Kava (KAVA)

Kava.io (KAVA) is a decentralized lending platform that allows users to borrow and lend multiple cryptocurrencies without the need for financial institutions or intermediaries. It is built on the Cosmos blockchain, which offers customization and interoperability, allowing for more functionality than Ethereum, which can experience issues with scaling decentralized apps and hosted protocols during network congestion.

The platform uses a stablecoin known as USDX, which is pegged to the US dollar, and rewards users who deposit their cryptocurrency as collateral with KAVA crypto. Kava also integrates with other platforms and protocols through “zones” on the Cosmos blockchain, allowing for a wide variety of tokens to be used on the platform.

Understanding How Kava Works

Kava.io operates using a peer-to-peer lending system facilitated by smart contracts. Users can deposit cryptocurrency into smart contracts, which results in the minting of new USDX stablecoins that can be taken as a loan based on collateral. The value of USDX is locked to match the value of the US dollar to neutralize volatility in the cryptocurrency market. This is called a collateralized debt position (CDP).

To create a CDP, users connect digital wallets to the system and deposit cryptocurrency into smart contracts. The system then mints new USDX stablecoins and locks the funds in a smart contract. To retrieve the collateralized cryptocurrency, users must cover their debt and pay a lending fee.

The initial collateral is then deposited back to the same wallet, and the Kava system burns the loaned USDX. The system also uses a collateralization ratio to protect against volatility and ensure that USDX is over-collateralized to guard against the devaluation of the collateral.

Who Started Kava.io?

Kava.io was founded in 2018 by Kava Labs, a for-profit foundation, and was co-created by Ruaridh O’Donnell, Brian Kerr, and Scott Stuart. The team organized a public token sale for 6.5% of the total supply of KAVA coins and raised around $3 million through the sale on Binance exchange.

In August 2020, Kava’s lending protocol went live on the Cosmos platform, allowing users to use BNB as collateral for loans in USDX. Since its launch, Kava has recorded over $8 million worth of loans in USDX and $24 million in BNB locked as collateral.