San Francisco, April 8th 15:00 UTC – Kava announced today that it enables institutions to earn +45% APR on Bitcoin holdings without counterparty risk. The Kava baselayer infrastructure has been optimized. Kava Labs released the Kava 5.1 upgrade to the public including its borrow side functionality.
Bitcoin and others have enabled users to take control of funds removing the need for banks and middle men. Now users can custody their digital assets, store value and make payments without the fees and regulators who censor financial freedom.
However, with great power comes great responsibility. The old centralized way is being a recipient – you get your checking and savings accounts and you can’t custody your assets. The new way is you have total control and power, but with that Kava has had a lack of participation. The community needs to own their responsibility to show up and vote.
Institutional investors have been paying increasing attention to Bitcoin in recent months. The growing number of publicly traded companies having a Bitcoin treasury is just one such indicator. Kava’s recent protocol upgrade lets these companies take out loans on their assets.
Institutional Investors Flock To Bitcoin
The past twelve months have been intriguing as far as Bitcoin is concerned. Besides the price hype, the big news is how more institutional investors seek exposure to the world’s leading cryptocurrency. Rather than spending money on futures contracts, these companies purchase Bitcoin as part of their Treasury. Several companies have been outspoken about these purchases, including MicroStrategy, Tesla, and Meitu.
To some, this approach may seem risky. Bitcoin remains a volatile asset that can undergo wild price fluctuations. However, every company creating a Bitcoin Treasury over the past few months is currently in profit. The acquiring of Bitcoin and profiting from its price rise seems to be working out well, although the momentum can turn around on a dime.
Now that these institutional players are invested in Bitcoin, one has to wonder what comes next. Will they sell when the price is at a specific level, or keep adding more BTC to their Treasury? Figuring out this “retention” angle will prove necessary if this industry is to keep on growing globally.
It took years to get these companies’ attention, yet there are still few reasons besides the speculative asset to ensure they hold onto their BTC portfolio for a while. Finding new use cases for these companies’ Bitcoin holdings may be the missing piece of the puzzle.
One option that may appeal to some of the institutional players is using their current Bitcoin holdings as collateral for loans. As part of Kava’s recent V5 upgrade, the HARD Protocol received an update to Version 2. This upgrade provides borrowing with variable interest rates and HARD tokens’ distribution to suppliers and borrowers alike.
Assuming companies like Tesla want to put their BTC to work, they can do so through Kava and HARD Protocol. Any financial institution can earn 45% on their current BTC holdings without counterparty risk. As Tesla owns $1.5 billion worth of Bitcoin – or an estimated 48,000 BTC – they can earn up to 21,600 BTC with a 12-month lock-up period. Kava provides a significant passive income stream that institutions can explore by turning their Bitcoin into a cash-flowing asset.
The option of lending and borrowing is an increasingly popular aspect of decentralized finance. To date, Bitcoin’s role in DeFi remains minimal, as few protocols support the world’s leading currency in its native form. More often than not, users need to convert their holdings to a tokenized or wrapped version and spend money to do so. Protocols that support Bitcoin natively can benefit from the growing interest in cryptocurrencies by institutional investors.
Convincing the institutions that hold Bitcoin to explore DeFi options will be a tall order. Although a 45% return with no counterparty risk is appealing, it remains unclear how many companies prefer this option because the risk with DeFi is there’s no counterparty to sue when things go wrong.
As more Bitcoin-oriented DeFi solutions come to market, the landscape will grow more competitive and compelling. Catering to institutional-grade players is the next order of business, as big money is pouring into Bitcoin as of late.
Keeping that momentum going will require compelling options, either through decentralized finance or otherwise. The coming months may prove crucial in this regard, as these institutional players may not sit around for too long.
“As more enterprises and financial institutions adopt bitcoin and crypto currencies, the more valuable the Kava DeFi platform will become as it enables this new wave of financially minded users with a way to finally put their assets to work and make Bitcoin and other crypto into a cash flowing asset on their balance sheets.” – Brian Kerr, CEO of Kava Labs.