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Improving Kava’s Monetary Policy to Drive Growth

Motivation

Framework Ventures has backed KAVA with the goal of building a CDP platform and USD stablecoin to rival that of Maker. While this is a large goal, we believe accomplishing that goal is a step towards building a synthetic asset and stablecoin platform that reaches far beyond this initial use case. To get there, we need to make USDX and the KAVA CDP systems successful at launch by enhancing the distribution of and liquidity within KAVA. It’s from this perspective, with a long-term viewpoint, that we propose adjusting the KAVA token distribution to incentivize initial growth.

We propose that Kava should use an inflationary monetary policy with the purpose of mitigating the bootstrapping problem of USDX liquidity as fast as possible. Kava’s success is predicated on user participation and accumulation of buy-in into KAVA. Rewarding users in KAVA for taking actions has the added benefit of buying them into the network and further aligns their interest in its growth. By increasing the transparent inflation schedule and targeting it at user behaviors that will drive network growth, we believe Kava can kickstart USDX liquidity quickly and create a flywheel of growth that the network can rely on going forward.

Growth Incentives

Growth incentives are critical in young networks and products to gain initial usage and attention. This is particularly evident with Kava as USDX must initially be created, before liquidity can be found or any specific use cases developed. A clear incentive structure which rewards early participants with stake in the network is perhaps the most incentive aligned method for growth.

The power of incentives should not be ignored — our entire industry is built on top of them. Inflationary block reward incentives for miners/stakers drive security, and they are already in place and working for KAVA staking. This same model is what has made the Bitcoin mining network so robust and antifragile. Specific inflationary rewa...

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