Kava Token Economics

Scott Stuart
Aug 16 · 4 min read

The Kava blockchain is the first cross-blockchain DeFi platform enabling users to leverage and hedge using a multi-collateral CDP system and collateral-backed stablecoin (USDX). The native token of the Kava blockchain is KAVA, a governance and validation token that is staked by validators, who vote on blocks and participate in governance.

Transaction Fees

Transaction fees are required for all Kava transactions, which includes transferring pegged assets (e.g. pXRP) to other users, transferring pXRP to the Kava collateral module, drawing USDX from a CDP, closing a CDP, and sending USDX between users. Kava plans to support a multitude of white listed assets usable within the CDP. Transaction fees for each block are split by validators and delegators according to weighted stake.

Deflationary Fee Structure

When Kava users send pXRP collateral to the Kava collateralized debt position (CDP) module, they can draw USDX up to the liquidation percentage of their collateral. Each CDP is subject to a USDX denominated stability fee that must be paid in KAVA when the CDP is closed. The initial rate of the stability fee will be 5% APR. When CDPs are closed, the KAVA that is used to pay the stability fee is burned, decreasing the total outstanding supply of KAVA.


If CDP users close CDPs worth 10 million USDX during the first year of operation, then 500,000 USDX worth of KAVA will be burned during the first year of operation. Assuming a 10 million market cap of KAVA and an initial total supply of 100,000,000 KAVA, then 5,000,000 KAVA would be burned during the first year of operation of the Kava blockchain.

Inflationary KAVA

Block Rewards

New KAVA are created every block and distributed to validators and delegators participating in the consensus process. This provides an incentive to holders to not just passively hold their tokens in wallets, but to put them at risk in order to secure the network. The number of new KAVA created per block is variable and depends on the percentage of the KAVA supply that is staked in the network.

The target rate of inflation for KAVA is designed as an incentive for ⅔ of the total KAVA supply to be staked. At launch the target rate is 7%. If less KAVA are staked, KAVA supply via block rewards increases up to a ceiling of 20% annualized inflation of the total supply. If more than ⅔ are being staked, KAVA block rewards decrease gradually down to a floor of 3% annualized inflation.

Lender of Last Resort

In the event the CDP system becomes under-collateralized, KAVA will be minted and sold for USDX until the required collateralization ratio is restored. This event is unlikely to occur during the normal operation of the system, but could happen in the event of a crash in the value of the collateral backing CDPs.

Commission Rates

Validators are able to charge commissions for the service they provide. Like in Cosmos, validators can compete on features, security, and commission rate, etc. Meanwhile, delegators can select those validators whose offers, services, and safety threshold are most suited for them.

The default mode is a single commission rate for Kava block rewards, as well as transaction fees. However, if the community chooses to change this setting later for variable commission rates per fee token, the community can do so through governance. This would allow validators to charge a variable commission rate on block rewards paid in KAVA, USDX, and on transaction fees from other whitelisted tokens/pegged assets such as pXRP.


Validators set a commission rate of their choice, for example 10%, which by default is applied uniformly across all fees and block rewards (i.e. KAVA, USDX, etc.). Then, 90% of the revenues generated would go to the delegators and 10% is retained by the validator for providing its service.


Key parameters of the Kava platform are governed by holders of the KAVA token. Examples include the stability fee for opening a CDP, the required collateral ratio for a CDP, the liquidation penalty for when a CDP goes below the required collateral ratio. Let’s walk through an example of governance:


For pXRP, the current stability fee (the cost of opening a CDP with pXRP collateral) is 5%. If a holder of the KAVA token believes that the stability fee should be lower, they would submit a governance proposal to change the stability fee to 3%. They would include a refundable deposit of KAVA tokens along with their proposal, to prevent spam. After the minimum deposit is met, the voting period for that proposal starts. KAVA token holders would then cast votes on the proposal or delegate their votes to validators. If 50% of bonded KAVA tokens vote in favor of the proposal, it would pass and the stability fee would change from 5% to 3%.

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.

Kava Labs Blog

This publication features news and articles from the Kava Labs team. Kava Labs is a developer of the Kava blockchain, the first cross-blockchain DeFi platform.

Scott Stuart

Written by

Work on Product at Kava Labs Inc.

Kava Labs Blog

This publication features news and articles from the Kava Labs team. Kava Labs is a developer of the Kava blockchain, the first cross-blockchain DeFi platform.

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