Introducing Kava Swap — the Cross-chain Liquidity Hub for DeFi Apps and Financial Services.
May 11th, 2021 — Today we announce the proposal for Kava Swap, the Cross-chain Liquidity Hub.
What is Kava Swap?
Kava Swap is a cross-chain liquidity hub for all DeFi apps and financial services. Its purpose is to enable the aggregation of capital where it can then be deployed seamlessly across different blockchain ecosystems, DeFi Apps, and Financial Services.
At the base level, Kava Swap is a cross-chain Autonomous Market Making (AMM) Protocol that leverages the Kava platform’s DeFi infrastructure, cross-chain bridges, and security. Kava Swap delivers users a seamless way to swap between assets of different blockchains and deploy their capital into market making pools where they can earn handsome returns.
What does Kava Swap mean for the Kava Platform and HARD applications?
Each application rolled out on the Kava Platform is synergistic with the others. For example: Kava CDPs enable users to generate stablecoins which can then be placed in the HARD money market to earn returns. Kava Swap is the third synergistic pillar of the Kava DeFi ecosystem that will drive tremendous growth in existing applications such as the Kava Lending App and the HARD money market products. Enabling users to swap seamlessly between assets on the Kava platform allows users to avoid off-ramping problems when converting cross-chain assets and enables users to swap reward tokens for their desired currency all within the platform.
How does Kava Swap Work?
There are three major activities:
- Swap — You can seamlessly trade or swap between assets with guaranteed liquidity.
- Supply Liquidity — You can turn your digital assets into productive assets by supplying them as capital to the liquidity pools used by the autonomous market maker when swapping between assets.
- Earn — Liquidity providers earn fees from traders and Kava Swap Tokens, the governance token of the Kava Swap application.
How Kava Swap is Built
Kava Swap is an application built on the Kava blockchain platform. It leverages Kava’s existing validators for security, bridges for cross-chain asset transfer, and partners services such as Chainlink oracles for price-reference data. The code will exist as a discrete module that will be added to the existing Kava Mainnet software package.
Version 1 of Kava Swap ships with support for swapping between BTC, XRP, BNB, BUSD, USDX, KAVA, HARD and SWP. Corresponding liquidity pools will be made for each tradable asset pair which liquidity providers can contribute to. In version 1, adding new assets and supporting new liquidity pools will be available via simple on-chain governance votes.
Version 2 of Kava Swap packages all of Kava Swaps functionality into the Kava API where it can be easily integrated into any app that supports users with crypto enabling their users to trade and put their capital to work as liquidity providers. This version will also include several governance and scalability improvements.
Version 3 of Kava Swap will feature smart liquidity bridges between Binance Smart Chain and Ethereum ecosystems. Users will be able to allocate capital to liquidity pools to make trading across different ecosystems, DEX’s, and AMMs possible.
Version 4 of Kava Swap will feature smart execution for swapping and feature additional ecosystem bridges where Kava Swap can route liquidity to a variety of DeFi apps and Financial Services.
*Note — This is the proposed Kava Swap roadmap and is subject to change. Please see the on-chain proposal for final details.
Built as an open and permissionless application, Kava Swap is accessible by anyone, anytime, anywhere in the world. Exchanges, FinTech apps, and financial institutions can leverage Kava Swap to access additional liquidity, trade assets and make earning opportunities as liquidity providers available to their users.
Kava Swap Governance
As seen in all decentralized financial applications today, a governance token is necessary for proper decentralization, participant incentive alignment, and to ensure the ongoing evolution of the application. To compete in the current environment it’s also critical to have incentives to bootstrap liquidity and early adopters.
The Kava Swap Token — Decentralized governance and incentives
The Kava Swap Token’s primary role is to give holders a voice in the maintenance and evolution of the protocol. Collectively, Kava Swap Token holders are responsible for managing key parameters of the protocol such as what assets are to be offered, how rewards are distributed amongst assets, as well as set any platform fees, etc.
KAVA Tokens and Compensation
In designing Kava Swap, the question of if the KAVA token could be used to also govern the application was carefully evaluated. Three major items prevented this:
- Kava Swap’s evolution needs to be driven by the participants that use it. A fair distribution to users is necessary for long term success. The users of Kava Swap protocol may or may not be the same as those that hold KAVA today giving reason to not conflate the governance of the Kava blockchain with that of the application.
- Having liquidity provider incentives is a must in today’s yield oriented DeFi market. If the KAVA token was used for incentives on Kava Swap, the KAVA token would need to be inflated upwards of 50% of the supply. Given that not all KAVA holders would be participants on Kava Swap, inflating KAVA would meaningfully dilute existing KAVA holders.
- Lastly, the KAVA token needs to be preserved as a reserve asset responsible for recapitalizing the lending platform. Conflating its value in multiple use cases would create a cascade of problems and could potentially undermine its value as a reserve asset.
Kava Swap Token Compensation for KAVA Stakers
Just like with the HARD Protocol, where Kava stakers earned 20% of HARD token supply over 4 years for supplying infrastructure and security for the application. Similarly, with Kava Swap, KAVA stakers will be compensated directly with Kava Swap Token supply in a continuous distribution, pro-rata, amongst KAVA stakers over 4 years.
Kava Swap Token Distribution
250M Kava Swap Tokens will be minted at genesis and will become accessible over a 4 year period. The initial Kava Swap Token allocation is as follows:
55% — Community
25% — Treasury
15% — Team
5% — Ecosystem
Community Funds will be used for LP incentivize, KAVA Staking incentives, Airdrops, and other activities voted in by the community.
Note: To achieve a fair distribution there will not be any seed or private sale of the Kava Swap Tokens.
Development Roadmap & Timeline for Kava Swap V1
- June 30th, 2021 — Kava Swap Code Freeze
- All internal Kava Swap module code will be fully internally reviewed and ‘frozen’, allow no more new features, whilst internal and external audits begin.
2. July 12th, 2021 — Kava Swap Incentivized Testnet Launch
- Incentivized testnet for Kava users to test Kava Swap functionality.
3. July 14th, 2021 — Kava Swap Audits Complete
- Internal and external audits complete.
4. July 21st, 2021 —Go Live Decision
- Based on feedback from Internal and External audits, alongside results from Incentivized testnet, the decision to “Go Live” with Kava Swap to the Kava Validator community will be made.
5. August 12th, 2021 — Kava Swap Mainnet Launch
- Kava Swap release launches to production Kava DeFi Platform. A series of governance proposal will then be made to turn on various Kava Swap features, ensuring maximized security of rollout.
Kava Swap Version 1 Feature List:
1. Governance parameters
- add and remove token pairs for liquidity pools
- adjust reward APY for a liquidity pool
- adjust percentage of transaction fee deposited back to liquidity pool
2. Rewards for Delegation
Users who have delegated $KAVA to a validator will now also earn rewards in Kava Swap Tokens.
3. Swap Fees
Users pay a fee per transaction which serves as benefit for liquidity providers. Fees will be deposited directly to the corresponding liquidity pool.
4. Deposit Assets to a Liquidity Pool
User can select assets and amount per each token to deposit into existing pools via the Kava web app, third party applications, or Command Line Interface (CLI). Users will be rewarded with Kava Swap Tokens for providing liquidity.
5. Withdraw Deposited Assets from a Liquidity Pool
Users can withdraw their proportional share of a liquidity pool at any time. Proportional share will only be affected by other users withdrawing and depositing (not swaps). Withdrawals will include any accumulated swap fees. The incentive module will keep track of corresponding reward balances and display that information in the dashboard. If a user withdraws all their funds before the vesting period ends, they will not be entitled to the rewards. If they withdraw only a portion of their funds before vesting ends, their share of rewards will be reduced.
6. Swap Assets Between Liquidity Pools
Users can swap any number of their tokens for another asset based on available assets and token pairs, either through the web apps or CLI. Users can specify transaction deadlines (1 minute default) and slippage tolerance (1% default). Price will be automatically determined based on curve formula such that user gets instantaneous quote whenever they interact with Kava Swap. Users should be able to successfully complete swaps if certain parameters are not violated to minimize loss of funds, such as slippage tolerance and transaction timeout.
Users will have a user interface to view statistics on liquidity pools in order to ensure they are swapping tokens for the best price, and also investing in pools that will maximize rewards. Users can also review their earned and pending rewards.
8. Variable Vesting Periods
Users will be able to choose between 1 month and 12 month vesting periods, with a reward multiplier for choosing the 12 month option, similar to HARD Protocol.
9. Enable On-chain Governance for Kava Swap Tokens
Changes will be implemented to the committee module that will allow for Kava Swap Token holders to vote on governance proposals, enabling users to directly guide the future of the project. Locked Kava Swap Token balances will be counted for governance votes.
10. Version 1 Variable Feature List:
Non-exhaustive list of features not tied to next major release:
Arbitrage Bots — Automate the logic to query transactions in mempool to take advantage of arbitrage opportunities.
Adjustments in Allocation of Transaction Fees — Users can vote on the percentage transaction fees deposited back to protocol via governance.
Exchange Listings and Integrations — Partnering and integration with exchanges to allow users to participate directly in Kava Swap pools.
More announcements will be made regarding an incentivized testnet and governance proposals. Stay in touch to hear the latest news!
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Disclaimer: This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making investment decisions.