Kava Lend Adds USDX Borrowing To Platform For Greater Leverage & Low Risk
In the wake of Prop 60, Lend users can now leverage up and generate greater returns by borrowing against their $USDX collateral without the price volatility of other crypto assets.
Users will be able to generate returns on Lend with this new low-risk approach.
What is USDX?
USDX is the native stablecoin of the Kava Ecosystem. Kava users can acquire $USDX by supplying crypto assets to the Mint protocol as collateral. $USDX denominates the borrow balances drawn from the Mint protocol.
USDX is not directly pegged to a value of $1 by any specific mechanism. Instead, its stability is derived from market flows which can be affected by Kava Governance. The more stable the USDX price is, the higher the usage of $USDX should be, making price stability a primary goal for Kava Governance.
What is Kava Lend?
Lend (formerly Hard Protocol) allows Kava Platform users to lock their crypto as collateral and borrow against it to earn rewards and gain access to additional liquidity and market exposure. Users can supply and borrow a variety of high-demand assets and earn a combination of interest in the asset they supplied and rewards in the native $HARD and $KAVA coins.
In the past, users were only able to supply $USDX on Lend in return for rewards paid out in $KAVA and $HARD. They could then borrow other assets against that collateral to trade with and earn additional reward APY. Depending on the price volatility of the asset they borrowed, there would be a varying degree of liquidation risk if the price of the borrowed asset increased significantly.
The addition of $USDX borrowing on Lend is a major addition to the platform for one reason. By allowing $USDX to be both supplied as collateral and borrowed, it allows users to leverage up their positions without introducing significant risk by borrowing “like-for-like”. This means that they have supplied $USDX and borrowed more $USDX against it.
Initially, the loan-to-value (LTV) ratio for USDX borrowing will be set to 0.25 initially, with a total borrow limit of $5 million. Once that limit is reached, Kava’s governance will likely increase it to accommodate increased demand. The LTV for $USDX-to-$USDX borrowing may also be increased in the future to match the 0.5 LTV of other assets on the platform, or possibly higher, given the lower risk of liquidation.
It may seem odd for users to borrow more of an asset that they are already supplying as collateral, but it actually offers a great risk-mitigated way to increase returns on Lend.
When borrowing $USDX against $USDX collateral, there is no risk of liquidation due to price fluctuations, because the two assets have the exact same price. If the value of the collateral fluctuates, so will the borrowed amount. This means that $USDX holders can increase their collateral amount and generate greater reward yields with very minimal risk exposure.
However, as interest accumulates on the loan, it will slowly move toward liquidation if the interest isn’t paid off, so it isn’t completely risk-free. Users need to monitor their positions regularly to prevent liquidation.
It is important to note that this only applies to borrowing $USDX against $USDX collateral. Any other collateral assets, or a mixture of $USDX and other assets, will greatly increase the risk of liquidation should there be any major price fluctuations.
After the successful passage of Prop 60, $USDX borrowing is now available on Kava Lend. This introduces a new, low-risk way for users to leverage up their positions and generate increased returns on the platform by borrowing $USDX against supplied $USDX.