Will Kava take the turn after upgrading from Kava 9?

On December 16, Kava hosted a testnet event for Kava 9, which will test the load capacity of the new mainnet.

Since Kava first introduced the mainnet upgrade a month ago, many have held their breath to see how this would affect the price of KAVA, as previous events of testnet have pushed its price up to the point of ‘at $ 8.

The protocol has also sparked interest in upgrading with a series of partnerships in GameFi, cloud services, security, and more.

Ultimately, Kava’s main goal is to attract more developers to its ecosystem, a sticking point for the cross-channel lending protocol of which TVL mostly consists of its own projects.

Will the upgrade succeed in generating the interest needed for Kava to regain its declining momentum?

A brief history of kava

In 2019, Kava took a big step forward by winning the Binance Launchpad Project of the Year Award for its potential to shake up the blockchain industry.

While most DeFi applications are confined to a chain ecosystem, Kava gained popularity as the first major platform to offer cross-chain lending.

The Kava protocol and its lending platform, the HARD protocol, support cross-chain asset deposit and lending. This allows investors to lend, borrow, and deposit cross-chain assets from the Kava ecosystem.

Since 2019, Kava has grown into a decentralized Layer 1 hub supporting cross-chain DeFi applications and services, providing an accessible and permanent financial services infrastructure for developers.

Footprint analysis - Kava TVL
Footprint analysis – Kava TVL

Key milestones:

  • June 11, 2020: The Kava 3 mainnet upgrade was completed and the first CDP cross-chain lending platform went live, supporting BNB staking and USDX drawdown.
  • October 15, 2020: The Kava 4 Gateway Mainnet Upgrade has been completed and the Cross-Chain Cryptocurrency Market HARD Protocol has been brought online.
  • On April 9, 2021, official launch of the Kava 5 mainnet.
  • On August 30, 2021, the Kava DeFi platform completed the upgrade of the Kava 8 mainnet.
  • The Kava 9 mainnet upgrade is expected to go live in Q1 2022.

As can be seen on the TVL growth, Kava TVL has grown steadily after each major iteration and upgrade, driving up its token price with it. However, its token price had not maintained the same constant upward trend as its TVL. The current price of the KAVA token has fallen almost 60% from its peak since the last iteration.

Footprint analysis - KAVA Award
Footprint analysis – KAVA Award

The reasons become clear when we take a closer look at ecosystem protocols and the economy of Kava tokens.

The kava ecosystem

Kava has two obvious problems:

  • A weak ecosystem mainly maintained by Kava’s own suite of protocols
  • An unstable symbolic economy

Lack of ecosystem scope, with TVL supported by Kava protocols

Kava currently consists of 3 main projects:

  • Kava Mint, which allows users to use their assets as collateral to obtain USDX.
  • Kava loan, which allows users to earn rewards by offering and borrowing assets in the cryptocurrency market.
  • Kava exchange, which allows users to buy and sell tokens on the Kava Channel and earn rewards by providing cash to the mining pool.
Footprint analysis - Kava Ecosystem Project TVL Trends
Footprint analysis – Kava Ecosystem Project TVL Trends
Footprint analysis - Kava Ecosystem Project TVL
Footprint analysis – Kava Ecosystem Project TVL

Kava Mint accounts for almost 70% of total Kava TVL.

There are not many assets and exchange pairs available for loan in the project, and there is a lack of liquidity in the ecosystem, which only revolves around lending and trading at within the Kava ecosystem. Kava Swap, for example, offers a very high APY reward, but its liquidity pool only supports USDX base trading pairs.

Kava tokens

The price of tokens in the Kava ecosystem has fluctuated a lot this year.

Let’s take a look at Kava’s USDX stablecoin and its KAVA governance token.

Limited application scenarios for USDX

The USDX is a stable coin which has been particularly volatile mainly due to a lack of application scenarios. Currently, its main use is as a pledge of Kava Lending.

The price of USDX stabilized after the launch of the cross-chain AMM Kava Swap app. Kava also plans to increase its liquidity and use cases by signing up on more exchanges.

Footprint Analysis - Stablecoin USDX Price
Footprint Analysis – Stablecoin USDX Price

The allocation of governance tokens carries a selling risk

KAVA is the token used to govern the Kava blockchain, while KAVA also acts as the system’s lender of last resort. If there are not enough collateral for the entire system, KAVA is responsible for redeeming USDX until the system again reaches a sufficient amount of collateral.

The attribution of KAVA is controversial. 40% of KAVA was sold in 3 large private sales, which makes it strongly consolidated in a few hands.

Kava - Distribution of KAVA tokens
Kava – Distribution of KAVA tokens

Will Kava 9 fix these issues?

One of the main highlights of the upcoming Kava 9 upgrade is that it will officially enable the Inter-Block Communication Protocol (IBC), which allows blockchains to communicate with each other. This will have two major impacts:

  1. More inclusiveness: The upgrade will allow all projects and communities supporting IBC to integrate their products into the Kava chain. DeFi projects will have access to several functional scenarios in the DeFi cross-chain Kava ecosystem.
  2. More application scenarios: Due to the cross-chain structure of IBC, the USDX can be used in DeFi Ether projects through IBC and become the settlement unit of the decentralized exchange. Therefore, the symbolic economy of Kava should become more stable.

The Kava 9 upgrade also includes the completion of the Ethereum cross-chain bridge, Kava Launchpad, Keplr wallet support, and other infrastructure, all of which set the stage for the Kava ecosystem to grow. develops in the years to come.

While Kava has successfully launched a cross-chain solution for DeFi loans, the Kava family’s projects alone are not enough to support a public channel.

The success of the Kava ecosystem will then depend on its ability to attract developers to deploy projects on the protocol, which the new upgrade could do.

This report was brought to you by Footprint Analytics.

What is the imprint

Footprint Analytics is an all-in-one analytics platform for visualizing blockchain data and discovering insights. It cleans and integrates on-chain data so that users of all experience levels can quickly start researching tokens, projects, and protocols. With over a thousand dashboard templates and a drag-and-drop interface, anyone can create their own custom charts in minutes. Discover blockchain data and invest smarter with Footprint.

Posted in: Analysis, DeFi

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