The Kava decentralized finance (DeFi) protocol officially launched on the Cosmos (ATOM) network, with an initial onboarding of Binance Coin (BNB) as a collateral form.
Kava works in a similar way to MakerDAO (MKR), allowing users to deposit crypto assets and borrow Kava’s stablecoin, USDX. The project focuses on providing interoperability to DeFi, and promises to onboard collateral from other chains including Bitcoin (BTC) and Ethereum (ETH).
The initial collateral form is BNB, which gives Binance’s token a DeFi use case. It is no secret that the exchange sought to introduce its token to DeFi, previously being involved with the EOS-based Equilibrium.
Kava was incubated by the Binance Launchpad, which likely weighed in on the decision to only accept BNB at launch. The CEO of Binance, Changpeng Zhao, noted that “Kava is creating another use case for BNB, which brings additional value for BNB users.”
The launch is accompanied by a promotional giveaway that rewards Kava lenders with the project’s token, which can be used to participate in its governance.
Interoperable, but not yet composable
The Kava project is the first of its kind to be launched on Cosmos, a project placing heavy emphasis on interoperability with other blockchains. The Cosmos SDK is also powering Binance Chain, which makes the BNB integration on Kava much easier.
There are many projects on alternative smart contract platforms that seek to emulate Ethereum DeFi in some way. For example, a copy-pasted version of the old single collateral Maker was released on Tron (TRX) in March.
As mentioned earlier, EOS has its own Maker analogue in Equilibrium. The project is taking a similar path to Kava with the onboarding of Bitcoin collateral, executed a few days before a similar decision from Maker.
However, one of the strengths of the DeFi ecosystem in Ethereum is the sheer number of projects that can interact with each other — a feature called composability.
That can result in interesting mechanics, like the recent addition of Uniswap tokens to Aave, which can be used to bolster the former’s liquidity pools. Some Uniswap V2 features like flash swaps were also designed with composability in mind. Flash loans and composability could also be abused, however, as evidenced by the bZX hacks.
While Kava is interoperable in the sense of accepting assets cross-chain, there are no other projects for it to be composed with yet. Kava’s CEO, Brian Kerr, told Cointelegraph that Kava’s vision is to become a “DeFi hub” in Cosmos’s model of hubs and zones.
He believes that the architecture makes it easy for other Ethereum DeFi projects like Compound and Augur to be ported on Cosmos, though he sees three different ways this could be done.
They could use an Ethereum bridge to a Cosmos zone “to retain their existing network effect and not need to rewrite their code base.” But he also mentioned that other projects could simply migrate to Cosmos to benefit from an improved infrastructure.
Finally, another way could be through direct integration with Kava:
“Many smart contracts on Ethereum don’t need their own security, but would benefit from being in the cosmos ecosystem. I imagine Compound or similar systems to Compound being built directly on some of the larger Hubs within Cosmos like Kava.”