KAVA BreakdownBy Kyle, Investment Manager@Bing Ventures
Ethereum and Cosmos have always had a huge number of developers and users, but there has been a lack of a project that really brings the two together. Kava, a highly secure, lightening fast Layer 1 blockchain, combines the two most commonly used permissionless execution environments into a single, scalable, developer-optimized network. It has successfully built a bridge between Ethereum and Cosmos, the world’s two largest blockchain developer communities. It will also open up endless possibilities for Ethereum and Cosmos.
The subtle pattern of the multi-chain world
Before 2021, many thought a new narrative should be born outside of Ethereum. But after the bear market cooling, those popular Layer1 public chains now began to retreat. There is no denying that most of the DeFi value occurs on Ethereum, although MakerDAO still accounts for the largest DeFi protocol within the ecosystem. While we remain optimistic about Ethereum-based projects, one of the new narratives to watch over the next 12 months is the introduction of more liquidity for Layer1s like Ethereum and Cosmos.
The future of the blockchain world is definitely multi-chain. In response to Ethereum’s demand for Web 3 application throughput, many Layer1 blockchains have emerged to replace it, and each Layer1 offers a different solution to the problem of transaction speed and scale.
However, this did not lead to Ethereum being replaced, but rather to the recognition that different networks might be better suited to meet the needs of a vertical. As developers, applications, and users follow more opportunities and value, they also carry their assets from one chain to another.
This multi-chain pattern means that optimizing for a specific set of developers or use cases is key. Kava has been positioned as a stand-alone Layer1 network that provides support for widely used DeFi products. Kava Network’s technology enables the creation of trust between different blockchains and the trustworthiness of trading specific assets without centralizing member participants or custodians.
Fast and efficient on-chain banking
After the Kava 10 main network upgrade, the Kava network supports both Cosmos and ETH cochains. These two co-chains operate seamlessly, enabling developers to build in whatever environment they want without sacrificing access to users and assets in another environment. It is like two hemispheres of the brain, one optimized for Cosmos ecology developers and the other optimized for Ethereum ecology developers.
The entire network will be powered by the Tendermint Consensus engine, secured by validators and stakers, and governed by KavaDAO. In addition, its unique on-chain developer incentive model will drive growth through an open and transparent distribution process. In essence, Kava still looks like a decentralized on-chain bank. It makes sense to explore the long-term drivers of token demand.
How to maintain existing stakeholders is a major problem. At present, the governance of Kava remains relatively centralized, because the big players are more inclined to have the right returns on Kava to offset the opportunity costs and risks. Although this idea is increasingly vulnerable in the current environment, as on-chain security is being tested in DeFi, especially in the cross-chain area, capital appreciation is still the way to go. The combination of yield and capital appreciation is the twin engines, not yield for yield’s sake.
The incentive programs for growth
The success of Cosmos and ETH Cochains has brought Kava closer to other Web3 protocols. After the mainnet launch, Beefy Finance, Multichain, Ren Protocol, Autofarm, and Curve also announced their plans to log on to the Kava Mainnet. With the success of the Kava Pioneer program, the Kava Rise incentive Program worth $750 million was officially launched after the launch of the Kava 10 mainnet. The new program will incentivize developers to build and deploy on the Kava Network.
The disconnect between token demand and price appreciation also exists for protocols like Kava. However, it's not a big problem, especially considering platform growth, where Kava's application-oriented blockchain nature leverages the interoperability of Ethereum's EVM network. DeFi’s core competence lies not in solvency but in the security of its functions.
Next, Kava should try to further expand the demand for on-chain debt. The need to allow leverage should be the primary driver of debt creation. For DeFi to get out of the current predicament, market expectations for outstanding debt will have to be raised or created, and more deflationary token mechanisms will need to be devised. This is precisely where the governance value of DeFi tokens lies. Unfortunately, due to the slightly centralized nature of the Kava network, it is necessary that incentives are given on the yield front to maintain the security of the network, resulting in weak organic demand for tokens.
Conclusion
Undoubtedly, the opportunities created by combining the two head ecologies are enormous. On the Ethereum network, there are over 4,000 active open-source eco-developers each month, and about 1,360 active dApps. In the Cosmos ecosystem, more than 260 projects are being built on the Cosmos SDK, with 33 active Zones integrated with the IBC, completing hundreds of thousands of cross-chain value transfers per day.
Opening a development center that links these two ecosystems together will create a great deal of activity for projects that implement such connectivity, while also creating more value for Cosmos and Ethereum and greater revenue opportunities for each participant.
This is where Kava’s true value potential lies. Kava’s token design can capture value as it serves as a central element of reserve currency, community rewards, and incentives. Kava uses KAVA tokens to keep both parties safe and to create a flexible mechanism by paying fees to partners in high-risk situations. In addition, Kava will release balanced rewards to promote fair competition and evaluate new application scenarios.
