Kyber Network is an on-chain liquidity protocol that aggregates liquidity from a wide range of reserves, powering instant and secure token exchange in any decentralized application.
Kyber's focus on becoming the liquidity layer of the Decentralized Finance (DeFi) space via seamless integrations with Decentralized Applications (Dapps) and liquidity aggregation from a wide range of reserves has shown tremendous success.
To date, there has been 1 billion USD volume since their Mainnet launch: $70M of volume in 2018, $388M in 2019, and $609M in the first five months of 2020. This volume carried out over one million transactions signed by 84k unique addresses and 5.8 million ETH equaling to roughly 5% of the total ETH supply.
What is KyberDao?
The design of KyberDAO and the governance process aims to empower the Kyber community with fair representation on topics that are meaningful to them, ensure maximum viable transparency on voting and post-vote execution while ensuring security and stability.
We've been working closely with the Kyber team in providing technical assistance to spec out an essential extension for the KyberDAO Katalyst upgrade — a smart contract proxy to allow all KyberDAO Pool Masters to trustlessly operate without the need to deploy additional smart contracts.
Introduction to Katalyst
Katalyst is the KyberDAO upgrade that harmonizes Kyber's efforts towards providing a single on-chain liquidity endpoint. Below is a summary of the new benefits for Kyber's stakeholders which is live on July 07, 2020:
- Set own custom spread/fee
DApp builders can decide their business model. The previous fee-sharing program (30% of the 0.25% fee) is no longer valid, and developers can set their custom platform fees. DApp developers that build with Kyber can innovate on both business model options or target users with different needs.
- Reduced network fee
The default network fee charged from each trade value drops from 0.25% to 0.20%. Note that bridge reserves that connect liquidity from external on-chain sources like Uniswap, Oasis, or Bancor, are not charged any network fee.
- Reserve routing for better rates
Reserve routing gives DApp developers the ability to route any single trade across any number of preferred reserves, which will provide better overall liquidity for takers in the process.
For Reserves/Liquidity providers
- A simplified fee system
Reserves no longer need to hold KNC for payment of network fees. Network fees are automatically collected in every trade, removing significant friction and pain point for reserves that want to integrate with Kyber - this does not affect the competitive rates that takers (DApps and end-users) are enjoying now.
- Reserve Rebates (Incentives)
Based on initial parameters, 30% of the network fees will go towards incentivizing Fed Price Reserves (FPR) with rebates based on how much trade volume they facilitate for the network. It is in the hopes of incentivizing more reserves creation and professional market making activity on Kyber, leading to much better liquidity.
For KNC holders
KNC holders can stake their tokens on KyberDAO to govern the protocol by voting on important proposals and parameters while earning rewards for their efforts (Note: Rewards are paid in ETH with other types of rewards to come in the future).
- Staking and participation rewards
With a new staking mechanism to the token model, KNC holders will receive part of the ETH network fees by staking KNC and participating in the KyberDAO.
- Deciding on key parameters
The community of KNC holders will have the power to determine how payments for the network (currently at 0.25% per trade, subject to change) will be used by voting on the ratio/percentage between burning, maker (reserve) incentives and staking rewards - the BRR Ratio.
Watch this video to learn more: Katalyst EP1-KyberDAO staking and voting.
In the future, the DAO may likely allow decisions on listing tokens, reserve approvals, and network development grants, and we plan to participate in Kyber governance actively.
Before Katalyst, burning (70% of the 0.25% network fee) was the only way for KNC holders to gain value from Kyber's growth. While it was an excellent approach for long-term value accrual, KNC holders now have additional options for value creation and can take on a more active role in the network's success.
What is the BRR Ratio?
The BRR Ratio helps determine how network fees distribute between key stakeholders within the Kyber ecosystem:
- Burning: Long term value accrual. The decreasing supply of KNC will potentially improve the token appreciation over time, while also benefiting those who did not participate.
- Reserve Incentives: Value creation via network growth. Rewarding selected Kyber reserves based on their performance (i.e., amount of trade volume they facilitate) helps to drive higher volume, value, and network fees.
- Participation Rewards: Immediate value creation by incentivizing active participation. Holders who stake and participate in the KyberDAO will get their share of the fees designated for rewards. The more KNC staked, the bigger the pie of fees shared.
The June 2020 Kyber Pre-DAO poll on discord ended with 422 votes across 3 BRR options, with Vote A being the winning vote:
- A: 65% for Rewards, 30% for Reserves and 5% for Burn (196 votes)
- B: 55% for Rewards, 40% for Reserves and 5% for Burn (65 votes)
- C: 35% for Rewards, 35% for Reserves and 30% for Burn (161 votes)
We share the same view that Rewards and Reserves have priority above Burn. With Katalyst and the ability to delegate your vote (to us with unagii), there is no compelling reason to reward inactive participation.
Liquidity is a strong moat for any DEX as it provides a better trading experience for Kyber users - think liquidity depth, types of tokens/market supported, and tighter spreads. We are of the view that liquidity begets liquidity, hence giving the right incentives to attract a broad spectrum of third party reserves is crucial. Allocating a considerable portion of the network fees as Reserves for these third party reserves will allow Kyber to remain competitive within the DEX space.
While KNC staking does not directly impact the sustainability of the network, Rewards serve as essential incentives for KNC voters to participate in governance and vote for the long term benefit of the network. As the stewards of Kyber, voters reap the benefits of good governance decisions or pay a hefty price for a bad governance decision.
We think it is fair for the BRR ratio to skew towards Vote A instead of B during the initial phase of the KyberDAO.
P.S. Did you know:
Kyber will burn all network fees for an epoch if the team does not create a voting campaign for that epoch.
Videos about Kyber Network
- Intro to Kyber
- Katalyst EP1: KyberDAO staking and voting
- Katalyst EP2: Be a reserve on Kyber!
- Katalyst EP3: Build with Kyber!
Kyber Network Articles
- Katalyst and KyberDAO Live on 07.07.2020
- Katalyst Announcement
- Staking and Voting Overview
- Pool Operator Options
- Pre-DAO Poll
About Kyber Network
Kyber’s on-chain liquidity protocol allows decentralized token swaps to be integrated into any application. Using Kyber, developers can build innovative applications, including instant token swap services, decentralized payment flows, and financial DApps — helping to build a world where any token is usable anywhere.
Kyber is one of the most used decentralized finance (DeFi) protocols in the world, with over US$950M worth of transactions facilitated since its launch. Kyber supports over 80 different tokens, and powers close to 100 integrated projects including popular wallets MEW, Trust, Enjin, Argent, and the HTC Exodus smartphone, as well as DeFi platforms Nuo, DeFiSaver, Fulcrum, InstaDApp, Set Protocol, Melon, and many others.