Earning with USDX Pt.1

$USDX is the native stablecoin of the Kava ecosystem. While $USDX is not directly pegged to a value of $1 by any specific mechanism, its stability is derived from market flows and influenced by Kava governance decisions. Over the past six months, the average price of $USDX has floated near 0.98 USD with a low of 0.94 USD and a high of 1.02 USD.

The primary utility of $USDX is its use cases within the Kava ecosystem. Because $USDX is a consistent store of value, the stablecoin also presents opportunities for longing or shorting assets and locking in the value of assets that demonstrate fluctuating value. Additionally, $USDX receives extra incentives on Kava Lend — the primary partner for exchanging coins or adding liquidity on Kava Swap — and is tradeable on the Ascendex Exchange.

How to obtain USDX

A few methods for obtaining $USDX exist both within and outside the Kava Platform. Each method has its pros and cons, which I’ll dive into below.

1. The first method is to borrow $USDX by supplying other assets as collateral on either Kava Mint or Kava Lend, then borrow $USDX against that collateral. This approach is great if you don’t want to sell your crypto but still want to take advantage of DeFi yields.
2. The second method is to trade other tokens for $USDX on Kava Swap or another DEX. You don’t retain ownership of the original asset, but this can be the right approach when timed correctly.
3. The third method is to buy on a centralized exchange (CEX). To do this, you must exchange fiat (e.g., USD, JPY) for $USDX and add to the value of your crypto portfolio.

Borrowing USDX

Like any loan, you can borrow a certain amount against your collateral and a set interest rate at which your borrow amount accumulates. On Kava, interest accumulates on the borrowed amount of each block with no repayment timeframe. The borrowed amount of the loan is determined by the Loan to Value Ratio (LTV).* LTV determines the amount you can borrow based on your collateral value, so if you provide $100 of collateral with an LTV of 99%, you can borrow $99.

*Minimum Collateral Ratio is another common term to describe borrowing limits, though Kava primarily uses LTV to describe borrowing limits.

Borrowing USDX on Kava Mint:

Pros: The primary benefit of Kava Mint is that you can borrow more against the collateral you provide compared to other platforms. LTV ranges between 66.7% — 99%, which is near the highest in the industry. Interest rates are fixed, ranging between 0% — 2.5% for blue-chip assets like $BTC, $BNB, $BUSD, etc. Regardless of the amount you borrow against your collateral, the interest rate remains the same. Nexo, for example, provides crypto-backed loans at low rates, but once you borrow more than 20% of the collateral value supplied, the interest rate jumps to 6.9%. LTV on Nexo tops out at 50%, so by comparison, you can borrow between 16.7% — 49% more against your collateral on Kava Mint. Stablecoin loans on Kava Mint are among the most competitive in the industry.

Cons: Debt positions are managed in isolation. That means that if the price of one collateral asset suddenly falls below the LTV ratio, it can put that loan at liquidation risk. Loans backed by multiple assets as collateral can be more stable since LTV isn’t influenced as much by the value of a single asset. An isolated debt position also has benefits since one asset liquidation won’t impact other loans.

Borrowing USDX on Kava Lend:

Pros: You can supply multiple coins as collateral for a single $USDX loan. The interest rate for $USDX on Kava Lend is variable based on total supply vs. total borrow but is generally lower than 1%, regardless of collateral. If you supply $BTC, $ATOM, and $BNB as collateral, one coin can drop in price while the others hold up the value of your collateral. You’ll also earn both supply APY and rewards APY for simply supplying collateral to money markets on Kava Lend.

Cons: LTV is 50% for all collateral assets, meaning the max amount you can borrow is 50% of the value supplied. While managing all your collateral assets in a single debt position can be beneficial, it does carry a risk if your position reaches the LTV threshold. If managed improperly, the entirety of your collateral supplied can get liquidated.

Trading for USDX on Kava Swap

Swapping your asset for $USDX is a little more straightforward. There’s no loan to manage and no interest to calculate, but you lose ownership of your original asset. So if you sell a variable asset at a lower value than when you bought it, you’re locking in those losses. Conversely, you lock in those gains if you sell after it appreciates value. The risk and the reward are that your original assets’ value changes in a way that makes you wish you would’ve held just a little bit longer. There’s also are some swap fees you’ll need to pay to the liquidity providers of the Swap Pool to complete the exchange, but there are no ongoing fees.

Buying USDX on a central exchange

The easiest option for many users may be to buy more $USDX on a central exchange with a credit card, debit card, or bank transfer. Currently, Ascendex is the primary central exchange to support $USDX and serves as a nice on/off ramp for crypto investors looking to spend their gains.

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 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.