Kava (KAVA) is Defying the Crypto Slump with Impressive Gains

Cryptocurrency prices moved lower on Wednesday after recording greens the day before. With 2% losses, Bitcoin is back under $27k, while Ether has declined below $1,820 after recording 1.8% losses. 

The largest cryptocurrency has been trading in a tight range throughout this month, struggling to break above $30,000 but staying above $25,000. According to Glassnode, Bitcoin HODLing is currently on the rise, with a proportion of BTC HODLed for at least a year reaching a record level of 68%, hinting towards a strong investor sentiment.

As for Ethereum, it is riding momentum, with ETH locked up for staking up by over 8% since the Shapella upgrade went live last month, at close to 21 million. Meanwhile, the queue for onboarding validators has surged to more than 68,000, meaning one would need to wait over a month before joining the network. 

Despite this, both Bitcoin and Ether are on pace for their worst month of 2023, down 7.6% and 3.1%, respectively. Bitcoin is also down 4.5% for the quarter, after ending the Q1 up 71%, while Ether is up 1% after it posted a 52% gain in the first quarter.

These losses came despite the good news that Hong Kong's Securities and Futures Commission announced that it would allow retail investors to trade certain crypto assets beginning next month on registered trading platforms. This could be because the move was widely expected since earlier this year when the agency requested public comment on its proposed regulatory requirements around retail trading in crypto in February.

Additionally, SFC will require platform operators to ensure the suitability of retail clients through comprehensive onboarding processes, including risk tolerance assessment and an evaluation of an investor's understanding of virtual assets. On top of it, platforms will be required to establish limits on the size of positions. Not every crypto will be available for trading either, and there would be a ban on stablecoins for retail traders.  

The new guidelines are part of a broader effort by Hong Kong to become a global crypto hub, something in sharp contrast with China, which banned crypto trading in 2021. While this isn't expected to lead to a flood of retail buying power to enter the market next month, we could still see some uptick in volume in June.

This announcement comes at a time when the market lacks any narrative and has become boring. All the attention right now is on the ongoing debt ceiling negotiations and rate hike expectations.

Meanwhile, the total crypto market capitalization has fallen 1.7% and now stands at $1.17 trillion, according to CoinGecko. Most coins are struggling to break their 20-week moving averages, meaning capital is going from altcoins to Bitcoin and Ethereum.

Among the top 100 cryptocurrencies by market cap, the biggest loser was SUI, with 8.7% losses in the past 24 hours. Other prominent losers include GMX (8%), Conflux (7.2%), BSV (6.5%), Radix (6%), Litecoin (5.6%), Dash (5.5), LDO (5.5%), Stacks (5.3%), and Pepe (5.2%).

However, some coins still managed to pull in greens but barely. Ton, with 4% gains, and IOTA, with a 3% upside, are the only noticeable performers during this period. 

While KAVA is also in the red in the past 24 hours, it is only by 0.4% and is actually the best performer among the top 100 crypto assets in the past week, with 32% gains. 

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KAVA Price's Fall & Recovery

The 75th largest cryptocurrency with a market cap of $635.5 million, KAVA is trading at $1.19 at the time of writing. The token is up more than 54% in the past month while down over 53% in the past year. 

In 2023 so far, KAVA is up 121.38% but is down almost 87% from its all-time high (ATH) of $9.12 hit in August 2021.  

Launched in October 2019, the KAVA token first noted its price peak of $5.11 in Aug., just months after hitting its all-time low at $0.287 in March 2020. But soon, the value of KAVA dropped to $1.28 in early November of the same year, only to go on to record a new ATH during the bull run of 2021 in tandem with the majority of the crypto market. 

The KAVA price retraced to $4.63 in Sept. 2021 but was trading under $4 when it entered the new year. KAVA ended 2022 at around $0.50 and has been making a slow recovery, just like the rest of the market in 2023. 

KAVA is the native cryptocurrency of the layer 1 blockchain Kava that offers compatibility with the Ethereum and Cosmos ecosystems. By using the Cosmos SDK, which provides the IBC protocol, Kava is able to directly communicate with other Cosmos-based blockchains and ecosystems to achieve cross-chain functionality. 

At its base, the Kava network utilizes the Tendermint-based proof-of-stake consensus mechanism. Here, validators act as a small “validator committee” to give initial approval to the transaction, while guardians leverage thousands of nodes to validate transactions and add them to the blockchain.

Brian Henning Kerr and Scott Stuart founded the for-profit company behind Kava, Kava Labs, in June 2017. The company raised $1.2 million in seed funding in early 2019, followed by a venture round a few months later. Then in April 2020, FrameWork Ventures purchased between 1% and 5% of all Kava tokens for $750k.

In the first quarter of 2021, Kava Labs acquired the creative service provider Crank Studio which specialized in UI/UX, visual identity, motion, and graphic design, for an undisclosed amount. Then in early 2Q21, the Kava network underwent a hard fork to introduce various governance and parameter changes. A solution was introduced by Kava Labs to facilitate the onboarding of layer 2 cryptos. 

Meanwhile, the KAVA token has an unknown supply cap but currently, 533.4 million KAVA tokens are circulating in the market. 

The project issued 100 million of its tokens during three private sales along with a public round on Binance Launchpad. The Kava Labs actually control 25% of the total KAVA supply, while the remaining almost 28.5% is held in the Treasury.

While the issuance rate of Kava is unknown due to KAVA block rewards being randomized based on how many tokens are staked on the network, Kava Labs maintains a burn mechanism. Any KAVA used to pay stability fees in closing a collateralized debt position (CDP) is burned and permanently removed from circulation.

Kava is a decentralized finance protocol allowing users to lend and borrow assets without requiring intermediaries and using multiple crypto assets as collateral. It instead opts for a cross-chain lending platform allowing users to borrow the USDX stablecoin against non-DeFi assets such as BTC, XRP, BNB, and others. Users earn weekly rewards in KAVA tokens by collateralizing crypto to mint USDX.

The way it works is users deposit crypto by connecting their wallets, and Kava creates a CDP by locking the deposited crypto in a smart contract. Users are then issued USDX loans based on the value of the CDP. To close a CDP or unlock the collateralized crypto, users repay the debt plus a fee. In the end, the user withdraws their crypto, and Kava burns the USDX.

Developments in the Kava Ecosystem 

When it comes to the total value locked (TVL) of Kava, the platform currently has just under $240 million, as per DeFi Llama. This value is up from about $169 million at the beginning of the year, far off of over $700 million recorded at its peak in Nov. 2021. 

As of writing, lending protocol Kava Lend accounts for 46.79% of this TVL. Other prominent protocols built on the platform include yield aggregator Kava Earn, liquid staking protocol Kava Liquid, CDP platform Kava Mint, lending protocol Mare Finance, and DEX Kava Swap. 

So, the jump in KAVA price could be the South Korean crypto exchange Upbit stating this week that the Digital Asset Exchange Association (DAXA) has removed investment warnings on KAVA and has resumed deposits for the asset. 

DAXA is a group of the top five crypto exchanges in South Korea, including Upbit, Bithumb, Korbit, Gopax, and Coinone, which was formed after the Terra Luna collapse in 2022 to prevent a similar recurrence.

The warning was issued by DAXA last year when related stablecoins were discovered to be “not normally linked to 1 dollar.” At the time, the South Korean exchanges attached an “investment warning” to the asset and warned users about investing in it.

But now, upon review, DAXA said the exchanges no longer see them as a significant risk and that the reasons for assigning the caution item tags have now been resolved. So, the South Korean exchanges can resume deposit services for KAVA.

Besides this, the latest spike in the price of KAVA coincided with the launch of the Kava 13 mainnet, which deployed architecture enhancements. These improvements include seamless Cosmos–Ethereum bridging as well as advanced vault control​​ to Kava DAO over supplying liquidity, asset swapping, portfolio diversification, and more. Additionally, the upgrade will help developers accelerate and scale their protocols and optimize the user experience across the Kava ecosystem.

While the Kava network continues to grow, the broad market conditions are not bullish. Additionally, the KAVA price has reached potentially overbought conditions with the Relative Strength Index (RSI) near 70 and the stochastic oscillator at 92. Combined with the declining trading volume, the KAVA price is expected to see a correction.

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