Kava is a cross-chain decentralized finance (DeFi) lending platform which enables users to take out loans by locking-in collateral in exchange for USDX, a stablecoin soft-pegged to the U.S. dollar. Built on Cosmos, the protocol utilizes the ecosystem’s zones feature to provide interoperability and support for cryptocurrencies that reside on disparate blockchains, such as Bitcoin and XRP.
Kava seeks to become the de facto DeFi lending protocol through its decentralized lending capabilities and USDX stablecoin, facilitating access for a greater variety of crypto assets for its users.
The Kava token (KAVA) is the native governance token and staking asset for the Kava protocol. Holders of the token are responsible for governing the protocol, voting on smart contract and operational parameter proposals, securing the network, and acting as the lender of last resort.
What can the Kava token (KAVA) do?
The Kava token serves three main functions:
Governance
Security
Recapitalization
For governance, KAVA holders can participate, vote, and propose changes to the Kava protocol. These changes can take the form of smart contract modifications, adjustments to the global debt limit, or the addition or removal of collateral assets, among other considerations. Voting can be conducted either directly or delegated to validators. The numerous implemented and proposed changes can be viewed freely on Kava’s governance page.
In terms of security, KAVA is used to validate transactions on the network. The protocol’s Proof of Stake (PoS) consensus mechanism enables KAVA token holders to stake their tokens and validate transactions. The top 100 stakers, determined by their proportion of staked KAVA, are designated as validators. Rewards are paid to these validators in KAVA derived from transaction fees and block rewards to incentivize proper validation of the system. Non-performance or improper validation results in the reduction of these rewards.
Finally, there is KAVA’s role as a reserve currency for recapitalization. In the event that the Kava protocol becomes undercollateralized, additional KAVA tokens are minted by the protocol and sold for USDX through auctions. This occurs until the system returns USDX to its target peg of 1 U.S. dollar.
Similarly, if the Kava protocol is sufficiently collateralized, the stability fees (paid in KAVA) from loans/collateralized debt positions (CDP) are burned. This reduces the token’s supply and increases its scarcity and value. In this way, proper governance results in KAVA’s appreciation and vice versa.
Where and how do I obtain KAVA?
There are three main methods to obtain KAVA tokens:
Purchasing them from an exchange
Locking-in collateral to mint USDX
Participating in collateral auctions.
For the first method, KAVA tokens can be bought from cryptocurrency exchanges such as Binance or Huobi.
For the second method, users can lock-in any of Kava’s supported collateral assets to enjoy USDX minting rewards. Currently, 3.848 million KAVA tokens have been allocated for the rewards program, with KAVA being distributed weekly in proportion to the amount of USDX minted. More details on the rewards program can be found on Kava’s Medium page.
Lastly, KAVA can be acquired by participating in the protocol’s collateral auctions. Kava’s documentation page provides a guide on how to set up an auction bot, as well a summary on how the software works.
How does Kava work?
At its core, the Kava protocol functions similarly to a bank. It enables users to deposit their assets and obtain loans, and charges interest on USDX borrowings and savings.
Traditional financial institutions only ever provide these services after tedious registration processes, rigorous credit score checks, and compliance with know-your-customer (KYC) and anti-money laundering (AML) regulations. However, because of Kava’s decentralized nature, users need only supply their wallet address and any supported cryptocurrency to enjoy similar services.
To obtain a USDX loan, users should head over to Kava.io and supply a supported crypto collateral to lock into the Kava smart contract. Presently, Kava supports BNB, BTC, BUSD, XRP, KAVA and HARD as collateral. The generated USDX loan amount will depend on two factors: i) the quantity of collateral locked-in and ii) the chosen collateral’s collateralization ratio.
