How it Works

A novel application of incentives and information backed loans

Kona Protocol: Decentralized Lending Simplified


What is the Kona Protocol?
Kona Protocol is a cutting-edge decentralized lending platform specializing in short-term credit card receivables. It's strategically built on the Polygon and Moonbeam networks.

Key Players:

  1. Liquidity Providers (LPs): These are the financiers who lend capital to the protocol.
  2. Oracles: These are multiple loan originators drawing funds from the protocol. In a traditional setup, a centralized manager would control and safeguard assets. However, with Kona, smart contracts take over this role, ensuring secure, automated management. Token models determine where and how capital is allocated, optimizing the portfolio in real-time.

What are Portfolios?
Portfolios are essential components that allocate funds to qualifying Oracles. While Oracles follow the system's guidelines, they can exercise discretion in managing their loan-books, ensuring they remain attractive for capital allocation.

How it Works: The Cycle of Lending

Kona operates in 90-day cycles. At the end of one cycle, performance is assessed, and a new cycle kicks off.

1. Start of the Cycle: Capital Allocation

  • LPs' Role: They offer capital, like USD stablecoins, and in return, get LPTs. This becomes the Portfolio's capital.
  • Token Allocation: Token holders stake for Oracles. An Oracle's capital cost is ascertained by combining staking ratios with the Stand-by Capital they offer.
  • Oracle Funding: Based on staking weights, capital is assigned to Oracles for the cycle's tenure.

2. During the Cycle: Loan Funding

  • LPs Restrictions: They cannot withdraw capital during this period. However, they can transfer LPTs.
  • Static Capital: No additional capital is introduced, and the Portfolio's allocation remains unchanged.
  • Token Movement: Tokens stay put – they can't be unstaked or moved.

3. End of the Cycle: Maturity

  • Performance Check: Both the Oracles' and Portfolio's performance are gauged.
  • Repayments: Principal and interest repayments are made, taking into account potential draw-downs on Standby Capital.
  • Token Adjustments: Tokens staked on loss-making Oracles decrease in value. Conversely, those supporting profitable Oracles earn rewards.
  • Inflation and Capital Movement: Token inflation gets allocated, and capital inflow/outflow operations are executed.

4. New Cycle Commences

Between two 90-day cycles, there's a crucial 2-day window. This brief period, split into four stages, ensures the system's smooth functioning:

  • Distribution: Excess gets distributed, stakers are rewarded or penalized.
  • Join/Leave: A one-day phase where requests for fund deposits/withdrawals, enabling/disabling of Pools or Oracles are processed.
  • Voting: Stakers can cast their votes during this one-day window.
  • Assigning Capital: The protocol allocates capital to Oracles based on votes. Oracles then decide whether to accept the full amount, a portion, or redistribute idle funds.

In essence, Kona Protocol is a dynamic, decentralized lending system, operating in cycles to provide, manage, and optimize loans. It offers a modern twist to traditional lending, ensuring transparency, flexibility, and efficiency.

A tri-party system

In summary, Kona works as a layer between companies who want to finance their users (Origination Oracles) and investors (LPs) who want to provide liquidity for these users. Kona is represented by its token holders in the form of Stakers, who have an active role within the platform. Lets break these three actors down:

What’s Next

If feeling the need to delve deeper into Kona's economic model, please find the link to the tokenomics paper: