeper understanding of the transformative potential of blockchain technology.
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