Everything You Need To Know About Kyber (Preview Courtesy Of Keystone Research)
The Kyber Network is a protocol that gives its users the ability to convert or exchange digital assets, tokens, and cryptocurrencies.
It’s along the lines of a 0x protocol, however all of its actions are on the blockchain.
Kyber solves a problem that is very common with DEXs. Some DEXs (Decentralized Exchanges) don’t have the liquidity necessary to provide live trading, or it may charge users high costs if the order is kept on the blockchain.
And that’s where the Kyber network comes in. It’s a decentralized exchange on the blockchain, but without an order book.
As a result, users experience a secure exchange with the ability to trade their crypto immediately, at lower costs.
While you can use Kyber as an exchange, you can also use it to simply send coins from one person to another. For example, if you need to send a friend or co-worker some crypto. It’s also a use case for ICOs as well.
When you move your tokens through the Kyber network, they don’t have to match what the receiver wants. Kyber network can perform the exchange for you during the transfer.
Another piece of the Kyber network you should be aware of is its dynamic reserve pool. This is how the Kyber network maintains its liquidity.
Contained within the pool are all the “reserve entities” of the Kyber network.
Storing a variety of entities within the pool keeps a monopoly from occurring.
When you want to perform an exchange on the Kyber network, the built-in smart contract completes it through the reserve entity, searching out the best exchange available.
External reserve entities means the Kyber network does not succumb to centralization. It also makes low-volume tokens available on its platform.
As a result, the external reserves are acceptable when it comes to managing the risk of less-popular cryptocurrencies.
Any funds in the public reserve can be viewed through a transparent fund management model on the Kyber network. Reserve managers who maintain the reserve and enter the rates into the network earn a profit through the spreads within the reserve itself.
The Kyber network consists of “takers” that remove the liquidity from the protocol by calling the Kyber’s core smart contract. Basically they are initiating a token swap from one to another.
These takers can be end users, exchanges, wallets, or dApps.
Then on the other side of the market you have your reserves, which you can think of as your makers.
They will provide the liquidity to the network in terms of token inventory and prices.
These reserves will interact with the reserve interface contract. When Kyber is trying to match a trade, all of these reserves will be queried through an interactive process to try and find the best trading conditions.
This is all done in a decentralized, automated, and instantaneous fashion.
These reserves are usually liquidity pools, token holder projects, etc.
And you also have the maintainers on the network — which is basically any entity that has the permissions to access the functions. In this case it is the Kyber network team.
Now that is a short overview of how the Kyber network functions. But...
What Benefits Does This Have?
There are four primary features of using Kyber’s on-chain liquidity protocol:
First, you have instant trade settlement. We don’t have to wait for any sort of order fulfillment. Settlement and matching is done in a single on-chain transaction.
Secondly, there is no concept of partially executed orders like you get from centralized exchanges or other DEXs. The trade is either fully executed or is reverted.
Another great feature is the complete transparency. Anyone can verify the rates being offered by the reserves, so they can make sure they are indeed getting the best rates.
Finally, the Kyber network protocol remains one of the easiest to integrate with. Through their smart contracts APIs, and widgets, other applications can use them to seamlessly exchange tokens.
This point is part of how the Kyber network positioned themselves to take advantage of the DeFi boom, by offering a seamless integration solution; numerous exchanges, wallets, and DeFi projects using Kyber.
Founders & Team
The founders are Low Luu (CEO), Victor Tran (Development) and Yaron Velner (Advisor and Former CTO).
Before Kyber network, Luu created Oyente, an open-source security analyzer which examined Ethereum smart contracts. He also helped co-found smart pool, a decentralized project focusing on mining pools.
Tran, a former engineer and Linux system administrator, was also a significant part of the Smart Pool project, as well as CTO at Clixy and a developer for several projects in Vietnam.
Velner was a postdoctoral researcher who is also the CEO of B.Protocol, a decentralized backstop liquidity protocol. Velner has been a large part of the Ethereum bug-finding initiative as well. He stepped down from his CTO position at Kyber in October 2019 but remains an advisor.
The Kyber Network project also has an advisory board that includes none other than Ethereum founder Vitalik Buterin.
Now let’s explore it a bit more in depth.
Kyber is a decentralized exchange protocol that provides on-chain liquidity. So It gives users the ability to exchange ERC20 tokens with one another on the Ethereum blockchain in one transaction.
Through the use of Smart Contracts, the Kyber protocol offers a single interface for the best available token exchange rates to be taken from an aggregated liquidity pool across diverse sources.
As Kyber has grown and expanded, it’s been involved in a ton of other projects as well, and has introduced features that make it an exciting project to keep an eye on:
Kyber has given you the ability to swap tokens right there on the wallet.
Although you may already be able to do this with some wallets, it’s important to note the difference between an on-chain and an off-chain exchange.
Wallets like Coinomi, Atomic Wallet, and Guarda Wallet offer off chain, non-custodial conversions. Through services like ShapeShift, Changelly, etc.
These come with fees and are not done in a single, on-chain protocol swap. They are centralized, so to speak.
However, when a wallet integrates with Kyber they are using the protocol to exchange tokens with the reserves or makers — quickly and with no fees.
Some wallets that have already integrated with Kyber are Enjin, Coinbase, Deter, MEW, imToken, Argent, Trust Wallet, and many others.
Decentralized e-commerce payments.
This is another Kyber use case. You can accept payments in any token and have it converted into your preferred one as an e-commerce brand.
And this is all done instantaneously and in an automated fashion.
Someone could buy that item in your online store with Ethereum and instantly have it converted into a Dai stable coin.
This could bring more certainty to commerce. You wouldn’t have to sell the tokens to sell the fiat value.
Another integration that was already announced was the Axie Infinity, which is using Kyber’s liquidity protocol to accept ERC20 payments for NFTs.
This is a whole new sector that has implications for the future of online business and commerce.
One of the most compelling use cases for Kyber is for DeFi projects.
DeFi Projects take advantage of Kyber’s on-chain liquidity to liquidate assets or rebalance crypto portfolios.
For example, you have Set, which is a portfolio Optimization dApp. It uses Kyber to automatically rebalance your crypto portfolio to desired percentage allocations.
You also have Fulcum, which is a DeFi platform for tokenized lending and margin trading. They use the Kyber protocol in order to provide swapping services and create the margin positions.
There are a host of other DeFi projects using the Kyber network. They have a list of these on their website.
And you also have one of Kyber’s own dApps in KyberSwap. This is Kyber’s own unique, decentralized exchange dApp that uses the Kyber protocol to exercise its trades.
It has a user interface that allows you to exchange over 70 different tokens. All of these integrations show the immense use cases for the Kyber network. And the numbers don’t lie.
The entire Kyber ecosystem is seeing a great deal of growth across a number of use cases.
Number of monthly trades, number of unique addresses, and dollar volume on the platform are all rising.
Also it’s not just the Kyber network that’s keeping tabs. In Binance’s 2019 DeFi report, they list Kyber as the most used project in DeFi.
Kyber has an EOS - ETH bridge called Waterloo.
This was first proposed in February 2019. And it is Kyber's solution to communication between chains.
Once the implementation goes live, it will allow for the transfer of value between these two ecosystems.
The main thing to understand - is that this bridge will open up the EOS ecosystem to those who use Ethereum.
It will allow for decentralized trading and price discovery in markets that you’ve never seen before.
This is still in development. But it’s worth it to keep your eyes closely on that.
Katalyst is an upgrade to the core Kyber protocol that not only increases liquidity, but also increases general stakeholder participation.
Katalyst changed the way fees are distributed on the protocol. Before, fees were either burned or paid over to the dApp integrations. There was no fee reward paid to those providing liquidity. This means you don’t really have an incentive for the makers in the reserves to provide that liquidity.
These reserve operators or makers also had to hold a significant amount of tokens if they wanted to integrate with Kyber.
With the Katalyst upgrade this minimum balance requirement was removed. This reduces the barrier to integration.
Katalyst also introduced a new fee redistribution model that saw fees given to these market makers as rebates, used to great effect on centralized exchanges.
Some of these rewards go towards KNC stakes who vote on protocol parameters. This is called KyberDAO. It’s Kyber’s attempt to strengthen the broader governance of the ecosystem.
This Dao brings in a wider array of KNC Stakers including the dApps, VCs, wallets, etc.
All those DeFi apps, wallets, and partners can have a say on how the Kyber network progresses.
Kyber Token - KNC
The Kyber Network Crystal - KNC - is an ERC20 token. To manage reserves on the Kyber network, a reserve manager has to purchase KNC. Every time an exchange takes place on the network, a small portion of KNC is charged as a fee.
These fees are partially used to pay for the operational costs of the platform. And are also used as an incentive for third party entities which bring additional trade volume into the Kyber network.
When the appropriate amount of KNC has been spent on these two items, any tokens left over are taken out of circulation, or “burned”.
The Kyber network originally cited a total 226 million KNC for its ICO. At the time, a little more than 60% of that total were distributed to those participating in the ICO.
Of course, the number of coins available will change during the next few years as tokens provided to advisors, private investors, and founders begin to enter the market.
Over time, burning these tokens will cause the supply in tokens to decrease which makes KNC deflationary.
This, along with a demand increase, should theoretically drive up the price of the KNC token.
While this is a great theory, the crypto market is complex and price movement is not always that simple.
KNC has been on a wild ride in price since its listing back in 2017. It was caught up in the preceding bull run and reached nearly $5. But thanks to the bear market, prices fell below the ICO price for quite some time.
The Kyber network provides the backbone for the DeFi sector. As more and more people in the crypto space are seeing the benefits of DeFi, a lot of DEXs are using the Kyber network to access their on-chain token liquidity.
Something else on the horizon for the Kyber network is their release of the Waterloo bridge. This could open up a whole new world of exchange opportunities between the Ethereum and EOS ecosystems. It also opens up the Kyber network to a sea of use cases on the EOS blockchain.
Although the EOS network is not as big as Ethereum, there are a number of projects building their own dApps in that space. When Kyber opens up Waterloo, these dApps will be able to access oceans of token liquidity across-chain and on-chain.
With the new staking features on KNC, you’re likely to have additional demand.
As we all know from Economics 101: A decreasing supply with an increasing demand leads to an increase in price.
This of course holds all else equal. But SHOULD we hold all else equal? What about the impact we likely see with a sea of additional dApps on DeFi projects?
As they start integrating into the network, exchange activity is likely to pick up. And if it does, so too will demand for the KNC token.
This data report is provided by Keystone Investors Research. Keystone is the only Cryptocurrency research firm that is Officially partnered with a government regulated Cryptocurrency Trading Platform.
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