A DeFi lending protocol, Kava Mint allows you to borrow Kava’s stablecoin, USDX, using your crypto assets as collateral. This allows you to hold onto your coin while being able to leverage it. Three key concepts will be covered in this article for maximizing your yield with Kava Mint.
- Minting USDX with Collateral
- Fixed vs Variable Collateral Assets
- Earning with USDX
1. Minting USDX with Collateral
Simply supply your tokens as collateral to borrow USDX on Kava Mint. The collateral you supplied is always yours, but to withdraw in full, you must repay your total USDX loan amount plus any accrued interest.
There are currently two options for borrowing against collateral on the Kava Platform, Kava Mint and Kava Lend. While both Kava Mint and Kava Lend allow you to borrow against collateral with minimal interest fees, there are a few key things to note when borrowing on Kava Mint.
- You can borrow more against your collateral: The loan to value ratio (LTV) for Mint ranges between 66% — 99%, meaning that you can borrow as much as 99% of the value supplied for certain assets. If you supply $100 with an LTV of 99%, you can borrow up to $99 with that $100 of collateral value. LTV on Kava Lend tops out at 50%.
- Stablecoin prices are fixed: While the market price of UST, BUSD, and USDX can fluctuate around $1.00, within Kava Mint, they are fixed to a $1.00 value. The majority of assets supported on the Kava Platform use a 30 minute averaged market price. These price stability measures are taken to help reduce liquidation risk due to sudden price changes.
- Interest fees are fixed: Interest fees on Kava Mint are fixed, while interest fees on Kava Lend are variable based on the ratio of the total supplied and total borrowed of each asset. Interest fees accrued on both protocols are added directly to the borrowed amount.
- Manage your positions in isolation: Borrowing USDX on Kava Mint creates individual collateral debt positions for each asset, compared to Kava Lend, where all supplied assets make up a single collateral value. Kava Lend also allows you to borrow any asset against your supplied collateral, while Kava Mint only supports minting USDX.
2. Fixed vs. Variable Collateral Assets
Variable Assets as Collateral for Minting USDX
Variable coins such as BTC, BNB, ATOM, and KAVA can be used to mint USDX at a loan to value ratio of 66.5%, meaning that for every $100 worth of each asset you supply, 66.5 USDX can be borrowed. If the value borrowed exceeds 66.5% of the market value supplied as collateral, your position is put at risk of liquidation. Interest fees for variable assets range from 0.5% — 5%, with most having a 2.5% interest fee.
The risk: Price fluctuations with your collateral coin can trigger a liquidation if the value of your collateral drops, shifting the borrow limit of your position down along with it. If accruing interest pushes you past the borrow limit ratio it can have the same effect. Be sure to check the borrow limit used and liquidation price on your open positions, especially during turbulent market conditions. Borrowing well below the limit is an effective strategy for avoiding liquidation.
The reward: Since the price of USDX is designed to stay consistent with the US dollar, the market can moon and you still only need to repay the original dollar value of the loan, creating the opportunity to leverage a long position. Borrowers can swap USDX for more collateral and use it to take out another loan, creating synthetic leverage with any supported crypto asset. Doubling your exposure to the collateral asset, means doubling your earnings if the asset appreciates in value. Long positions can be risky and require active monitoring, if you want to leverage your collateral with less risk, simply supply your USDX to Kava Lend or Kava Swap.
Fixed Assets as Collateral for Minting USDX
Using a stablecoin such as BUSD or UST as collateral within Kava Mint functions a bit differently. With the price of both assets being fixed to $1.00 within Kava Mint, the risk of liquidation due to market price changes is eliminated. With “fixed” assets, USDX can also be borrowed with zero interest and done at a 99% LTV, meaning you essentially get a 1:1 swap of your stablecoin while still retaining ownership of the token supplied.
The risk: while the Kava platform has never been hacked and has a near perfect security score, with any DeFi platform there is some risk in supplying due to hackers and scammers. Liquidation risk due to price changes or accruing interest however, does not exist for “fixed” assets.
The reward: Low risk, less reward? Not really. While you can’t long a stablecoin such as UST or BUSD, you can still flip it for USDX and earn triple digit APYs by supplying liquidity to a pool on Kava Swap or earn KAVA by supplying to a money market on Kava Lend.
3. Earning with USDX
To recap, after borrowing (minting) USDX through Kava Mint, here are the three primary strategies for earning with USDX on the Kava platform.
a. Supply USDX solo to Kava Lend: The safest and easiest way to earn on the Kava Platform. Supply to the USDX money market on Lend and earn KAVA, HARD, and USDX at varying APYs. Total APY earnings range between 40% — 50%.
b. Supply a liquidity pair to Kava Swap: Swap half your USDX for another coin on Kava Swap and supply the pair to a liquidity pool for potentially triple-digit APYs. Earn SWP rewards and collect a portion of the swap fees as users exchange coins within the pool. Total APY earnings range between 80% — 200%.
c. Longing a Variable Asset: After borrowing, swap your USDX for more collateral and use it to borrow more USDX on Kava Mint. By repeating this process, users can create synthetic leverage with any supported crypto asset, effectively creating a leveraged long position. As your coin appreciates in value, you can potentially 2x the earnings. Exiting a long position to lock in your earnings will require repaying the loan, withdrawing the collateral, and swapping it for a stablecoin to lock-in that asset’s current market value. Please take caution when going long with a declining asset, as it can potentially double your losses. Borrow loops also increase the interest of the loan, raising the liquidation risk due to a growing borrow amount.
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