Daily DeFi Digest
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Daily DeFi Digest

A Short Risk Review on Kronos DAO and KASH — A Klaytn-Based Defi 2.0 Protocol and Defi 2.0-Backed Stablecoin

Disclaimer: I don’t represent any company/foundation or any Defi protocol’s needs.

Born of Defi 2.0

The concept of Defi 2.0, known as the “protocol owned” liquidity was started by Olympus DAO in early 2021. After that, there is a big trend of DeFi2.0 across the main nets.

The concept of Defi 2.0 is simple, but the implemented versions (the protocols) are quite complicated. In AMM-Based DeX, we provide liquidity and earn trading fees. But liquidity is still ours and we can withdraw it anytime.

source: coinyuppie

But, Defi 2.0 is different. Instead of borrowing liquidity and giving incentives, protocol buys the liquidity with the protocol’s governance token. So, we can “mint” Defi 2.0 governance token with our liquidity, instead of “staking” the liquidity on the pool. When we want to withdraw the liquidity, “sell” the governance token instead of “unstacking” the tokens. And at the last, Defi 2.0 gives high yield rates for governance token stakes to hold the liquidity.

source: coinyuppie

About Kronos DAO

Today, We are gonna look deeper into one specific protocol. Kronos DAO, which is the first Defi 2.0 Project on Klaytn Network.

Kronos DAO

Actually, Kronos DAO is a fork from Olympus DAO. So the bonding mechanism and all those yields are similar to Olympus DAO. Even the name is “Kronos DAO”.

The basic difference between Kronos DAO and Olympus DAO is the collateral tokens. Kronos DAO is a project on a Klaytn network, so it’s backed by KLAY, KSD, KSP, KDAI (It’s Bridged DAI.), and KASH (important).

But, that’s not it. Kronos DAO has a lot of ecosystems based on KRNO liquidity. Let’s take a look at that.

KASH, Defi 2.0-Backed Stablecoin

KASH is a dollar-pegged stablecoin, which is backed by KRNO derivative, wsKRNO (wrapped staked KRNO). Defi 2.0 gives yield for its governance token. It means, the holding’s quantity grows when we stake sKRNO. But when we want to make sKRNO as collateral for stablecoin, we have to make the price go up, not the quantity. So, wsKRNO is a version of sKRNO that goes up but doesn’t generate yields.

Kash (Kairos Cash)

Funny, but scary fact is, KASH can mint KRNO. This means that stablecoin backed by KRNO’s derivative can back the KRNO as collateral. This means that this is a perfectly cyclic collateral chain.

I think this can be extremely dangerous. What if the KASH(or the derivative like KASH LP) goes into other stablecoin’s collateral? What if KASH goes into other derivatives’ collateral and on, and on, and on?

This is no different than the subprime mortgage crisis in 2007. Super complicated derivatives & collateral chain, and we have no idea what is the underlying asset. I think this kind of product is a timebomb for the Defi ecosystem.

We call DeFi a “Money Lego”. Because Defi is built on smart contracts, it shares the same protocol, we can combine it in many ways. In other words, if Defi lego’s tiny block breaks, the whole lego will be gone. Be aware and make sure you are managing your risk properly. Understand what you are investing in.

  • If you have any other opinions to share with me, feel free to do it. It would be very fun to debate about the Defi ecosystem :) Thanks.

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