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DeFi Opportunity – Kujira ($KUJI]

Hello fellow Pioneers!! I've identified another DeFi passive income opportunity for you. This time in the Cosmos ecosystem!

 

Kujira were originally part of the Terra ecosystem, app builders within Anchor Protocol providing an option for retail investors to access liquidation collateral, previously only available to market makers (ie Whales) and accredited investors (high income or certified individuals). The dApp was called ORCA, and it was carried over by Kujira onto their own chain after the Terra collapse.

What is liquidation collateral?

When a position is liquidated on an exchange, there is an opportunity in that moment to buy up a portion of that liquidated position at a discounted rate. There are usually maximum discounts available (in ORCA’s case, 30%), but the higher the discount you seek, the less likely you are to succeed. Why? Because others will be accepting a lesser discount below you, making it more likely their positions will get filled and taking that collateral away from you. If all other positions below you are filled, and there’s still collateral left, then your position will be filled (but maybe not all of it). If the positions below you don’t fill, then yours won’t either. And you’ll either have to wait for the next liquidation, or withdraw.

To be able to access this you need to first provide liquidity. In ORCAs case the liquidity can only be provided by $USK, which you can only obtain from an over-collateralised debt position in BLUE, and mint the $USK, up to 99% of your position.

But first, you need the $USK to be able to place your order in ORCA, and you need a minimum of 100

$USK. You only wish to borrow 50% of your $ATOM position to ensure your own liquidation point isn’t reached (probably around $6.50). You go to BLUE, submit a minimum $110 worth of $ATOM and receive 53 $USK (because at that moment it’s worth $1.03 and you’re only borrowing 50%). Now with your 53 $USK you go to the $ATOM option on ORCA. You see the majority of people have placed orders between 5-10%. You adjust your decision slightly and place an order for 15% discount instead of 20%. Your discount won’t be as high, but your order is more likely to be filled. And viola, it happened. The price dropped sharply from some stupid crypto news about the SEC attacking someone else, but you’ve received your $ATOM at 15% below market value.

Now you’ve some choices:

  1. Swap/sell/trade the $ATOM in FIN to access other tokens you wish to invest in.
  2. Off-ramp the $ATOM to your bank via Kado Money.
    1. Bear in mind though, you still have to pay back the debt position of $USK at some point, or you risk your original collateral being liquidated!
  3. Go back to BLUE to mint more $USK (lowering your liquidation point even further), and use the new $USK, combined with another collateral token to enter a liquidity pool in BOW, earning passive income from the fees earned on trades between that pair on FIN.
  4. Go to BLUE, swap the $ATOM for $KUJI. Stay in BLUE and delegate your $KUJI to Validators, earning passive income from staking.

Whatever you decide to do keep in mind submitting collateral to mint $USK is a debt position, and this is reflected with 1% interest rate. So the longer it takes you to repay, the less of your initial collateral will be returned to you.

The above may seem a little complicated granted, but keep reading through it. Visit the dApps I mentioned to get a feel for it, and it will make sense. Granted, the above scenario example may seem like alien language to people new to Crypto or DeFi. But when you practice (with only a very small portion of your available crypto at first) then it will become more familiar to you over time.

Now I’ll go into a bit more depth on the other dApps: BLUE & BOW!

Staking in BLUE:

I’ll start with BLUE first as that’s pretty much the central hub of the DeFi suite Kujira have built. BLUE has numerous purposes, but for the sake of passive income there are two main ones. Minting $USK and delegating to Validators to earn staking rewards.

Minting the $USK will enable you to interact with the ORCA dApp as described before. It will also open you to a wide variety of Cosmos and EVM wrapped versions of tokens which you can trade with in FIN, or swap in BLUE at market rate (still via FIN’s order book). Some of these tokens you can send back to your EVM compatible wallet (such as MetaMask) via the Axelar or Gravity bridge (also in BLUE).

Every other DPoS consensus model network I’ve come across use inflationary tokenomics to pay the validator rewards. Kujira is the only one I’m aware of which doesn’t. Instead, almost all fees generated through the Kujira dApps are used to supplement the Validator reward pool. The advantage of $KUJI not being inflationary (such as $ICP or $ONE) is the market isn’t saturated with new token/coin emission which reduces the price of those coins when buy pressure doesn’t keep up with the emission rate.

Each Validator is different, charging different commission rates, offering various reward levels etc. So choosing which Validator to stake with is important! If you’re unsure, Kujira were kind enough to consider this possibility, so made a user friendly feature not found anywhere else. You can disperse your Delegation across all Validators in the blue section who are currently below the “Equal Power Threshold”. This is covered in my FA Audit Report (see image below).

 

Whilst no form of DeFi should ever be considered ‘safe’, staking via BLUE is safer than most due to the deep liquidity (around $50m at the time of writing) despite us being deep in a bear market at the moment. When staking your $KUJI, your rewards are paid out in a multitude of tokens currently (paid from liquidity supplied in the BOW liquidity pools). But an update will take place soon allowing you to choose to receive only $KUJI.

Liquidity Pools in BOW:

What do liquidity pools do? The overwhelming majority of DEXs are built on an AMM (automated market maker) such as Uniswap. To ensure a trade between two tokens goes through smoothly, liquidity for both tokens will need to be provided. This is done through LPs (liquidity pools). Traditional DEXs such as Uniswap can suffer from capital inefficiency and/or impermanent loss. This often isn’t an issue with Uniswap itself, but for smaller DEXs with lower capital this is a frequent issue. Capital inefficiency is often caused by a DEX using a 3rd party market maker, this causes higher fees (another traditional disadvantage compared to using a CEX). Kujira have built their own, upon an order book (not an AMM), so no middle man to pay. This guarantees capital efficiency, lower fees and negligible risk of impermanent loss. The order book also enables transparency. Kujira is possibly the only exchange built fully on-chain. No off-chain computations or transactions take place. So no wash trading either. Explanation of wash trading is in a link at the bottom of this post.

In BOW there are 48 LPs currently available giving a significant variety of opportunity for you to enter. Each LP has it’s own advantages and disadvantages; such as locked liquidity, trading volume, estimated rewards and what the rewards are paid in. The below image shows some of the LPs, once you navigate to this page and scroll down, the full complement of available pools will be visible. It’s important to note the APR is subject to change so the figures provided below will likely be different by the time you check them out.

 

Here’re some of the key LPs at the time of writing:

  • Deepest Order Book Liquidity: $axlUSDC/$USK ($513k)
  • Lowest Order Book Liquidity: $wMATIC/$USK ($23.00)
    • I would not enter this one until there’s more demand for the trading of this pair
    • Ideally, anything lower than $20k in the order book should probably be avoided. If the liquidity is low, it likely means there’s little trading volume on FIN, which means little revenue generated from trading fees.
  • Highest Rewards Paid in $KUJI only: $MARS/$USK (128.66% APR)
  • Highest Rewards Paid in other Tokens: $AQUA/$USK (233.3% APR)

Opportunity variety due to FIN’s on-chain order book:

Now this isn’t something I’m going to cover in any detail here, as this post is about passive income opportunities, not all the revenue opportunity types current or soon-to-be available within the Kujira Ecosystem. But it is worth pointing these out:

  • Limit Swap/Trades – Unless you’re full time on the charts it is likely you miss your optimum entry and exit prices for those tokens you want on a regular basis. With the order book on FIN you can now execute your trade, at your chosen price, with instant finality, without concern of slippage, and carry on with your day; Or go to bed and rest peacefully!
  • Leverage Trading - Currently only up to 2.5x on selected pairs. As the liquidity and trading volume increases I can envision this will expand, and the leverage level will increase.

 

  • Arbitrage – This is especially true when trading between $axlUSDC and $USK. $axlUSDC is hard capped to 1 USD. $USK is soft capped to 1 USD. There are frequent opportunities to take advantage of the small volatility of $USK for low risk short term yield when trading between them.
  • Perpetual Futures – There is a link below with an explanation of what this is. I’ve never done it so I’d rather provide you correct information sources, instead of pretending to know. All I know is the perp opportunities will be available soon on ORCA in $USK/$ATOM and $USK/$nBTC.
  • Delta Neutral – I’ve been doing some reading on this, and still not quite grasped it. This is something hedge funds, market makers and accredited investors tend to target, rather than regular retail. I’ve provided a link with some reading material below. I don’t how this opportunity is available, I just know it is from discussions with the Kujira CEO, Dove. So if you target this advanced level market, congratulations. For the first time you have a fair, transparent order book exchange to utilise.

 

I hope you’ve enjoyed the opportunities I’ve presented to you in this blog post. As always I will share these when I come across and validate them. I’ve left plenty of links below for all the dApps involved; As well as information links for further reading on some of the concepts mentioned.

My Full FA Audit Report on Kujira will be published for the subscribers of https://milkygemhunter.io.

 

Kujira: https://kujira.app/

Kado Money: https://www.kado.money/ Keplr Wallet: https://www.keplr.app/ MetaMask: https://metamask.io/

Kujira FIN: https://fin.kujira.app/ Kujira BLUE: https://blue.kujira.app/ Kujira BOW: https://bow.kujira.app/

 

Kujira ORCA: https://orca.kujira.app/

DeFi Llama: https://defillama.com/protocol/kujira-protocol

  • DeFi Llama does not include data from staking. As such the liquidity from BLUE is not included. Actual TVL is approximately $59m at this time, not $7.6m.

What are Perpetual Futures? Explanation: https://academy.binance.com/en/articles/what-are- perpetual-futures-contracts

What is Arbitrage? Explanation: https://www.investopedia.com/terms/a/arbitrage.asp

What is Delta Neutral? Explanation: https://www.optiontradingpedia.com/delta_neutral_trading.htm What is Impermanent Loss? Explanation: https://blockworks.co/news/the-investors-guide-to- navigating-impermanent-loss

What is an AMM? Explanation: https://chain.link/education-hub/what-is-an-automated-market- maker- amm#:~:text=Automated%20market%20makers%20(AMMs)%20are%20a%20type%20of%20decentr alized%20exchange,trade%20directly%20through%20the%20AMM.

What is Capital Inefficiency? Explanation: https://members.delphidigital.io/learn/dex-capital- efficiency

What is Wash Trading? Explanation: https://www.investopedia.com/terms/w/washtrading.asp

 

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