I first chanced upon Kujira back when Terra was still alive. In its early days, Kujira was branded as the protocol that performs the best in a bear market. Its core product, Orca, a free-to-use liquidation engine which allows bidders to buy liquidated collateral at a discount, worked seamlessly. It was great for buying the dips as well as arbitrage. However, Terra faced its inevitable fate and came crashing down, bringing native protocols down with it. For Kujira, this was but a temporary setback. Since May, the team has been working hard, shipping products unlike any other I have seen in Web 3. Through this article, I aim to evoke anticipation of the future that Kujira will create.
Table of Contents
- The Present
- The Undeniable Trinity: Kujira Edition
- Tokenomics
- Use Case(s)
- Trading: FIN
- Liquidity: BOW
- Stable Liquidations: USK/ORCA
- The Road Ahead
- Conclusion
The Present
Since Terra’s collapse, Kujira is no longer a standalone protocol and instead, has branched out to become a sovereign L1 on Cosmos. Its focus?
A decentralized ecosystem for protocols, builders and web3 users seeking sustainable FinTech.
To put it simply, Kujira is now a DeFi-centric L1. Why build its own L1 instead of moving out to Ethereum/Solana etc? By having its own L1, DeFi protocols on Kujira do not need to face uncertainty in costs, which is often a problem on monolithic chains. This problem is outlined in Delphi’s article. TLDR, on monolithic chains, DeFi protocols have to compete over blockspace with other protocols. Most recently, this could be seen with the minting of XEN on Ethereum, which congested and raised gas fees to exorbitant levels. Therefore, building on a sovereign L1 allows protocols on Kujira to have better UX due to lower fees without having to compete with ad hoc activities (large influx of users minting NFTs for e.g).
The second reason, and perhaps the more important reason, having a sovereign chain allows stronger value accrual towards the core token of the ecosystem which in this case is KUJI. On a monolithic chain such as Ethereum, fee revenue leaks out to the underlying layer due to ETH being the only gas token. By having a sovereign chain, Kujira is able to direct all fee revenue from protocols on its chain towards KUJI, which strengthens the tokenomic model of KUJI greatly (more to be elaborated in the tokenomics section).
The Undeniable Trinity: Kujira Edition
The Undeniable Trinity is a framework that I have come up with to evaluate crypto investments for the long run. It consists of 3 points:
- Tokenomics
- Use Case(s)
- Community
I have explained in detail what these 3 consist of exactly as well as presenting both good and bad examples. Check out the article to also find out how one can judge whether a crypto project is good or bad! Now, let us move on to seeing how Kujira fits the trinity undeniably (ah ha).
Tokenomics
The tokenomics of KUJI as of today’s standards can be considered to be rather formidable. The main reason is the staking model for KUJI. By staking your KUJI tokens, you can accumulate rewards that come from both network fees and fees from native apps.
Hol up… The staking APR is only 1.73%?!
Unfortunately, the staking rewards are minuscule (as of writing), for now. One reason would be that staking rewards are non-inflationary. KUJI staking does not print tokens out of thin air. But this also means that current revenue on Kujira is low. Kujira has yet to gain a lot of traction, but in the parts ahead, I will be addressing how that is set to change!
Next, we look at token distribution.
To be frank, token distribution is not the most decentralised. At first glance, insiders and the team do own a lot of tokens. There is a vesting schedule outlined below:
Private Sale 27.975M 12 month vesting
Public Sale 21M 6 month vesting
Liquidity 6M
Advisors 7.5M 12 month vesting
Team 27M 24 month vesting
Operational 11.025M 24 month vesting
Marketing 6M 24 month vesting
Airdrops 500K * adjusted after burn
Treasury 6.75M 24 month vesting
Rewards 8.648M * adjusted after burn
On the bright side, vesting began on November 2021 and will be ending on 9 November 2023, slightly less than a year from now. With a 0.8 MCap/FDV ratio, better than many projects out there, most of the token supply is already in circulation. Therefore, warranting less sell pressure in the future from unlocked/vested tokens.
There are also staking tiers for KUJI:
- 1st Tier: 500 KUJI
- 2nd Tier: 5000 KUJI
- 3rd Tier: 50000 KUJI
Not many details have been released regarding them, but if I recall correctly, back then on Terra, holding more KUJI meant cheaper fees for using Orca. There may be benefits for protocol usage (such as fee discounts) for staking more KUJI. This gives rise to more reasons for investors to continue holding KUJI.
The main thing I like about KUJI is that not just normal investors, but creators of protocols on Kujira would also be incentivised to hold and work towards the success of KUJI and Kujira since the KUJI token will be accruing value from the hard work that they put in. This can be seen as a good alignment of interests for the ecosystem as a whole. With a strong incentive to hold and possibly low selling pressure in the future, I deem the tokenomics of KUJI to be strong. The decentralisation factor is also being addressed, with the Senate coming to fruition soon.
Use Case(s)
For a crypto investment/project to truly succeed, strong use cases should be present. The main bulk of Kujira relies on the thesis of DeFi. Why is DeFi the future and why would Kujira be the one to lead the DeFi charge? Let us address those queries now.
The size of the financial services (such as Lending, Cards & Payments, Brokerage etc.) market stands at a staggering $25.58 trillion in 2022. It is further projected to be $33.35 trillion by 2026. This is a massive market for DeFi, which currently only stands at $35.25 billion in market cap according to CoinGecko. In the financial services global report, the following key points were stated:
The global payments industry has witnessed a rapid increase in the adoption of EMV technology. This growth is driven by the higher level of data security offered by EMV chips and PIN cards as compared to traditional magnetic stripe cards. EMV is a security standard for various payment cards, including debit, credit, charge, and prepaid cards
Banks and financial institutions are adopting digitization to modernise their commercial lending business. This move is mainly a result of increased competition among banks and growing demand for a simplified and quick commercial lending process. Digitization leads to improved customer satisfaction in obtaining a commercial loan, which can otherwise be a complex and slow process.
As stated, there is increasing adoption of EMV technology for cards, thus indicating a demand for better payment standards. EMV technology actually works very similarly to transactions on-chain, whereby a unique transaction code (just like a blockchain hash) is generated on every purchase. The increase in EMV adoption is also due to the fact that most EMV cards and readers also come with Near-Field-Communication (NFC), allowing for contactless payments. From here, we see two things, security as well as convenience. Although blockchain payments do already generate unique transaction hashes each time, they are not yet widely adopted. Spending money from your crypto wallet is basically impossible as popular wallets like MetaMask do not offer such a service. This leads us to the problem with DeFi which is the barrier of inconvenience that separates it from the real-world. It is hard for the average consumer to adopt DeFi services due to the inability to spend money on DeFi directly in the real-world. The experience of ramping money on or off-chain can be awful and even dangerous. This causes DeFi to mainly only be adopted by the already crypto-savvy natives who do not mind the hassle.
Kujira recognises this and is aiming to launch their very own wallet, focusing on real-world payments including e-commerce. The wallet is also going to be integrated with Kujira protocols that support such payments. The preview of the wallet can be seen here. The payments will also be done in USK, Kujira’s USD stablecoin, which I will be elaborating more on its mechanism later on. Using USK will allow for crypto payments to be done without any mind-boggling accounting to be done, which could happen with non-stablecoin crypto payments. Such payment integrations allow the user to be more capital efficient, by being able to switch between DeFi and real-world services seamlessly, effectively lowering barriers to entry.
There is also a clear trend towards digitisation of processes which is now heavily sought after as brick-and-mortar processes waste much more time. These are all pain points that can be easily solved by DeFi. DeFi has the potential to not only disrupt the market, but to further expand on it. DeFi allows consumers to access financial services with just an internet connection. In addition, the decentralised nature of DeFi also allows lower-end consumers to enjoy financial services permissionlessly (no KYC/cumbersome credit ratings). The nascency of DeFi also indicates a strong potential for new financial primitives to arise, which further expands the addressable market. With the Kujira wallet, users will be able to access DeFi services from the palm of their hands. A native wallet will allow for better user experience (UX) and deeper integration with Kujira’s native protocols, further increasing usability.
Trading: FIN
Let us now dive into the revolutionary DeFi services on Kujira. The first is FIN, a decentralised exchange (DEX) that utilises the order book mechanism. This makes it an actual DEX that is able to compete with CEXes. Market orders and limit orders can be placed at will. There is also no slippage like in an AMM since your orders depend on the bids and asks. Trading flows can be observed as well. More details about FIN can be found here.
FIN perpetuals are also set to be launched according to the roadmap. As previously explained in my GMX pitch, the TAM for perpetuals is massive, with the total trading volume for perpetuals in 2021 being almost $57 trillion. This accounts for about half of the total trading volume in 2021. With the fall of FTX, we are seeing a strong narrative for DEXes, with protocols such as Perpetual Protocol increasing in Daily Active Users (DAU) by 93.8% over the past month. With the black swan being a strong possible catalyst for DEX adoption and the enormous perpetual market, FIN is a strong contender to usurp lucrative market share with its practical mechanisms.
Liquidity: BOW
BOW is an Automated Market Maker (AMM) for FIN that makes it more liquid, therefore incentivising users to trade on FIN. The cool thing about BOW is that unlike other AMMs, liquidity pools (LPs) can be incentivised by anyone or any protocol voluntarily. This way, Kujira does not need to print KUJI in an inflationary manner to incentivise LPs. BOW also maintains high capital efficiency, only covering orders that are posted rather than the entire range. Overall, BOW creates unique yield opportunities for liquidity providers with various incentives as well as improves trading experience for FIN.
Stable Liquidations: USK/ORCA
USK is a USD-pegged stablecoin issued by collateralised debt positions (CDPs) on Kujira. To put it simply, it works very much like DAI (stablecoin by Maker DAO), where the user collateralises crypto assets to mint the stablecoin. Currently, you may mint USK with ATOM/DOT/ETH on BLUE, the place for Kujira governance, bridging and minting of USK. The CDP model was adopted due to its proven stability thus far, with DAI not observing any serious depeg events even after so many crypto black swans.
So what makes USK special? It would be due to the fact that only decentralised assets would be used as collateral, effectively allowing USK to be uncensorable money. Users of USK would not need to worry about their assets getting frozen or blacklisted, which could happen if they were using USDT or USDC.
Next up, we have ORCA, which enables retail to participate in bidding liquidated assets. Back on Terra, this was one of the most innovative products that worked efficiently even during the UST depeg (I managed to buy bLUNA at a 30% discount lol). ORCA’s prowess further solidifies the peg of USK, as ORCA incentivises users to participate in liquidations for collateral used to mint USK for a discounted price. As such, this decreases the chances of bad debt for USK due to a lack of demand for bidding assets that should be liquidated. Therefore, ensuring that USK is always fully collateralised.
The liquidation market is massive. If we take a look at DeFiLlama, there are hundreds of millions to billions of dollars in liquidations happening every day. As shown in the roadmap, ORCA has plans to expand cross-chain. ORCA takes a 0.5% fee for the withdrawal of every successful bid. If it were to capture 10% of the liquidation market, ORCA would be able to earn $500K in fees every day (at a daily value of $1B liquidations). As of now, I have not heard of other protocols doing similar things to ORCA (if you know of any do let me know!), it would seem that ORCA is set to dominate this market.
The Road Ahead
To conclude this section, let us end off by seeing what else Kujira has in store:
- DLOYAL: Performance marketing and sales dApp for Web 3
- Kujira Name Service: Domain names on Kujira
- RektBets: Fantasy sports betting
- Local Money: Decentralised on/off-ramp service
- Atlo: Launchpad
- Fitlink: Move to Earn
The future seems bright for Kujira as its native protocols are set to fit the needs of every individual. One should keep in mind that it is likely that the fees of platforms being built on Kujira will all be accrued to KUJI stakers.
Conclusion
To conclude, I shall briefly mention about the strong community in Kujira. It is still lively, especially if you hang out in the telegram chat where it is rather engaging. There are still many believers despite the Terra collapse. Weekly roundups are actively being written as well and the official Twitter is still active. NFT projects such as KUJIRANS also help to give identity to Kujira supporters.
For me, I feel that it is not an “if” but rather a “wen” for Kujira to truly ascend to be a top L1 and DeFi hub. The direction the team is heading towards is reminiscent of what was promised with Terra excluding the fragility. Kujira aims not just to please the already present degens in crypto, but to also onboard average joes and to achieve mass adoption. Their vision is sweet and their mission makes it complete. With that, I shall end off with Kujira’s manifesto.
Everyone deserves to be a whale.
Disclaimer: I hold KUJI and this article consists only of my personal opinions. I am not recommending the investment of KUJI tokens and am simply explaining why I like Kujira.
Update:
- Previously, staking more KUJI meant access to ORCA’s premium dashboard.
- To note, market orders on FIN do experience slippage.
- KUJI does not need to print tokens for BOW as the trading algorithm brings revenue from trading on spreads, just like traditional Market Maker (MM) on CEX/TradFi does. At the same time, 100% of BOW (MM) trading revenue is being distributed to liquidity providers (compounded in pools).
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