Kord.Fi: Building on top of Liquidity Baking

DeFi is a highly innovative and constantly evolving space. As new DeFi protocols and applications are developed, the potential uses for DeFi continue to expand. This leads to new innovative financial products and services to emerge that open windows of new opportunities.

One such product is liquidity baking for which I wrote an article a few months ago and in my opinion, is one of the most unique DeFi products on Tezos. The immutable nature of liquidity baking along with the fact that it is completely decentralized with no admin keys or anyone having any control over it, gives confidence to other applications that build on top of it.

Kord.Fi is an example of a Defi application that does just that, in that it was built using liquidity baking and for this article, I reached out to the Kord.Fi founder Dmitry Kovalevskiy and asked him to explain to us what Kord.fi is, how it works, and what the idea behind it is. Let’s take a look at the Q&A!

Q&A with Kord.Fi founder Dmitry Kovalevskiy #

1) To start things off, how did you get into Tezos and why did you decide to build on it?

Tezos was the first crypto I bought — a friend of mine told me about the Tezos fundraiser and I participated in it back in 2017. I was following Tezos news since then, mainly reddit and twitter. I was always attracted to the Tezos technology and community, and thought it is the best chain to build on. I started thinking to build on my own in 2021, and finally pulled the trigger late 2021.

2) So the first product you decided to build is Kord.Fi, for people that might not be familiar, could you explain what Kord.Fi is and how it works?

Kord.Fi is a leveraged farming protocol built around Liquidity Baking (or Sirius DEX) — a Tezos-native CFMM (Constant Function Market Maker) exchange contract for the tez-tzBTC pair, which is subsidized by the Tezos protocol inflation. The CFMM requires users to provide both assets (tzBTC and tez in this case) as liquidity to earn yield. Although the yield is quite attractive (13%+), I was hesitant to use it as I held most of my crypto in tez and didn’t want to sell half of it for Bitcoin. On the other hand, some users were okay with earning yield in Bitcoin but were reluctant to invest in tez.

Kord.Fi addresses this issue by introducing tez and Bitcoin lending markets. Conservative Bitcoin holders can lend their Bitcoin and receive attractive rates (from 2% up to 10% on just spot Bitcoin), while more aggressive farmers can borrow from lenders and invest in Liquidity Baking with leverage, earning up to 4x the Liquidity Baking APY.

There are three main use cases for Kord.Fi:

a) Conservative holders can lend their tez or Bitcoin and receive attractive returns (7.5% on Tezos and 7.3% on Bitcoin at the time of writing) with virtually zero risk. Additionally, lenders receive premiums from liquidations, though liquidations are currently rare.

b) Risk-neutral or delta-neutral farming allows users to achieve a synthetic Bitcoin or synthetic Tez position by opening a farm with 2x leverage. Users can obtain a synthetic Bitcoin position by opening a Sirius farm and taking a loan in tez, or a synthetic Tez position by opening a Sirius farm with a BTC loan. This approach yields a 20%+ APY on top of the synthetic asset position while exposing users to low impermanent loss due to the strong correlation between tez and Bitcoin.

c) Kord.Fi enables users to leverage trade tez vs. Bitcoin on-chain. To go long tez/BTC, users need to open a 4x leveraged farm with a BTC loan. To go short tez/BTC, they should open a 4x leveraged farm with a tez loan. Interestingly, this approach also provides a 30%+ APY for holding the position, unlike traditional margin trading where users typically pay high funding rates.

3) When talking about Defi protocols, one of the main concerns people have is the smart contracts risk. How safe would you say Kord.Fi is?

Kord.Fi is as safe as a DeFi protocol on Tezos can be. We have rigorously tested the code ourselves, conducted an initial smart contract audit, withstood an actual attack, and recently completed a second smart contract audit by Inference AG — the most reputable audit firm in the Tezos ecosystem.

4) What are some goals you want Kord.fi to achieve?

Some goals we want Kord.Fi to achieve include:

- Becoming the go-to protocol on Tezos for yield solutions by providing users with an easy way to earn high yield in tez, Bitcoin, or USD on Tezos, fully on-chain and non-custodial. Aiming for a TVL (Total Value Locked) of 100 million, which is an ambitious goal that we should strive to achieve.

- Bridging the gap between Tezos NFT users and DeFi in order to significantly increase usage and adoption across both communities, ultimately benefiting the Tezos ecosystem as a whole.

- Incentivizing and attracting more speculators to our protocol and the Tezos ecosystem in general. While it’s essential to focus on more fundamental use cases, speculators can substantially boost activity and bootstrap the network, which could help increase user adoption and TVL.

5) What has the community feedback been so far?

The community feedback has been overwhelmingly positive. While having a large number of users is important, it’s even more crucial to have a few highly engaged users. We’re fortunate to have active users who closely follow our updates and engage in discussions on platforms like Telegram and Discord. Some of them even actively propose improvements or create their own UX designs for the platform. This strong foundation will help us build a DAO (Decentralized Autonomous Organization) in the future.

6) What are your plans moving forward?

We started Kord.Fi as a protocol focused solely on leveraging Liquidity Baking, but we plan to expand into other DeFi areas as well. Our immediate plans include:

- Launching Kvadrat mainnet, which is a squared perpetuals trading platform based on the Checker engine. This product will allow traders to access high leverage with zero liquidation risks, enabling them to trade long or short squared tez and Bitcoin. Farmers and yield seekers can provide liquidity and earn over 50% APY in USD in a quiet sideways market. We launched the Ghostnet last December and plan to go mainnet as soon as we complete the audit.

- Bridging the gap between DeFi and NFT users on Tezos, as we believe this can greatly benefit both communities and the Tezos ecosystem as a whole.

- Launching a token this year to incentivize our users and attract funding.
Exploring the potential of building on rollups, with the hope of getting there by the end of the year.

Conclusion #

Projects like Kord.Fi are a great example of how strong and exciting the Tezos Defi future looks.

With the low fees that allow everyone to participate and experiment with DeFi, the constant developments of the Tezos protocol that lay out the foundations for more innovative and exciting projects to emerge, and with the strong community backing Tezos, Tezos is poised to become a major player in the entire DeFi space. Keep your eyes focused on Tezos as things have been heating up.