The big day for KAVA is finally here. Today marks the important milestone that was highly anticipated among KAVA enthusiasts. This article will discuss in detail what is KAVA DeFi (if you don’t know yet), and what performance enhancements are put on the table with version 5.1.
What is KAVA?
If you don’t know what KAVA is, here’s a quick refresher. Kava is a multi-asset DeFi platform that offers stablecoins, loans, and other financial services for users of major cryptocurrency assets including BTC, XRP, BNB and ATOM to name a few. The Kava platform has three types of tokens, the KAVA token, HARD token and the USDX stablecoin where the KAVA token is the native token of the Kava blockchain integral in the security, governance, and mechanical functions of the platform. Users can collateralize their crypto assets in exchange for Kava’s stablecoin, USDX. Kava’s stablecoin provides a high interest yield earning users more than they would with a traditional cash or savings account at a bank, but unlike traditional savings accounts.
Ever since the boom of cryptocurrencies, Bitcoin and other Altcoins have enabled users to take control of funds. They removed the need for banks and middlemen. Now users can custody their digital assets, store value, and make payments without the fees and regulators who censor financial freedom. Banks provide loans, money markets, savings rates and that’s the missing piece the crypto sector needs to go mainstream. This is where Kava comes in. It provides every financial service that a bank offers for multi-crypto assets. Kava is a native blockchain, that uses the Cosmos SDK framework. Kava is the DeFi infrastructure that financial institutions trust the most. In fact, the KAVA app is built on its own infrastructure, that enables multi-asset usage.
What is the HARD App?
Nested on KAVA’s infrastructure, Hard is an Application that enables that multi-asset usage. It is now a fully functional money market. Not all features were complete yet, but the project is following its promised timeline, unlike many other projects that disappear for ages without sticking to their rollout plans. Thanks to the HARD app upgrade, many changes come to the following users:
Now, Hodlers can greatly benefit from HARD money markets. Bitcoin lenders can lend their Bitcoin and earn Bitcoin while increasing their exposure to Bitcoin. Users can hold their Bitcoin in Hard V2 to earn interest on Bitcoin. To increase exposure in a decentralized way to Bitcoin, users can lend their BTC out. Forget about putting idle money in the bank, and getting a gist of what the banks are earning. Using HARD, you eliminate this third-party and get the full reward with higher interest rates.
For the first time ever now users can earn Bitcoin with their Bitcoin by borrowing and increasing decentralized exposure to Bitcoin by buying more through the borrowed dollars against the Bitcoin. Instead of trading out of your assets you can borrow and avoid paying capital gains. This is EXACTLY what happens when you trade CFD and use leverage, but this time, you can do it with minimal fees. Additionally, you can earn staking rewards in Bitcoin. You can put your Bitcoin in Hard protocol and earn Bitcoin from the borrower’s interest. You can also earn staking rewards as well as premium HARD tokens.
Users can go long, put BTC up, borrow dollars from it and then sell those dollars for Bitcoin to lever a position. Or a user can put dollars up, borrow Bitcoin and sell it because users think BTC will go down. For the bear use case, users can put dollars in the Hard money market, borrow XRP and sell XRP. This is interesting because currently there’s no way to short XRP.
How does KAVA compete with COMPOUND?
HARD money markets are fully competitive with Compound’s cross chain Gateway chain and are even ahead of the curve. Cross chain is the future, and will continue to grow to be an even larger trend in 2021.
KAVA was able to get the borrow product to market first and intends on continuing to beat Compound with a fast and focused engineering team. Hard already has the position of a cross chain money market whereas Compound, the Ethereum money market, will soon be branding itself as cross chain in the coming months. Hard beat them to the punch for multi-assets.
Compound’s putting significant effort into this cross-chain vision that Hard has completed already so users can earn Bitcoin on their Bitcoin. Kava’s community broke ground in Q3 of 2020 when they launched the Hard money market app built on Kava. Now one year later Compound plans to launch Gateway their cross-chain solution in Q3 of 2021. Kava is a year ahead and now in Q1 of 2021 Kava completed the application and made it cross-chain. Not to even mention that the first-mover advantage of KAVA is worth noting 😉
What are KAVA’s NEW Enhancements?
KAVA announced today that it enables institutions to earn +45% APR on Bitcoin holdings without counterparty risk. The Kava baselayer infrastructure has been greatly optimized, thanks to the KAVA 5.1 upgrade including its borrow side functionality.
Institutional investors have been paying increasing attention to Bitcoin in recent months. The growing number of publicly traded companies having a Bitcoin treasury is just one such indicator. Kava’s recent protocol upgrade lets these companies take out loans on their assets.
Institutional Investors are having a BITCOIN RUSH
The past twelve months have been intriguing as far as Bitcoin is concerned. Besides the price hype, the big news is how more institutional investors seek exposure to the world’s leading cryptocurrency. Rather than spending money on futures contracts, these companies purchase Bitcoin as part of their Treasury. Several companies have been outspoken about these purchases, including MicroStrategy, Tesla, and Meitu.
To some, this approach may seem risky. Bitcoin remains a volatile asset that can undergo wild price fluctuations. However, every company creating a Bitcoin Treasury over the past few months is currently in profit. The acquiring of Bitcoin and profiting from its price rise seems to be working out well, although the momentum can turn around on a dime.
Now that these institutional players are invested in Bitcoin, one has to wonder what comes next. Will they sell when the price is at a specific level, or keep adding more BTC to their Treasury? Figuring out this “retention” angle will prove necessary if this industry is to keep on growing globally.
It took years to get these companies’ attention, yet there are still few reasons besides the speculative asset to ensure they hold onto their BTC portfolio for a while. Finding new use cases for these companies’ Bitcoin holdings may be the missing piece of the puzzle.
Institutional-Grade Borrowing is on the RISE
One option that may appeal to some of the institutional players is using their current Bitcoin holdings as collateral for loans. As part of Kava’s recent V5 upgrade, the HARD Protocol received an update to Version 2. This upgrade provides borrowing with variable interest rates and HARD tokens’ distribution to suppliers and borrowers alike.
Assuming companies like Tesla want to put their BTC to work, they can do so through Kava and HARD Protocol. Any financial institution can earn 45% on their current BTC holdings without counterparty risk. As Tesla owns $1.5 billion worth of Bitcoin – or an estimated 48,000 BTC – they can earn up to 21,600 BTC with a 12 month lock up period. Kava provides a significant passive income stream that institutions can explore by turning their Bitcoin into a cash-flowing asset.
The option of lending and borrowing is an increasingly popular aspect of decentralized finance. To date, Bitcoin’s role in DeFi remains minimal, as few protocols support the world’s leading currency in its native form. More often than not, users need to convert their holdings to a tokenized or wrapped version and spend money to do so. Protocols that support Bitcoin natively can benefit from the growing interest in cryptocurrencies by institutional investors.
Convincing the institutions that hold Bitcoin to explore DeFi options will be a tall order. Although a 45% return with no counterparty risk is appealing, it remains unclear how many companies prefer this option because the risk with DeFi is there’s no counterparty to sue when things go wrong.
As more Bitcoin-oriented DeFi solutions come to market, the landscape will definitely grow competitive and compelling. Catering to institutional-grade players is the next order of business, as big money is pouring into Bitcoin as of late.
Keeping that momentum going will require compelling options, either through decentralized finance or otherwise. The coming months may prove crucial in this regard, as these institutional players may not sit around for too long.
“As more enterprises and financial institutions adopt bitcoin and cryptocurrencies, the more valuable the Kava DeFi platform will become as it enables this new wave of financially minded users with a way to finally put their assets to work and make Bitcoin and other cryptos into a cash-flowing asset on their balance sheets.” – Brian Kerr, CEO of Kava Labs
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Disclaimer: The authors of this website may have invested in crypto currencies themselves. They are not financial advisors and only express their opinions. Anyone considering investing in crypto currencies should be well informed about these high-risk assets.
Trading with financial products, especially with CFDs involves a high level of risk and is therefore not suitable for security-conscious investors. CFDs are complex instruments and carry a high risk of losing money quickly through leverage. Be aware that most private Investors lose money, if they decide to trade CFDs. Any type of trading and speculation in financial products that can produce an unusually high return is also associated with increased risk to lose money. Note that past gains are no guarantee of positive results in the future.