Cryptocurrency analyst. Founder and editor at btcpeers.com
Decentralized finance is slowly transitioning from a mere buzzword to being a major contributor to the crypto economy. The development outputs of the sector and its growing appeal in the investment landscape has culminated into financial successes for a long list of protocols and systems relying on decentralized governance models to deliver financial services.
According to data from DeFi Pulse, the value of assets locked in the DeFi ecosystem has doubled from $1 billion to $2 billion in just under one month.
Without any doubt, the lending niche has been at the heart of this unprecedented growth, with platforms like Compound and Maker leading the DeFi narrative and attracting over $1.2 billions worth of assets.
All through last month, Compound, following the launch of its governance token, generated so much hype such that other platforms like Aave benefited from the ripple effect.
Like Compound, Maker has generated impressive returns to investors this year with its price exceeding the $700 mark in early June. Experts believe that this growth pattern highlights the demand for DeFi-enabled financial solutions, particularly in the lending sector, and a subsequent influx of interest from investors.
So, I decided to dig into the DeFi landscape in search of a next promising protocol or a token potent enough to explode like Compound. And, actually, I found one. And invested 1BTC in the project called Kava.
Kava has come under the spotlight in recent weeks as Entrepreneur described the project as the “Uber of Bitcoin.” Likewise, Cointelegraph regularly covers Kava. For example, in this article, Andrew Rossow mentioned that Kava’s uber-like footprint promises to translate to growth because it has
“adopted the growth-by-decentralization model by automating the process for users anywhere in the world to instantly generate loans and seamlessly connect them to global demand.”
Apart from market performance, the cross-chain lending ecosystem caters to a wide array of major crypto-asset users. Being able to address larger markets like BTC, BNB, XRP, and ATOM, gives Kava more leverage for growth.
I figured that if Kava could attract just 2% of the Bitcoin’s Defi Market, worth over $170 billion, then the value of the assets locked in its platform will automatically rise to $3.4 billion.
Already, this forecast beats Maker and Compound’s current locked assets, valued at $600 million and $670 million respectively, Furthermore, I expect Kava to capture 10% of BNB and 5% of XRP locked in DeFi, resulting in potential in the inflow of an additional $600 million worth of assets into its ecosystem.
Nonetheless, the data available on CoinMarketCap does not reflect these opportunities, nor does it capture the real value of the token. CoinMarketCap only focuses on the tradeable circulating supply of tokens to estimate the market cap.
This model of calculating market value does not do justice to tokens like KAVA, which support staking.
As a matter of fact, there is 89 million KAVA, worth around $111.5 million staked. Hence, its position on CoinMarketCap’s ranking is not a true reflection of the token’s value. KAVA has consistently averaged a $15 million daily volume, which places it among the top 50 of actively traded cryptocurrencies.
Although the metric system of CoinMarketCap has failed to showcase the real value of the Kava market, you will expect a more niche-based ranking infrastructure, like DeFi Pulse, to accurately estimate its size. However, this is not the case because the DeFi Pulse protocol only tracks on-chain data from Ethereum smart contracts.
Thus, data detailing the performance of Kava and its token is not featured on DeFi Pulse. A similar trope affects platforms that do not rely on Ethereum blockchain. For instance, though there are over 9000 BTC locked as BTCB on Binance Chain, yet the token does not feature on DeFi Pulse’s rankings.
The inaccurate tracking of KAVA’s value on CoinMarketCap and its absence on DeFi Pulse gives credence to its growing reputation and shows that the real value of KAVA token is higher and at the same time - hidden.
So I would prefer to call Kava not an Uber of Bitcoin, but a hidden gem of DeFi.
Note that the market opportunities highlighted in this article are peculiar to Kava because it supports more than one major crypto asset. Unlike Kava, Compound and Maker’s growth is bound to the Ethereum market. As such, they are neither a direct competitor to Kava nor do they have the community potential to rival its development.
Likewise, its decision to enable an incentivized community-based system that cuts across established crypto infrastructures shows that Kava token is poised for an inevitable price uptrend.
Kava is one of the few token projects Ripple has invested in. Similarly, it caught the eye of Hard Yaka fund, co-founded by Greg Kidd - known for his track record as a serial investor in unicorn companies like Coinbase, Twitter, Square, and Ripple. Other investors include Lemniscap and Arrington XRP Capital.
I had a chance to have a short interview with Brian Kerr, CEO and co-founder of Kava Labs. We discussed prevailing trends in the DeFi market, infrastructures of the Kava platform, and the prospect of the ecosystem.
Andrey Sergeenkov: There is no doubt that the buzz surrounding DeFi has reached new heights since the year began. Did you expect that DeFi will make this much impact in a short timeframe?
Brian Kerr: We’ve been bullish on the long-term prospects of DeFi since the early days and our thesis is what has led Kava to building it’s lending platform. DeFi has been in a steady uptrend for some time but we never expected Compound to drive attention to the space like it has. Robert Leshner is a good friend, advisor, and backer of Kava so I’m happy both for his success and the added attention that the COMP distribution has lent to the greater DeFi space.
Andrey Sergeenkov: Different growth metrics are indicating renewed interest in the DeFi landscape regardless of the few setbacks recorded earlier this year. Can you tell us some of the factors that brought about this unprecedented demand for DeFi tokens and protocols?
Brian Kerr: Crypto is very much an attention economy. The rapid increase in assets used as collateral made headlines while showing people that thanks to yield farming, there are serious returns to be made in the DeFi space as early participants. This created a snowball of excitement in June that brought a lot of light on Kava, Compound, and other platforms that offered yield farming opportunities.
Andrey Sergeenkov: Don’t you think that it put extra pressure on developers to fast-track an already blistering paced development cycle?
Brian Kerr: The pressure to ship exists in crypto like it does with any startup. Unfortunately, due to these networks requiring software to be run on hardware servers across the globe in order to be meaningfully decentralized, the product release cycle is much more like slow and steady hardware release than it is a fast and iterative process like you would have for centralized software, websites, or applications.
To your point, I think some teams have cut corners, especially in the code review and audit phase which is dangerous because a minor bug can lead to severe loss of users funds in these types of applications. The hacks and issues that occurred earlier this year were great reminders to teams across the space to ensure they have a robust process for evaluating, testing, and auditing their code before deploying it and having user funds at risk.
Andrey Sergeenkov: In light of the price performance of DeFi-enabled tokens, some have begun to compare the DeFi market to a bubble. They believe that this growth pattern is unsustainable, and very few protocols will come out unscathed. What’s your thought on this?
Brian Kerr: Across the entire crypto space you could say valuations are high. What sets DeFi apart is that the protocols have fundamentals in the form of user fees, token burning, and other revenue sources upon which you can do a discounted cash flow analysis.
Given the recent growth of users, collateral in DeFi, and other metrics that positively impact the fundamentals of these DeFi applications suggest rapid growth and demand, not a bubble.
Andrey Sergeenkov: How does Kava fit into these narratives? Has the recent DeFi hype rubbed off on its market visibility?
Brian Kerr: Kava is DeFi for bitcoin, XRP, and everything else. For non-eth assets, Kava is the only platform that has the potential to adequately serve them with loans, stablecoins, and other DeFi services.
In terms of attention, getting added to FTX exchange’s Index for DeFi assets was quite nice. All the exchanges want to list Kava because the token is very liquid and trades well and the recent events only help elevate Kava further.
The recent DeFi hype has brought new eyes to the space. Kava has definitely seen an increase in web traffic and users thanks to this. Still I wish Kava was visible on leaderboards like DeFi Pulse so people could see the progress we are making.
Andrey Sergeenkov: The Kava ecosystem has cross-chain functionality that allows it to capture a broader array of markets. How does this put Kava at an advantage and ensure that it has better leverage than the likes of Compound?
Brian Kerr: Ethereum-based projects have tons of competition. Evidence of this can be seen by the number of new money market-like products trying to compete with Compound. Thankfully, because Kava is working on the hard problem of cross-chain DeFi, Kava is competing in green pastures and going after a much larger market.
Andrey Sergeenkov: Is this one of the perks of opting for a more robust blockchain infrastructure than the popular Ethereum network?
There are a host of reasons why Kava needed to be a stand alone blockchain with its own security model. We needed to build Kava the way it is to enable safe and secure cross-chain bridges. Opting for our own architecture and leaving Ethereum behind enabled us to create one of the safest blockchain environments for financial services.
Smart contracts on ethereum are usually decentralized, but because of the nature of the turing complete smart contracting system, financial contracts leave an abundant surface area for hackers, bugs, and other malicious exploits to occur.
Additionally, Ethereum’s dApp success is one of its downfalls when it comes to being a platform for DeFi apps. The recent events on Ethereum that plagued MakerDao highlight some of the issues. The transactions from apps like cryptokitties and heavy amounts of ERC-20 tether transactions congest the network to a degree that running financial services in this environment is very risky. This results in prohibitively high gas fees and oracles that cannot get transactions through to post accurate prices leaving the DeFi apps at serious risk.
Andrey Sergeenkov: Judging from the economic blueprint of Kava, it is clear that the ecosystem has established a community-based growth system that ensures active participation and induces interoperability with Binance Chain. Can you explain the technicalities of this framework and how it will help grow the valuation of Kava token?
Brian Kerr: Kava was one of the first platforms to offer a yield-farming incentive scheme to early participants. Users that deposit collateral and mint USDX receive rewards that are distributed weekly.
The community voted for just under ~3.8M KAVA to be awarded over 52 weeks to BNB users that mint USDX and help build its supply. This works out to 74,000 KAVA per week.
Andrey Sergeenkov: Don’t you think that this approach is inflationary? If so, what are the implementations introduced to counter such effects?
Brian Kerr: If it was inflation for the sake of inflation and not something fueling network growth, it would be a concern. This inflationary reward structure is dedicated to driving network growth and early participation. As long as inflation is less than the networks growth, everyone should be coming out ahead.
Andrey Sergeenkov: I am excited about the pedigree of individuals and organizations backing the Kava ecosystems in various capacities. How has the ecosystem managed to attract the involvement of reputable brands, and does it give credence to Kava’s prospect in the DeFi landscape?
Brian Kerr: What attracted the likes of Tendermint, Ripple, Binance, Chainlink and many other leading organizations to Kava? I wish I could take credit, but I think it has been due to Kava’s unique positioning within the space. The world is hungry for DeFi and outside of Ethereum Kava is the only reputable solution capable and of meeting the DeFi needs of the greater crypto space.
Andrey Sergeenkov: What are your long-term expectations for both Kava and the DeFi market?
Brian Kerr: I believe Kava will become “the hub” for DeFi services offering stablecoins, markets data, and loans which provide a foundation to build a host of new financial products and applications in the blockchain space. The next year will be a huge year for Kava as we enable BTC, XRP, and other major assets as collateral types on the platform.
As DeFi gets expanded from the $27B marketcap of ETH to the $273B market cap of Bitcoin and the other major assets I think we will see a massive influx of attention, users, and capital into the DeFi space.
Looking forward I expect DeFi to also start growing into the mainstream retail space. I see Kava’s USDX with 5%+ APY and other DeFi apps being leveraged in investing apps like Robinhoob and Wealthfront as alternatives to cash accounts. The superior yields in DeFi present a compelling alternative to today’s cash accounts which offer a measly 0.30% APY. Potentially banks trying to attract new customers might move in this direction as well.
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