We are thrilled to announce that Katalyst and @KyberDAO will go live on the 7th of July, 7am GMT! This will usher in an exciting new era for Kyber, with technical improvements that will help enhance liquidity for #DeFi !https://t.co/P4kYTCe8Sx
Join us: https://t.co/GATUjxaPzt pic.twitter.com/CTUJ0fsWjz
— Kyber Network (@KyberNetwork) June 29, 2020
The upgrade will lay the foundation for a range of new technical improvements aimed at decentralizing liquidity in open finance as well as introducing the KyberDAO, the protocol’s platform for community governance. Once launched, all 72,000+ KNC tokenholders will be able to stake their tokens to participate in governance by voting on new proposals and other protocol parameters. The best part about the Katalyst upgrade is that KNC holders are rewarded for governance participation in ETH. Moreover, there is no minimum or maximum KNC that needs to be staked in order to participate, ultimately allowing anyone in DeFi to participate and earn from governance.
The protocol’s trading fee will be allocated to three main buckets governed by KNC holders. These include staking/governance rewards, rebates for Fed Price Reserves (FPRs), and KNC burns.
Here are the current allocations under the network fee parameters:
- 65% for governance rewards
- 30% directed towards reserve rebates
- 5% used for purchasing KNC tokens and burning them
It’s important to note that these are only the initial parameters and are subject to change based on future KyberDAO governance. With the DAO going live on July 7th, this will mark the beginning of Epoch 0. During this time, KNC holders will be able to stake while the first round of voting will launch a week later in Epoch 1.
The genesis Epoch (Epoch 0) will only last for 1 week while Epoch 1 and all others moving forward will last for two weeks (14 days).
The first proposal to go live will confirm the fee parameters with an on-chain vote. It will be a simple YES or NO on the initial protocol parameters (65% rewards, 30% Rebates, 5% Burn). All users, regardless of their vote, will receive staking rewards as long as they participated in the vote.
To lower the barrier to entry, KNC holders can also delegate their voting power to the Kyber Community Pool at no cost – giving them a unique mechanism to capture staking rewards in a passive manner.
Upgrades for the Builders
Beyond the introduction of KyberDAO, the Katalyst upgrade will also allow dApps to set their own custom spread and fee on each trade. This mechanism will effectively allow developers to build out their own revenue model by integrating Kyber Network as their in-app liquidity source.
Given how sustainable revenue models are increasingly harder to come by in DeFi, we believe this provides a compelling dynamic for developers to integrate Kyber over other DeFi liquidity protocols. Better yet, dApp developers can also expect a reduced network fee from 0.25% down to 0.20%. With Uniswap offering trades at 0.30%, this provides Kyber with another edge over some of the other leading competitors.
Upgrades for Kyber Liquidity Providers
Kyber Liquidity Providers will also see a simplified fee system. Reserves will no longer be required to hold KNC in order to receive a slice of the network fees. Instead, 30% of the network fees will go towards incentivizing Fed Price Reserves – the on-chain professional market makers who provide about 70%-80% of all liquidity on Kyber – based on the amount of volume they facilitate.
With protocol governance playing an increasingly more important role in DeFi, there’s no doubt that the Katalyst upgrade is set to build on the narrative. After Compound launched its decentralized, community governance on mainnet, there was a wave of new interest in prospective protocol politicians. We’re expecting the same thing to happen with Kyber, especially with ETH incentives.
(Above) DeFi earnings via Token Terminal
With over $3.2M in projected earnings this year, we’re almost positive that we’ll see a flood of new users coming into the system to earn a slice of those rewards. At current earnings, the protocol is expected to allocate the following based on the current parameters:
- $2.11M towards governance incentives
- $975K directed towards FPR
- $162K in annualized KNC burns
That’s just at the current growth rates too. With the Katalyst upgrade enabling a potential revenue model for dApp developers, we can expect to see more integrations across the board, and in turn, more volume, and more earnings. As a result, the Katalyst upgrade could very well bootstrap a positive feedback loop for future growth, propelling Kyber into becoming a foundational piece to the overarching DeFi vision.
Here at DeFi Rate, we’re extremely excited about the upcoming Katalyst upgrade so we’ll be sure to keep you updated on its latest developments.
Until then, if you’re interested in learning more about Kyber and Katalyst, be sure to read up on their official announcement post here or read up on the KyberDAO FAQ here. For those interested in jumping in on the discussions, you can hop into the Discord or follow the team on Twitter!
Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.