The Katana Foundation, a nonprofit focused on decentralized finance (DeFi) development, is launching its private mainnet, aiming to unlock greater crypto asset productivity via deeper liquidity and higher yields for users.
The Katana Foundation launched a DeFi-optimized, private blockchain, Katana, on May 28, incubated by GSR Markets and Polygon Labs, with the public mainnet launch set for June.
The new blockchain will enable users to earn higher yields and explore DeFi in a “unique, optimized yield environment” that unlocks latent value through an ecosystem that makes every digital asset “work harder,” according to an announcement shared with Cointelegraph.
“DeFi users deserve ecosystems that prioritize sustainable liquidity and consistent ‘real’ yields,” wrote Marc Boiron, the CEO of Polygon Labs and core contributor at Katana, adding:
“Katana’s user-centric model turns inefficiencies into advantages, establishing a truly positive-sum environment for builders and participants alike.”
Katana aims to solve the crypto industry’s liquidity fragmentation issue, which can cause significant price slippage, as one of the main barriers limiting institutional DeFi participation
Related: Here’s how abstraction minimizes fragmentation in DeFi, making it more fluid
To reduce the value slippage in DeFi, Katana’s blockchain concentrates the liquidity from numerous protocols and collects yields on all potential sources to create an ecosystem with deeper liquidity and more predictable lending and borrowing rates.
Institutional participation in DeFi is set to triple over the next two years to 75% from 24% of 350 surveyed institutional investors, according to management consulting firm EY-Parthenon.
To tackle the growing institutional liquidity needs, Katana’s liquidity pool is composed of multiple protocols, including lending protocol Morpho, decentralized exchange (DEX) Sushi and perpetual DEX Vertex, enabling users to trade “blue-chip assets” without needing crosschain transfers.
Katana has also incorporated Conduit’s sequences and Chainlink’s decentralized oracle network.
Related: Polygon CEO: DeFi must ditch hype for sustainable liquidity
Katana to compound DeFi yield from “Ethereum-based opportunities”
Katana aims to boost sustainable yield by building a cohesive DeFi ecosystem. For instance, VaultBridge deploys bridged assets into overcollateralized, curated lending strategies on Ethereum via Mopho to earn yield, which is routed back and compounded on Katana.
The protocol will reinvest network fees and a portion of application revenue back into its ecosystem.
“This reduces reliance on short-term incentives, generates consistent yield, and as it grows, acts as an increasingly stable backstop during periods of volatility and liquidity shocks,” Polygon Labs’ Boiron told Cointelegraph, adding:
“Yield is distributed pro-rata to each chain using VaultBridge protocol based on their share of total deposits into VaultBridge.”
“So if Katana supplies 20% of the total vault deposits, it receives 20% of the yield back,” he added.
Katana will subsequently allocate its share of yield to users through boosted DeFi incentives across “core apps” such as Sushi, Morpho or Vertex. The yield is generated from “Ethereum-based opportunities and then enhanced through Katana’s core applications,” said Boiron.
Polygon Labs’ CEO previously criticized DeFi protocols for fueling a cycle of “mercenary capital” by offering sky-high annual percentage yields (APYs) through token emissions.
Beyond infrastructure-related limitations, regulatory uncertainty remains another significant barrier to institutional DeFi adoption.
Regulatory concerns were the main barrier to entry, flagged by 57% of institutional investors as the main reason for not planning to participate in DeFi activities.
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