MakerDAO Versus the Kava Protocol: Who Wins as the Future King of DeFi?

On Jan 19, KAVA is trading at $2.12, lodged at 147th position in the market cap leaderboard. The KAVA token is predominantly traded at Binance—the world’s leading crypto exchange– and also heavily traded on Huobi and Kraken, yet is available at other exchanges like MXC and UpBit. Kava’s growing ecosystem is reflected in the size of its user base including its significant presence on social media.

Compared to the MakerDAO protocol, its native token, MKR, is trading at around $1k, giving it a market cap of $1.3 billion and number 29th global rank making it one of the leading crypto tokens, in valuation terms. MakerDAO reflects its traction with its large userbase and community.

Daily trading volume, unique addresses, and transaction volume are just a few of the ways that analysts evaluate crypto projects. But website communication, a quality technical team, and a strong community across social media platforms are also heavily weighed by the majority of crypto investors.  Market cap and social media following can be one way to judge a cryptocurrency project, but other metrics provide an in-depth perspective of activity through data. 

To this end, Kava believes in complete transparency and decentralization. That’s why the project has collaborated with Flipside Crypto to release the Kava data dashboard. Flipside Crypto’s dashboard provides traders and investors with cutting edge and real-time blockchain-based data so that anyone can see patterns and movement in a transparent way. 

What is MakerDAO?

Maker is among the earliest decentralized finance projects. Its launch set the precedence for what we have today in terms of nomenclature. For example, this is where the term collateralized debt positions, CDP’s for short was coined. Maker is restricted by the limitations of the Ethereum network in safety and scale and Kava recognized the opportunity to get into DeFi early on.

Despite the first-mover advantage of the MakerDAO protocol, could there be specific features that could power KAVA and flip MKR’s valuation? Or will we see a steady progression of new users entering the DeFi space to rely on Kava’s DeFi platform? Instead of the older and more clunky options available on Ethereum’s network many users want a safer more reliable option like the Kava DeFi ecosystem. 

The MakerDAO project is a lending protocol on Ethereum. Data from Defi Pulse, a site that tracks leading DeFi projects in Ethereum, shows that the protocol is the most dominant with a market share of 18 percent, managing slightly over $3.5 billion out of the $19.52 billion of assets currently being managed by DeFi dApps.

Within the protocol, users can borrow, lend, and earn interest on their digital assets. Considering the volatility of the space, borrowers must over-collateralize to receive loans in DAI. 

As BTCManager recently reported, together with USDT and the USDC—centrally issued stablecoins, DAI is one of the most active stablecoin in the Ethereum ecosystem. DAI is algorithmically controlled and keeps a smooth peg to the USD

Combined, they helped the Ethereum network process over $835 billion in stablecoin value. 

However, given the demand for the coin and the exponential rise of DeFi in 2020, the protocol has been struggling to maintain the peg, subsequently introducing several measures like more collaterals and reducing the stability fee of some assets for DAI to better track the greenback.

The MKR is the MakerDAO’s governance token, and holders have the right to introduce changes by voting. The token is also the lending platform’s lender of the last resort.

What is the Kava Protocol?

On the other hand, the Kava protocol works just like the MakerDAO. However, instead of launching on Ethereum, it was released as a layer one technology blockchain built with the Tendermint SDK. Its ecosystem is rich with DeFi applications like HARD, and financial institutions like Binance and Huobi. 

With Cosmos links, the platform is inherently interoperable, designed as such for strategic reasons. Instead of focusing on a single network, the Kava protocol is made so that users outside of Ethereum can lend, earn, and borrow. 

Accordingly, the Kava protocol supports coins of leading crypto projects like BTC, XRP, and BNB as collateral activating DeFi. As of writing, there is $96.5 million worth of value locked. Specifically, there’s $30 million worth of BNB and $17.81 million of BTC supplied, available for borrowing.

MakerDAO Versus Kava Protocol: Which is better?

Similar to the Maker Protocol, borrowers must overcollateralize their loans, to receive loans in the USDX stablecoin. Users pay their interest in USDX.

One interesting thing about Kava is the lucrative yield cycles set in place for yield farmers. 

Unlike MakerDAO, which doesn’t allow users to supply MKR, holders can receive the KAVA token as a reward for minting USDX all while earning interest. 

Additionally, an incentive program runs for four years, encouraging early adopters to borrow funds. Those that borrow can receive KAVA tokens as a reward. This is not possible with MakerDAO. However, Compound Finance has filled in this gap within the Ethereum ecosystem in different ways.

For example, the Kava Protocol is interoperable, supports a wide array of assets, basically enabling cross-chain DeFi. On the other hand, Maker is based on Ethereum, only allowing ETH and select ERC-20 tokens as collateral. 

Unique to the Kava ecosystem is a feature where users of Kava can receive KAVA tokens and use them to borrow more funds in USDX. This shouldn’t be confused with KAVA being the lender of last resort whenever there is unexpected market turbulence. The USDX stablecoin can also be used to hedge against risk while concurrently receiving earning interest.

Users can also supply KAVA in the Hard Protocol money market, receive HARD tokens, and use them to borrow more USDX. Users can then buy more, adding to those received as an incentive reward to borrowing, and in turn creating a long position for the long term. The Hard Protocol is one of the many dApps that will launch on the platform, taking advantage of its security, price oracles, and interoperability, increasing the number of assets available as collateral for borrowers.

Unlike Maker users who have to contend with high network fees, because Kava is built on the Tendermint SDK users are guaranteed fast settlement time, incentives for Kava stakers to secure the network, and easy applicability of the USDX in normal commerce due to high settlement time.