Framework Ventures – a fund focused on decentralized finance (DeFi) plays including Synthetix and Chainlink – has purchased between 1 percent and 5 percent of all Kava tokens.
Announced Tuesday, the token deal, valued at $750,000, comes ahead of Kava’s launch next month. Similar to DeFi platform MakerDAO, Kava will allow users to create collateralized debt positions (CDPs) on the Kava protocol in exchange for a stablecoin, USDX, pegged one-to-one with the U.S. dollar.
Unlike the predominantly ether-focused MakerDAO, Kava will work with most any digital asset, or at least that’s the plan, according to Kava Labs CEO Brian Kerr. Kava is built on the Tendermint consensus algorithm, which is also employed by the Cosmos, the blockchain interoperability project.
As a result, Kava “should be able to seamlessly bridge to any other blockchain,” Kerr said.
Kava will begin with BNB, the native token of the Binance ecosystem, and branch into XRP and bitcoin. Kava conducted an initial exchange offering (IEO) on Binance in October and counts Arrington XRP Capital as an investor.
Kerr said the firm will add bitcoin as the technical capabilities become possible. A key struggle remains the multi-signature structure for bitcoin, which does not easily lend itself to DeFi products. Bitcoin’s upcoming Schnorr and Taproot updates will make the addition more seamless, Kerr said.
Before the launch, Framework Ventures advised Kava on its token inflation model and plans to provide continued technical support for the Kava team, Framework co-founder Michael Anderson told CoinDesk in an interview.
“As the network launches and we can see the token economics for the product in motion, in many cases, just like with Synthetix or Chainlink, we will double down,” Anderson said of his firm’s investment strategy.
Investing in tornado country
Kava’s launch has been preceded by turbulent weather in the DeFi space.
Lendf.me, a protocol in the dForce ecosystem, lost 99 percent of its funds through a hacking exploit in a single night (which has now been returned). A month before that, DeFi in general faced its biggest test yet when ETH prices tumbled on March 12 causing many systems to fail or become overly stressed.
One of the biggest losers on that day was MakerDAO, whose infrastructure proved less robust than previously thought. The finance platform accrued debt that had to be bailed out by venture capital firms. Lingering stability issues with dai’s dollar peg have persisted for weeks. A class-action lawsuit filed in the Northern District Court of California against the Maker Foundation for negligence was the cherry on top.
Kerr said the difference for Kava lays in a codebase with limited functionality compared to DeFi protocols like MakerDAO. In other words, Kerr said, the less your system can do, the safer your system is.
“[Kava] can liquidate and auction, but that’s it. It’s very specific purposes – there isn’t any other functionality that can be built into what we’ve done. That allows us to thoroughly test it so we can have a very strong confidence level that there’s no sort of open exploits available,” Kerr said.
Either way, Kava is joining a crowded room as interest in DeFi appears to grow. Projects like MakerDAO are adding assets to the mix, with Brave’s Basic Attention Token (BAT) and the Coinbase-supported USDC stablecoin added as forms of loan collateral in recent months. Projects are experimenting with bringing in BTC-pegged assets to kickstart DeFi on the Tezos blockchain.
However, Kerr said there is still plenty of room for the sector to grow.
“We were kind of scratching our heads for why the same [DeFi] services weren’t available to all the other cryptocurrency communities. It really comes down to the technology hasn’t been built yet. … These other blockchains don’t have the smart-contract capabilities to support it natively.”