Kava wants to challenge MakerDAO, but will it work?
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Blue Fox Notes (ID: lanhubiji)
Summary
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
Preface: Kava is similar to Maker, and can also generate stable coins, but it is a lending protocol based on Cosmos. It hopes to introduce the concept of cross-chain DeFi. Is this feasible? What do you think of the concept of cross-chain DeFi? The author of this article is Ashwath Balakrishnan, translated by "SOY" of the Blue Fox Notes community.
Summary
Framework Ventures proposes a plan with diminishing rewards for inflation.
As Maker experiences extreme liquidation as ETH price plummets, will this be Kava's shining moment?
Kava is an aspiring lending protocol that is trying to compete with Maker Protocol, and its collateralized debt warehouse can accept a variety of assets. In order to bring liquidity to USDX, the Kava protocol’s native stablecoin, Framework Ventures proposed incentives to attract more users. (Blue Fox Notes: The Kava and Maker mechanisms are generally similar, the main difference lies in the different mortgage assets, the PoS mechanism of the native token pledge verification transaction, and the difference in the token capture value mechanism)
But is this enough to shake up DeFi "giant" MakerDAO?
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Enhances Kava's Natural Flow
Kava functions like a mix of Maker and part of ETH2.0. KAVA, the native token of the Kava protocol, is used by verifiers of the Kava network for mortgage verification transactions. These verifiers earn 3-20% annualized income by staking to verify transactions. (Blue Fox Notes: Maker does not have a mechanism for mortgage tokens to verify transactions. Maker is based on the protocol on the Ethereum blockchain, and MKR is mainly used for governance)
On Kava, assets like BTC, BNB, XRP, and ATOM can be used as collateral to generate USDX stablecoins, similar to how Maker uses ETH and ERC-20 assets as collateral. Borrowers pay a stability fee when they close their loan (Closing a CDP).
By accepting multiple different collaterals, and leveraging Cosmos’ interoperability features, Kava hopes to expand DeFi beyond Ethereum.
However, Kava faces significant challenges.
Framework Ventures, a DeFi-friendly venture capital firm, recently proposed a new incentive for borrowers to help Kava with its liquidity woes. The proposal proposes an inflationary diminishing rewards scheme for staking validators.
It needs to be clear that the validators of stake pledge are not the same as the users who use CDP. The new inflation proposal will incentivize more borrowers to open CDPs to create a liquid and robust USDX market. Framework's proposals also include mechanisms to curb exploitation.
Whales can buy KAVA tokens, generate USDX, claim their KAVA rewards, then burn USDX (debt), and sell their initial KAVA and their minting rewards. This does nothing to create liquidity; USDX is burned, and increased rewards enter the market supply, putting downward pressure on prices.
In order to curb this situation, Framework proposes a 52-week lock-up plan for earning KAVA tokens, so that minters have a reason to insist and continue to provide liquidity. Also, minters cannot immediately sell their rewarded tokens.
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Opportunity: Cross-chain DeFi
Ethereum’s DeFi stack had more than $1.3 billion worth of tokens locked in February 2020. This is the most liquid and comprehensive iteration of DeFi to date. (Blue Fox Notes: After the 3.12 sharp drop, it is now only $596 million)
But the lack of interoperability between ethereum and other blockchains has proven dangerous during the recent market downturn. Brian Kerr, CEO of Kava Labs, said:
