Cryptocurrency analyst. Founder and editor at btcpeers.com
In an era where yield farming has become one of the most profitable activities within the crypto realm, it is no surprise that the success of the landscape hinges on the advancements registered in the DeFi ecosystem.
Although Bitcoin remains a mainstay and is currently pulling its weight as regards crypto adoption, many believe that decentralized finance and its ever-growing market have a larger role to play if cryptocurrency is to achieve mainstream success.
While this notion is fast becoming a fact, there are reasons to second guess the potential of the current DeFi space. Much of this doubt stems from the growing reliance on yield performance than actual infrastructural advancements.
Perhaps, the most compelling factor attributed to the growth of the DeFi market is its yield farming operations. Investors are mainly attracted by liquidity mining revenues and rewards. In turn, a majority of developers have become guilty of spinning up deficient DeFi protocols, as long as they play into the level of yield generating opportunities demanded by crypto participants.
As such, in the grand scheme of things, just a handful of DeFi-powered projects are proposing dynamic changes that will usher in the next phase of growth and these kinds of projects are the tokens to hold on to. I have discovered that many of the examples of these rare breeds of protocols are grossly undervalued compared to a majority of the uninspired but highly lucrative alternatives.
One of such projects that fall within this scope is the Hard protocol, a cross-chain money market launched on the Kava blockchain. According to the data on the platform and other DeFi metric sites, Hard protocol has distributed over $1,000,000 worth of rewards since it launched in mid-October. Likewise, the total value of assets locked on the protocol is over $12 million. While these figures indicate an emerging economy and a potential ascent in the DeFi landscape, it does not reflect the current price performance of HARD, the governance token of Hard protocol.
For instance, the market cap and the TVL of the two other major money markets, Aave and Compound, share a typical relationship that sets precedents for what HARD can achieve in the coming months. At the time of writing, Aave’s TVL stood at $1.18 billion and the market cap of its native token is hovering around the $600 million mark.
For Compound, the total asset locked in the protocol is worth $1.4 billion while the market cap of COMP is around $450 million. Further analysis of this data shows that the market cap of COMP and AAVE is roughly 35% and 50% of the total value of their protocols respectively. Considering the scope and size of the user base of both money markets are limited to the Ethereum market, it is safe to say that the current price performance of HARD, which caters to a much larger chain of crypto communities, is nowhere near what is achievable.
This functionality expands the market potential of Hard protocol to several established crypto networks, particularly the vast Bitcoin community. Theoretically, if Hard protocol manages to capture just 0.1% of the Bitcoin market, which is reminiscent of the current market share of Maker in the Ethereum ecosystem, then expect HARD’s TVL to rise to around $2 billion and its market cap to shoot beyond the $600 million mark. This projection is based on the previous performance analysis carried out on Aave and Compound. And since the protocol supports a wide array of cryptocurrencies, you will agree that this projection is on the conservative side.
In light of this argument, I reached out to Brian Kerr, CEO of Kava, for more details about the real value of Hard protocol and its governance token. Below are some of the excerpts from the interview.
Andrey Sergeenkov: Thanks for accepting my request for an opportunity to draw from your expert take on the DeFi landscape. As a prominent contributor and participant in the DeFi narrative, how relevant are money markets to the unfolding the DeFi landscape?
Brian Kerr: Money Markets are the single most impactful application in the DeFi landscape. Only services that offer collateralized loans in synthetics, such as what Kava and Maker provide come close to providing a comparable value-add service to the greater DeFi landscape.
Money Markets create pools of liquidity for other applications to leverage and establishes a market determined interest rate which reveals the true cost of capital for a given asset.
There is a reason why Compound and Aave are the largest protocols in DeFi. Money Markers are the backbone of the DeFi ecosystem and enable subsequent applications to flourish like automated market makers and robo-advisors.
Andrey Sergeenkov: Data shows that the Money markets have billions of dollars in total value locked. What does this say about the market? Is it a true reflection of the technical advancements of the infrastructure of individual projects?
Brian Kerr: Money Markets are driving total value locked and are particularly driving stable coin supply for assets like USDC, Tether, and DAI because they establish a yield for these otherwise dull assets. This is less technical advancement and more a product market fit made in heaven.
Andrey Sergeenkov: The Kava team has worked immensely on establishing new iterations of money markets. How do you rate the progress made thus far, and what are the core challenges encountered?
Brian Kerr: We have made some serious strides in the last year. Often as a start-up we feel like we should be going faster than we are. However, when I compare our progress to other projects of much larger team sizes, our ability to ship seems to be orders of magnitude better than our peers. For what reason, I am unsure. As a Silicon Valley company we are always tempted to “go fast and break things”, but in DeFi user safety and ensuring funds don’t get lost are the utmost importance. A single issue can cost millions or billions of dollars and destroy the reputation of a project. For these reasons, we take an extra 4-8 weeks for all our new feature releases to first do rounds of internal testing, then peer review, then formal paid audits by external firms, a series of testnets, and finally the governance group of Kava reviews the code and adopts it on main net. I’m happy to say that despite our fast rate of deploying new features, we have not had one attack, bug, hack, or exploit thanks to our rigorous code review process.
Andrey Sergeenkov: The first project launched on Kava is Hard protocol, which falls within the auspices of the definition of a money market. Tell us more about this project?
Brian Kerr: HARD Protocol is the world’s first cross-chain money market for digital assets. Similar to Ethereum-based applications Compound and Aave, HARD Protocol provides users with the ability to lend, borrow, and earn with their digital assets. Unlike existing applications, HARD Protocol is built on the Kava DeFi Hub enabling it to uniquely provide money market services to non-ethereum assets such as major market cap crypto such as BTC, XRP, BNB, BUSD, and others.
How HARD Protocol works is simple, users can contribute digital assets they have into a pool upon which other users can borrow. In order to borrow from the pool, a user must first lock their own digital assets as pledged collateral to secure the loan. When repaying the loaned assets, the user also must pay interest to the pool of lenders in exchange for the service. In this way, suppliers of assets in the pool generate yields from borrowers on a prorata basis.
In addition, each pool is allocated a certain amount of HARD token rewards. HARD is the governance token of the application responsible for deciding what assets get money markets, where fees go, and what rewards get paid in each pool. Both suppliers and borrowers earn HARD tokens for using the platform. In this way, HARD Protocol will be decentralized, governed, and maintained by its users.
There will only ever be 200M HARD tokens. Those who hold HARD will be able to direct the future of the platform (and accrue any future fees taken) however they desire.
Andrey Sergeenkov: Having explored the workings of Hard protocol, I noticed that, unlike a majority of money markets available today, it has the features required to capture a huge target market. How is Hard protocol capitalizing on this unique ability, and has it reflected in performance metrics like TVL?
Brian Kerr: We're just getting started with large assets like BTC, XRP, and BUSD next week. We have already launched support on Kava's DeFi Hub, but the money markets need to get voted in which we expect to take 1 week. Once that happens, it will be a great bell weather to see how much of each asset gets supplied to the HARD Protocol.
HARD is a very powerful application that has the potential to grow into the billions of dollars in TVL. It can address a market much larger than its counterparts in Ethereum. With this in mind, any say or control over such a decentralized platform is very valuable - for the voting rights and fees that might be taken.
Doing simple math, if 1% fee on $1 B in borrower value is implemented, it generates $10,000,000 in value for HARD holders. While not implemented yet, this is very powerful.
Andrey Sergeenkov: What about HARD? What are the benefits and use cases of this token?
Brian Kerr: Today HARD is a governance token granting holders a say in the ongoing maintenance and evolution of the application. This is a right to have say over key parameters like collateral ratios, what assets get money markets, and reward distributions. While the HARD token is a governance token today without any cashflows we imagine the natural evolution of users will be to increase the fundamental value of HARD as the application grows in usage by attributing some fee back to HARD holders either directly or indirectly via a burning mechanism.
As a governance token HARD has all the value of the application. HARD voters can vote to add new assets, to collect fees, and ultimately direct those fees back to themselves as a dividend if they wanted it. If HARD can get $1B in borrowing and direct a 1% fee to users, it’s worth $10,000,000 USD. I think with the current landscape of DeFi this is a very reachable number. In fact HARD can do orders of magnitude better since it can support much more than BTC which alone is $280B asset.
Andrey Sergeenkov: HARD is not performing well right now. Why is this so?
Brian Kerr: For the next 30 days, over 6M HARD is being given away for free via launchpad to users that stake assets. I think it is natural for any asset that gets a huge influx of new supply to struggle in an open market. This is not concerning to me because after launchpool is done, the amount of new tokens entering the market will be less than half of what it is today. This is like a super-bitcoin halving but for HARD. The MAX supply of HARD is fixed and the amount of new supply in the market will only get smaller over time, just like with bitcoin. This supply shock to the market can only bode well for HARD's performance in the long run.
Andrey Sergeenkov: Do you think that the underwhelming pricing of HARD is indicative of its hidden gem status? If so, would you mind explaining why?
Brian Kerr: Established exchanges like Binance and BitMax, have begun to list HARD and have integrated with the protocol’s yield farming opportunities as a way to bring DeFi to centralized financial platforms. How excited are you about these developments, and do they echo HARD’s impressive potential?
Kava and HARD DeFi services are meant to be used by end-users, applications, and financial institutions alike. These integrations are a great step to open up the potential userbase of our applications from the technical users we have today, to a much larger retail userbase. I believe we are leading the space in our enterprise integrations and continue to put working with our partners as a top priority for expansion because with them comes greater distribution and scale to the users that matter to us.
Andrey Sergeenkov: What other protocols should we be expecting to launch on the Kava blockchain in the coming months?
Brian Kerr: After HARD completes its V2 launch in December 2020 the money market application will be full featured and complete. Following that release Kava ecosystem is expected to release an automated market maker (think uniswap) and robo advisor (think yearn finance) protocol to supplement HARD and Kava's lending facility. These will gain access to the cross-chain assets available within Kava and be interoperable. We expect these new projects to complete sometime between March 2021 and June 2021. You can expect that similar to with HARD distribution, these new applications will have significant rewards given to KAVA stakers and supporters of the ecosystem.
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