LevTez Allows Users To Go Long On XTZ In One Click, Through Kolibri Finance
LevTez is a tool built for users to go long in one click on Kolibri Finance.
LevTez is built by a third party that is not a part of the Kolibri Finance team. This emphasizes the freedom blockchain and smart contracts offer through permissionless creation.
Image Credit: Courtesy of Shubham Dhage from the Tezos Unsplash Library.
Disclaimer: DeFi is high risk and the following article contains no financial advice. It is recommended that thorough research is undertaken on any DeFi/blockchain applications, utilizing multiple sources, before participating with any blockchain projects, or tokens in this space. Read our full disclaimer here.
LevTez A Third-Party Developed Tool For Kolibri
LevTez is a tool built to go long in one click on Kolibri Finance. LevTez is built by a third party that is not a part of the Kolibri Finance team.
This emphasizes the freedom blockchain and smartcontracts offer through permissionless creation. Anyone can build further on applications that are launched on Tezos. (As long as the dApp is open source.)
Kolibri (kUSD) is a trustless, algorithmic stablecoin that is collateralized by XTZ and soft pegged to the US Dollar. The value peg is currently pretty accurate at 1 kUSD = 1.01 USD.
You can buy kUSD on a DEX, but you can also mint kUSD yourself. Minting means that you create new kUSD, by providing XTZ as collateral to a smart contract.
Once you have put up the XTZ as collateral, you will be able to mint kUSD. The XTZ that you put up as collateral is fixed in the smart contract until you burn the amount of kUSD that you have minted. This smart contract is called an “Oven”.
Kolibri has a current total value locked (TVL) of around 12.8 million USD.
Kolibri is fully decentralized. In May this year, Kolibri DAO announced and in July Kolibri DAO went live.
From that moment, Kolibri DAO was truly decentralized and only the community has control over the protocol. In September the first proposal was accepted and executed.
The value of cryptocurrencies, and thus the value of XTZ, can be very volatile. And because the value of kUSD needs to be properly backed by real value collateral, the volatility of XTZ needs to be taken into account.
This is why the initial collateral ratio of XTZ (dollar value) – kUSD is set to 1:2. For every $100 kUSD, there is at least $200 value in XTZ as collateral to back up that value.
The collateral has to be at least twice the dollar value of the minted kUSD. This has to remain this way, even if the value of XTZ goes down.
To make sure the collateral ratio stays in a healthy ratio, kUSD that is backed by a collateral ratio that is dropping below the 2:1 ratio can be liquidated.
This means that you will have to provide an extra value as a safe margin. (So, more than 200% in dollar value of the amount of kUSD you intend to mint.)
If you do not do this, you will be at risk of being under-collateralized if the price of XTZ drops. It is important to prevent being under-collateralized, because once your collateral is dropping under the necessary dollar value, your Oven will be up for liquidation.
If you mint kUSD, you have the responsibility to make sure your collateral will be up to ratio at all times. The trust in kUSD value depends on the value that backs the token.
To ensure that users take their responsibility seriously, “liquidation” is introduced. It’s not a new concept in these type of stablecoins.
Liquidation is possible once the collateral ratio of a certain kUSD Oven drops below the minimum value of 2:1. Once the ratio drops, the XTZ that is put up as collateral is open for liquidation.
This means that anyone with a kUSD Oven, can provide the kUSD and burn that in the under-collateralized Oven to seize the collateral. While doing so, they basically buy XTZ at a large discount.
Users Are Able To Go Long
Going Long, is a term used by traders that means you invest in an asset and believe the asset will go up in value in the long term. Sometimes riskier strategies are applied.
Borrowing money to buy an asset to go long is not uncommon. (But obviously very risky.)
Going long with a loan that you obtain while providing a collateral in a decentralized manner like you’d do while minting kUSD with XTZ as collateral is possible too obviously.
Again, this is a high risk strategy and not financial advice, but LevTez allows you to go long in one click.
The platform lets you:
– Add $XTZ collateral to your oven.
– Borrow $kUSD against your collateral.
– Convert the borrowed $kUSD to $XTZ
– Add the swapped $XTZ back to collateral.
All of the above, in one transaction.
LevTez is created by Manan Gouhari and the code for the platform is open-source.
LevTez also contributes to the Kolibri Dev Experience by being a solid example of how a dev can integrate with the Kolibri Protocol in their own apps.
Don’t forget that this strategy can result in liquidation of your collateral. If XTZ value goes below a certain level, you will get liquidated.
Make sure you understand the Kolibri protocol fully and understand all the risks involved before you try this strategy. Read the Kolibri documentation here.
There is a bounty to reward the work placed into open-sourced LevTez and that proposal can be found here.
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