In your search for one of the best lending wallets available, you must have come across Kava’s CEO, Brian Kerr. In a recent interview, he has disclosed that the decentralized finance (DeFi) sector could become less dependent on Ethereum. He noted the shift in the mentality of market players to invest in more stablecoins instead of the more popular Bitcoin and Ethereum.
According to Kerr, this has played a role in how DeFi leading protocols have more new investments. Either way, you’re coming across this info now if you have not, and I’ll have you know that Kava is one of the best, probably the best around the world.
This beginner’s guide will take you through the intricacies of what you need to know about the Kava wallet before selecting it.
What is Kava Wallet?
Kava network wallet is a free software protocol that allows users to loan assets using multiple cryptocurrencies, cutting off traditional financial institutions and other intermediaries. The above makes it a next-gen decentralized lending platform that aims to bring flexibility to the market. Kava is one of the most popular projects in the DeFi sector.
However, it should be noted that while most decentralized finance (DeFi) projects run on Ethereum, Kava wallet runs on Cosmos. Cosmos bolsters the lending protocol and entirely depends on customization and interoperability, adding more functionality to the protocol. Ethereum, on the other hand, has issues with scaling decentralized apps and protocols that are hosted when the network is crowded.
The exchange lending mechanism allows Cosmos to produce USDX (a stable coin equivalent to the value of the U.S. dollar). When supported crypto is deposited as collateral by a user, USDX is created. Other users can take loans in the form of USDX. Users that deposit funds to support the lending system are recompensed with KAVA crypto every week.
Kava also merges with other platforms and protocols using zones. Zones are app-specified blockchains hosted on Cosmos. Zones are also the means through which users add different tokens to the system for lending and borrowing.
Who are the founders of Kava Network?
Kava was initiated in 2018 by Brian Kerr, Ruaridh O’Donnell, and Scott Stuart. It first started as Kava Labs and was later created as a for-profit company. They had a goal to develop and drive the creation of the DeFi exchange platform. Then in 2019, the team held a token sale on Binance and raised about $3 million by selling about 6.5% of all KAVA tokens.
The decentralized lending platform then officially went online in August 2020. This allowed BNB to be used as collateral for crypto loans in USDX. Since then, over $8 million in loans in USDX and about $24 million BNB have been recorded and locked as collateral.
How does Kava work with Crypto assets?
The DeFi lending project relies on how smart contracts work. The DeFi lending protocol uses smart contracts to assist a peer-to-peer lending system. Users can lock their assets in special smart contracts so they can borrow USDX. Kava manages the crypto assets it accepts using zones. Zones allow the programs to run independently, which helps intended projects widen the number of crypto assets people are borrowing can use so that tokens like XRP, BNB, BTC, etc., can be included.
Locking assets with special smart contracts create a collateralized debt position (CDP) on the back-end; this ensures that the value of USDX remains equivalent to the value of the U.S. dollar.
To create a CDP, users need to do the following:
- Deposit crypto using digital Kava address that can be connected to the protocol.
- Create a CDP – this is done by locking the deposited crypto in a smart contract. It is an automatic process.
- Create USDX – minting new USDX is also an automatic process done after locking the funds in a smart contract. The minted USDX has an equivalent value to the U.S dollar so that that volatility can be neutralized.
- Close the CDP – by repaying your debt and paying a small token (lending fee), you unlock your collateralized crypto.
- Withdraw crypto – USDX is burned once crypto is withdrawn.
Kava Address Source: Medium
Now, let’s talk about the Collateralization ratio. The collateralization ratio is the system that helps to shield the protocol from volatility and make sure that USDX is over-collateralized. This is done so that the collateral will not be devalued. Usually, users need to deposit an amount more enormous than the worth of USDX specified by the protocol when borrowing, the term is over-collateralization. The liquidation price can then be calculated using the debt-to-collateral ratio.
It should be noted that if the value of the debt-to-collateral ratio goes below a clearly stated benchmark, the collateral held in smart contracts will be spontaneously closed down and burned.
What makes Kava Platform unique?
Source: Kava wallet
In this article, I probably have failed to mention that Kava is not the only available DeFi exchange platform; in fact, there are many. But Kava is unique because of the cross-chain operations and interoperability made easier with the network’s help. Zones allow users to deposit different non-native cryptocurrencies like Binance Coin (BNB), Bitcoin (BTC), Ethereum (ETH), and other crypto coins. There is a caveat, though, and the coins need to be wrapped as BEP-2 Binance Chain standard assets for the meantime; this aids collateralization.
Plans to give more collateralization chances to other cryptocurrencies will be done as the project develops.
Another unique feature is that users can make a percentage yield based on the new USDX mint mechanism. Users are allowed to have an APY earning while at the same time securing their deposited crypto coins, thereby contributing to the Kava market. The process is known as HARD Protocol.
What gives Kava value?
The strength and importance of its technology and technical ability are what are used to control the value. The innate value of Kava is dependent on its technology and utility. Its natural value does not often tally with the market value of KAVA tokens.
The volatile crypto market also affects its price, and this is why there can be sudden radical price changes. The development, upgrades, partnerships, additional features, etc., also control its value.
Brian Kerr predicted the DeFi industry would have grown enormously in the next decade. He envisions that most centralized platforms would begin to adopt more DeFi protocols, and in that development, the space would be more cross-chained.
Kava ensures that users can lend and borrow easily, mainly because the protocol supports many cryptocurrencies. As a user of the exchange platform, you can benefit from cross-chain lending and stake with a simple and user-friendly system.
Users can also make profits based on funds staked for loans. In a DeFi system that appreciates and gives opportunities for loan crypto, it is easy for users to get access to a multi-currency lending platform. The lending platform is a transactional platform where you can lend, borrow and store your tokens. Your funds are secure. Start your Kava journey today!