Brian kerr, Co-founder of Kava, posted a blog post in which he revealed that his team are featuring the Kava SAFU Fund (Asset security fund for users).
Kerr Noted in the update, dated Wednesday April 28, 2021, that Kava SAFU Fund is a chain community pool that aims to improve the overall security of the Kava platform by “protecting against unforeseeable black swan events while giving users can be confident that their funds are safe. “
Kerr added that the primary function of the Kava SAFU community pool is to “make users whole after events such as unforeseen bugs, exploits, hacks, liquidation failures, or other technical issues that result in loss. funds for users ”. Kerr claims that these types of events did not happen on the Kava platform due to its architecture, “robust” testing, audits, and market monitoring infrastructure.
“Now Kava presents the latest component of its security and reliability infrastructure; the Kava SAFU Fund. Designed to counter the unique threat of the Black Swan events. The Kava SAFU Fund will be created through a one-time inflationary event where 10% of the current supply of Kava tokens will be minted and held within the Kava SAFU Fund. “
Michael ng, Co-founder of StakeWith.Us Motivations, added:
“In the long term, the creation of the Kava SAFU fund is a net positive for the entire DeFi ecosystem. By giving an assurance on the compensation in case of a black swan event, it helps to build the confidence of the Kava DeFi platform.
According to the update, the Kava platform has grown to “hundreds of thousands” of users and has “hundreds of millions of dollars” in security deposits.
Kerr also pointed out that Kava Labs “as a centralized entity cannot and should not take responsibility for unforeseen events for the following reasons”:
- As a US company, “we need to collect KYC / AML and perform OFAC checks before transferring funds to users.” Even “if we wanted to, due to regulations, we cannot send funds to many users around the world.” In the spirit of “creating an open and decentralized platform for anyone, anywhere in the world, the Kava platform must have a chain way to make users whole when lost, without censorship or regulation.” . “
- Collecting KYC / AML from all users of the Kava platform “is the opposite of what DeFi is”. Kava Labs “should do exactly that if a global black swan event occurs that affects the funds of all users of the Kava platform.”
- Now that security deposits are “in the hundreds of millions of dollars, it is simply not possible for Kava Labs to play a role in consolidating users during the Black Swan events.” The Kava platform network “needs a better solution that can scale with its increasing size.”
Kerr went on to share that the inspiration for the Kava SAFU fund “comes from traditional finance where margin trading platforms have a rainy day fund to cover losses.”
In crypto, “we have several notable examples with BitMEXThe insurance fund which guarantees the smooth running of liquidations of margin positions and BinanceThe SAFU All Purpose Fund, which was used to reassure users after serious hacks and exploits occurred, ”Kerr noted.
He pointed out that recently, the Cosmos Hub “adopted a community pool which has several objectives, including that of being a SAFU fund for users”. Likewise, other blockchains based on Cosmos-SDK like Akash and Terra “Have adopted different forms of community swimming pools,” Kerr confirmed.
Kerr further noted that many events can “impact user funds.” Events such as upgrade errors, glitches, and critical bugs that “result in loss of funds will be eligible for reimbursement by the Kava SAFU Fund subject to governance approval.”
While sharing some examples of potential events that could affect user funds and could be covered by the Kava SAFU fund, Kerr clarified that it is “essential to note that all actions taken on behalf of the Kava SAFU fund are being taken. by the Kava governance community. alone.”
Here are some possible events that could be covered, according to Kerr:
- Resulting network downtime “In the event of loss of user funds (eg due to inability to restock)”
- Critical network bugs “Which result in loss of funds for users (eg inaccurate accumulation of interest)”
- Critical network exploits “Which result in loss of funds for users (eg vulnerabilities exploited in business logic)”
- Cross-chain software critical bugs or exploits “Which result in loss of user funds (eg, cross-chain double spend or multi-signature wallet compromise)”
- Critical bugs or exploits “In ancillary network services (eg, oracle software exploits)”
- Market manipulation which “results in a loss of funds for users (eg causing massive liquidations by manipulating price flows or the associated benchmark market price)”
- Failure of the application service in the event of massive liquidation events (for example, Kava’s sub-guarantee of hardware application services “resulting from non-compliance with system debt at auction)”
- Critical Network Upgrade Bugs “Which can lead to a loss of funds for the users”
- Network Upgrade Restore Procedures “Which can lead to a loss of funds for the users”
Kerr also mentioned in his long blog post that there are “many ways to fund the pool, including a one-time inflationary event or a continuous inflation schedule that adds to the pool’s overtime.”
“For the purpose of providing an adequate SAFU fund for the current levels of collateral and debt managed by the Kava platform, 10% of the total Kava supply should be created during a one-time inflationary event and returned to the Kava fund. SAFU first. This will be more than enough for the foreseeable future. “
“If the platform becomes more and more important or if the Kava SAFU funds are disbursed after an event, it will be up to the Kava governance community to decide how to ensure that the Kava SAFU fund is properly recapitalized from that point on. -the. This may come from a redirect of various platform fees, another one-time inflationary event, or a continued inflation contribution to the Kava SAFU Fund in the future. “
Kerr also claims that in a world plagued by numerous online hacks, exploits and “carpet draws”, Kava “by contrast, is rapidly becoming the most” reliable “platform for crypto exchanges, institutions and applications in the world. whole thanks to its robust security. and security practices. “