Brian Kerr on Kava Labs DeFi lending platform

0:01i'm ashton addison from eventchain for investmentpitch media and fintech news network and today on blockchain interviews we have brian kerr the ceo of cavalabs brian welcome back to the show it's great to have you here today yeah thanks for having me back it's my pleasure you're very welcome cava has gone through a lot of changes since we last spoke last year if you could

0:21start by giving a refresher and to those who don't know what cava is what is kava and what does it do and what have you been up to lately oh where to start so we launched cava in june of 2019 or we made our public debut and we shortly after how to finance ieo with the the kava staking and governance token which both is like the the ownership and rights but also you can sort of control

0:47the network with it they're responsible for all the key parameters of what goes on and following the finance i o we had about six months of of development where just the kava token staking government governance was live on the blockchain and we're moving into a phase now uh starting on june 1st where we'll be releasing the next major upgrade for cava

1:10which will be the d5 lending module of our platform which enables users to deposit crypto assets the first being bnb and mint usdx stable coins or receive them as loans so this is kind of in just a week from now we'll be delivering on the promise that we set out to deliver uh with bnb being the first asset so i'm really excited to see that come to fruition that's very exciting

1:34and for those that aren't really familiar with the intricacies of the d5 space can you give a layman's description of you know what what does it do when you or what are the advantages when you use the d5 platform as opposed to regular old lending yeah so that's that's a great place to start and i would say like there's for different people e5 has different

1:57value propositions uh as a category um as a us citizen there's many places for me where i can't trade cryptocurrencies on margin accounts so i can't do leverage long trades of btc just because crypto exchanges can't support it for me due to regulations uh similarly in korea margin trading of any kind isn't available even in stocks for korean citizens

2:22uh the value proposition to people like us and people in south korea is that they can use the d5 platform because it's just software running in the cloud to receive loans on their assets and effectively get a leverage long uh a trade for whatever asset that you want so our platform is here to provide people who don't have access to financial services that

2:43tend to be reserved for institutional investors and accredited investors in the us and it expands it and makes it available to everyone anywhere that's great and being a d5 platform and lending out there are it can have uh certain situations where if there's a lot of volatility in the market that can affect you know liquidations or calling of loans and

3:09back two months ago when the stock market made a huge drop bitcoin also made a huge drop there was a lot of volatility in the market and there was a little bit of uh flack going on with the defy space now could you talk about the current views of how does the community and outside view defy as a you know moving forward and where does cava fit into all of this

3:33yeah so two months ago it was a it was a fun time for everyone both in the stock market and in crypto uh the the big shock caused a number of liquidations both in the normal capital markets as well as the crypto space and d5 was you know not immune to the squeezes of liquidity that were happening all around um but what was particularly interesting about that

3:54was that uh sort of the leading lending platforms of the the time like maker dow they actually didn't have enough um people with liquidity to take the other side of the liquidations or win the auctions as collateral was being liquidated and then sold off there wasn't people on the other side to buy it and when that happens the whole system which is trying to be algorithmically

4:16managed and stable shuts down or it fails to maintain stability which is uh sort of defeats the purpose of these things in the first place and i think that through the ecosystem caused a lot of learnings uh across a number of different projects they made a lot more people pay attention to topics like oracle's congestion on ethereum networks with causa things like posting prices that

4:39the the algorithms use to manage what everything is going on um all those can fail and there's a number of other things but what it means for for kaaba uh is that we have factored a lot of this into our roadmap already into our design decisions but what it does do is it highlights the importance of you need to be both technically safe when you're developing these things you

5:01need to design things properly but you also need to make sure the right incentives are available for the people who might be backstopping liquidity and supporting uh key functions like liquidations and i'm glad that you mentioned maker dow because they really have done a good job so far bringing the awareness of d5 to the cryptocurrency space as a whole

5:23now can you talk a little bit more about what sets apart kava from maker dow and do you see them as a competitor or with somebody as more of the same vision i think at the the very base level we have a similar vision to support decentralized financial services and making them openly accessible for everyone what we set out to do with cava was a bit grander of a vision

5:48i think than what maker dao was able to do just because in the early days of ethereum you're sort of trying to build the very first building blocks for everything else and maker down did that really well by giving ethereum holders a place to deposit their ethereum and receive a loan which then they could buy more ethereum with it or do whatever they want use it for

6:06payments and that comes in the form of die for us we see kava as providing services like that for all the the other cryptocurrencies that don't have smart contracts like ethereum does but we also see uh the kava platform providing kind of the basic level what we call defy services and functionality to all the other blockchains that don't have it and what that includes are

6:28things like uh chain link data feeds where we can take data posted on java and then distribute it out to other blockchains and what that allows is for say binance chain which operates a dex they can use that data once it's there to create options and futures contracts and a bunch of other financial instruments which will be really interesting for the traders that live there wow

6:51that's really interesting and also as of recent there was news of the d-force d5 platform that actually had some vulnerabilities in the contracts and some hackers were able to use code to siphon out the 25 million dollars at the time from these from the d5 platform although they did later return it which was very interesting can you talk a little bit about this

7:16situation the vulnerabilities potentially in in defy and do you see this as a setback for the space and does it affect the general opinion of the future of decentralized finance so i think hacks will happen in any type of technology and i think what the deforest situation particularly highlighted was and just to explain the context to everyone you had a team

7:40that saw the success of compound a lending protocol on ethereum that was pretty popular in the us and is one of the leading protocols to date they copied a lot of the open source code it was open source in the way that you could use it and review it but you weren't supposed to repurpose it for commercial purposes and deforest um i think they're based in

8:02china took it copied that code didn't really understand how it worked but then they sort of put it out into the world as their own and when you use other people's code that you don't intimately understand there's certain security concerns and design decisions that like compound and their team was very well aware of that when the deforest team reused the

8:24code they just didn't have the the ability to understand so that was a vulnerability in the code in the first place so then they started adding a bunch of other things to the code and what that did was they expanded the attack surface of what they were doing and then so i guess from that point of view there's always dangers and technologies uh especially

8:43with open source things but the other part that i think is really important in that situation is that deforest launched or put their their uh their smart contracts live before even running any third-party audits having any peer reviews done and i think that's fine to do if you're talking about you know ten thousand dollars or a hundred thousand dollars depending on

9:06how much money a company might have or how much the user base has but d force grew really really quickly because the the people in china who saw it really liked what what it was doing so it grew almost as you said into like 25 million dollars in collateral deposits um but it never at that point went through a security audit at least as far as i know

9:27and a basic security audit or a peer review should have found the vulnerabilities that the hackers used like they were well-known exploits since i believe 2017 for ethereum smart contracts so i think it just shows that there's young teams that are trying to shift things quickly uh they're trying to go to market which is the right thing to do for a startup

9:47but the same time there's certain safety precautions that any team needs to take and any user should take like doing just a little bit of due diligence on who's the team who released this code what vulnerabilities might be there did anyone even look at it that's credible and i think that that sort of highlighted a lot of the um go fast and break things that mark

10:08zuckerberg you know pushed for startups for a long time and and crypto is not the place to do that when you're handling millions of dollars of people's funds you can do it when you're early when it's just tens of thousands of dollars but once you get up into the millions and millions range that's when you need to be much more like a bank you need to go through

10:27strong security and auditing processes before you ship any code live to the blockchain because people use it people take advantage of it and people get hurt at the end of the day and that's not what we're trying to do here well said and i've heard the phrase a smart contract is only as secure as or it's only as vulnerable as uh you think it is until somebody

10:49hacks it right you can't really tell how secure it is obviously you can put in preventative measures for auditing and all of those such things and you know speaking of that has kava put in you know what kind of precautions has cabba put into its code for the d5 platform and review phase right now before our launch in early june um one of the things i think i just like

11:15to highlight for everyone is that ethereum because it's an open smart contract smart contracting platform where anything can run it means that the outputs of the code can be anything as well and what that does is for a hacker there's just so many different attack factors you can do because the code can do anything um when you build a system like what we

11:33have done at cava is we've scoped the code into modules where the modules have very discrete like sort of inputs and outputs and you can test for that it's like is it putting in that does the things that that go in actually result in the things that we want to come out and does it stay within that range and that's the difference between developing something in solidity like on

11:53ethereum or versus go which is what we use here at kaaba um so that's one precaution is from a design decision but then actually in in reality what we do once we've developed something new we do a bunch of internal testing we create a bunch of different uh internal tests of kind of as i said measuring inputs and outputs figuring out what range is and

12:13where errors could occur then we enlist a bunch of the third-party uh people in our community that are technically savvy like our validators and node operators we have several people from exchanges which are very technically savvy review the code then it goes to a third party auditor usually two to three that we pay this time we're using sertic and b

12:36harvest two companies out of south korea to review the code that are really good and after they give us the report of what has been put in what their findings are where they believe potential risks are our team takes that looks through it makes sure that know nothing's a big red flag address any issues that are in there and then we push the code uh live to the

12:58the community to then review again and vote it in to actually be part of the the live public blockchain so there's a lot of steps here and uh but i would say like all of them are necessary because our team might develop it we might know how we design things but there's always something when you're developing that you know every developer encounters bugs

13:17this is no different not everyone can find everything and it should be really like a team community effort at the end of the day yeah well what's really interesting about the cava platform is that you're utilizing the cosmos blockchain which i find very interesting and i see one of the advantages of that is interoperability now could you talk about the advantages over using ethereum by

13:39using cosmos and how the interoperability benefits the users of the platform yeah so the cosmos sdk is a framework for blockchain developers to quickly build a blockchain that has consensus it has the ability for nodes to communicate with each other and it gives developers the ability to then focus on the things that matter to them so for us it's like d5 it's lending

14:02being able to create stable points and and that's what my team is really good at uh we didn't have to worry about building the next generation consensus mechanism because the cosmos sdk was available and what we're seeing in the in the crypto space is that after the launch of the cosmos hub the the blockchain the very first cosmos sdk blockchain now over 110 projects are building with

14:25it and it's not just you know some projects that we haven't heard of it's uh companies like finance okay chain cava uses the cosmos sdk there's companies like tara that have hundreds of thousands of users for their applications uh so it's really exciting sort of the development of the paradigm shift where you had a bunch of solidity developers and ethereum

14:46struggling to build apps to now many many projects can build things very quickly because they can be focused and the beauty of the cosmos sdk is when kava builds some code it's actually modular and it can plug and play into any other thing into the ecosystem so when binance chain designed a bridge for atomic swaps we were able to adopt that very quickly

15:08onto our blockchain because we're built roughly from the same foundation and similarly when we launched cava we built a special thing called the vesting accounts which lock up tokens and release them over time to people who participate on the network now anyone who builds on the cosmos sdk can use that code that we built so in this way we actually have like 110 teams now

15:29all building adding to the cosmos sdk code base which i think is just really cool it really accelerates development and you get to see things sort of play out organically really quickly as well definitely and it's great to see binance leading that way and with the kava d5 platform coming out soon the first token that will be able to be deposited is the

15:51binance token bnb which is super interesting can you talk about you know why was binance token chosen as the first token uh to be able to mint usdx stablecoins and how does that benefit the community yeah so so the next step after the cosmos sdk for the vision of interoperability the blockchains can't just all connect even though they're similar they can't just

16:12all connect with each other uh all that easily there needs to be a special module which is currently in development called the inner blockchain communication protocol ibc for short and this is still in like the final phases of being built and what we were able to do instead of waiting for that to finish we worked with the binance team to build a custom bridge between cava

16:34that a module that kava adopted as well as the binance chain adopted which allows binance b and b's token and their other bep2 assets to flow into kava to be used in our lending protocol and it allows our stable point on the kava token to flow to binance chain to be used in their decks we just we always prioritize this like a pragmatic organization go to market speed because we think it's

16:56really important so rather than waiting for ibc we chose to do bnb first because we could just do it sooner we could uh get out into the market we could test our platform much faster and then like the cherry on top is now that we have the connection with uh finance we can get other assets like they have around i think 9000 btc uh in their custodial depth 2 token form so

17:22it's called btcb but there's 9 000 of it on their decks already we can move that to kava and have like a custodial version of btc available for people to deposit and get loans against pretty quickly same thing for xrp there's xrpb available in the finance stacks so in that way we sort of were able to get three assets for the price of one in terms of the technical build

17:45and we can go to market sooner than we would if we just waited for ibc to finish very cool thank you so much brian what is the best way for viewers to learn more and to get involved with cava so our website is cava.io that's the best place to find information it's also the best place to find out about our rewards program which is being offered for bnb holders that mint

18:08usdx the first users on the platform get quite a bit of rewards in terms of kava it's all given away in protocol we don't do it as a company it was something that our community voted on to incentivize bnb users to to participate uh if you want to learn more about sort of what our communities are doing we have a confidence group our telegram group is t dot me slash

18:29kava labs and then on twitter it's kava underscore labs you can follow us there we post a lot of content great i'll leave those links in the description box below thank you so much for the time brian all the best with cava moving forward and let's follow up in the near future thanks so much ashton it's my pleasure