Kyber Network is an on-chain liquidity protocol powering seamless token swaps in DeFi with high composability. The protocol is designed such that any party can contribute to the liquidity pools as Reserve Managers, including decentralized exchanges and one-off liquidity providers.
Kyber’s long-term goal is to support the diverse amount of emerging digital ecosystems by facilitating liquidity between different stakeholders in each ecosystem. By standardizing the design, Kyber hopes to achieve a fully connect liquidity network across multiple different blockchains to provide frictionless cross-chain token swaps.
Kyber recently deployed its Katalyst upgrade, cementing major changes to the protocol including reduced protocol fees, rebates to LPs, smart order routing, and the capacity for applications to set their own spreads. More on this below!
Kyber raised approximately $50 million (200,000 ETH) through a two-day sale of KNC through an ICO back in September 2017. 226 million KNC was distributed as follows:
Private Sale (08/14/2017 – 08/15/2017)
- Token Price: ~$0.357
- Amount Raised: $27,000,000
Public Sale (09/14/2017 – 09/15/2017)
- Token Price: ~$0.440
- Amount Raised: $25,000,000
The team is led by CEO and Co-Founder Loi Luu, CTO Yaron Velmer, and Lead Engineer Victor Tran. The team has a deep academic and research background as Velmer holds a PhD in computer science from Tel Aviv University with a strong focus in game theory incentives in blockchain protocols and formal verification of smart contracts.
Notable advisors to Kyber Network include Vitalik Buterin (Co-Founder of Ethereum), Simon Seojoon Kim (CEO and Partner at Hashed) and Seng Hoe Long (Strategic Advisor at DigixDAO).
The project boasts a handful of high profile investment funds including zk Capital, Cipher Ventures, Amino Capital, and WolfEdge Capital.
How it works
The protocol is implemented as a set of smart contracts where various actors can join and interact with the network. Kyber Core smart contract provides a mechanism for listing and delisting liquidity reserves and trading pairs.
- Takers refer to anyone who calls the smart contract functions to trade tokens. This can be traders, application users, wallets, or other protocols.
- Reserves are any individual or entity that wishes to provide liquidity. Reserves must register through the reserve interface to have their token pairs listed.
- Registered Reserves refer to those who will be cycled for matching taker requests.
- Maintainers are those who have permission to add and remove reserves and token pairs, largely referring to the Kyber DAO and/or the team behind the protocol implementation.
Simple Token Swaps
As an example, let’s say that Bob wants to exchange ETH for MKR tokens. With Kyber, the trade can occur in a single blockchain transaction. The flow of how this trade occurs is as follows:
- The Taker sends ETH to the protocol contract where he would like to receive MKR in return
- Kyber’s protocol contract queries ETH to MKR exchange rate across all existing
- Reserve 1 offers an exchange rate of 1 ETH = 0.285 MKR
- Reserve 2 offers an exchange rate of 1 ETH = 0.287 MKR
- Reserve 3 offers an exchange rate of 1 ETH = 0.284 MKR
- This process continues until all ETH/MKR reserves have been queried
- The protocol confirms the Reserve(s) with the best rate.
- Protocol contract splits ETH across the best Reserve(s).
- Reserve(s) sends MKR to the taker and the respective exchange rate
Token to Token Swaps
A token to token swap is one where the quoted token is neither the source nor the destination of the token of the trade. As an example, let’s assume there’s a taker looking to exchange DAI for SNX. Similar to simple token swaps, with Kyber, the transaction is able to occur in a single blockchain transaction.
- Taker sends DAI to the protocol control with the goal of receiving SNX in return
- The protocol contract sends DAI to the reserve(s) offering the best DAI/ETH exchange rate
- Protocol contract receives ETH in return
- Once this happens, the protocol contract then sends ETH to the reserve(s) offering the best exchange rate for ETH/SNX
- Protocol contract receives ETH in return
- Lastly, the protocol contract sends SNX back to the user
KNC Token Overview
Kyber’s protocol leverages a native token, Kyber Network Crystals (KNC) to align incentives between key stakeholders. Initially, the token economics relied heavily on burning KNC tokens in which fees collected in the network were used to burn KNC, ultimately increasing scarcity in the underlying token.
In December 2019, Kyber Network announced a rework to Kyber Network Crystals (KNC) called Katalyst. The new tokenonomics pivot KNC to acting solely as a governance token, giving users the ability to vote on how Kyber’s 0.2% protocol fees should be allocated across the wider ecosystem including:
- Staking Rewards: Rewards issues to those participating in KNC governance by staking to the KyberDAO
- Reserve Rebates: Rewards allocated to liquidity providers based on the amount of volume routed through Kyber Network
- Token Burns: The portion of protocol fees used to burn KNC off the open market.
At inception, Katalyst launched with a split of 65% to Staking Rewards, 30% to Rebates and 5% to token burns. These percentages are likely to change over time through protocol governance.
Outside of governance, Katalyst also introduced a number of important changes to the underlying protocol including:
- Custom Fees: Developers can now set their own fees rather than being subject to Kyber’s pre-existing fee-sharing rates (30% of the 0.25% fee)
- Lowering Barriers-to-Entry: Reserve managers will no longer be required to hold KNC in order to provide liquidity to the protocol
- Smart Order Routing: Liquidity can now be pulled from multiple reserves at once, rather than being subject to one reserve with the best price
Staking KNC through KyberDAO
To participate in governance, users should visit the voting dashboard and stake their KNC. Following a charge-up period, that stake can be voted on all proposals in the following Epoch, 0r governance cycles lasting 14 days. Here’s a great overview on how to get started and what to keep in mind.
Kyber has gradually established itself as a leading Decentralized Exchanges (DEXs) in DeFi. Kyber’s flexibility creates a frictionless mechanism for other protocols, applications, and wallets to integrate instant token trading and token swaps into their products and services. Kyber’s design emphasizes composability and as a result, the network effects are beginning to take place.
Ultimately, DeFi will continue to rely on liquidity in order to provide the best possible services for the industry. As such, Kyber has found itself a perfect niche as exchange usage and volume will increase in parallel with the proliferation of DeFi.