Exploring Kyber Network: The DeFi On-Chain Liquidity Protocol for Seamless Token Swaps
The Kyber Network is built to bring automation and decentralization to the way ETH-powered assets are swapped or exchanged. This covers all ERC-20 assets and ETH with swift and cheap swapping hence being one of the main headlines of the protocol. Kyber aims to change the face of DEX and bring remarkable features to the market.
The Protocol is one of the successful projects to survive the 2017 ICO craze and thrive in the aftermath. After organizing its ICO back in 2017 to raise around $60M worth of Ethereum (200,000) over a two-day sale of its native token, the Kyber Network Crystal also known as KNC. Although the ICO took place in 2017, the project took off in 2018.
The Kyber protocol depends on a vast range of liquidity pools known as reserves. The way it is built allows anybody to inject funds into the liquidity pools thereby assuming the role of Reserve Managers. The assets in these reserves are accumulated from token projects, token holders, liquidity pools, and market markers. To be traded or accessed by so-called takers like wallets, exchanges, and DApps.
Introducing Kyber Protocol
The Kyber protocol is a liquidity protocol that provides an enabling environment for seamless, swift, and safe transactions or exchanges. The key aspect of the Kyber Protocol is providing the effortless swapping of tokens in the DeFi space. The key values on which the protocol is built are to provide instant settlement, easy integration, and platform agnostic.
The Kyber network is completely on-chain and its operation is transparent with innovative designs that make integration quite easy. The settlement system it offers performs instant inter-token exchanges with little or no risk.
Users will be able to get paid through any token but they get this payment in their preferred one. As well as, obtain liquidity and utilize decentralized apps then the ability to rejig your portfolios and liquidate your assets through financial decentralized apps.
The protocol wants to provide an ecosystem that enables the development of financial and payment flows applications. Although, this has proven to be a competitive space that has not stopped the growth of the Protocol in the industry.
With brilliant minds like Loi Luu, the cofounder, Victor Tran, that serves as the lead engineer, and Yaron Velment, the Chief Technical Officer, driving the project, it is easy to understand why the protocol has kept a positive trajectory in a highly competitive market.
Apart from the team, we also have high-profile advisors such as ETH co-founder Vitalik Butherin and DigixDAO’s strategic advisor Seng Hoe Long on board the project. Along with reputable Investment firms like Amino Capital, zk Capital, among others.
In the long term, the vision is to assist the immense number of evolving digital networks through liquidity facilitation. Thus creating a liquidity network that is linked over several different chains in the effort to build seamless token swaps across these chains.
In recent times, new features have been introduced to revamp the protocol. Features like Katalyst upgrade has brought about lower fees on the protocol, and much more. This particular upgrade also opened the path for KyberDAO to provide KNC holders with the avenue to have a say on further upgrades on the protocol. For participating in the voting process, the token holders will receive staking fees paid in Ethereum.
The Operating Mechanism of the Kyber Protocol
The Kyber network brings together different actors through a series of smart contracts. Now we have what we call takers and reserves interacting together within the network.
The reserves represent those that inject liquidity and it can be an individual or a body then we have the takers that employ the Kyber smart contract feature for trading tokens.
Takers include the users, another protocol, or wallets. It must be noted that there is a registration interface for reserves that want to list their token pairs. Besides, the role of delisting and listing trading pairs and liquidity reserves lies with the Kyber Core smart contract. Once reserves become registered reserves then they will be ready for pairing with requests from takers.
Finally, we have the maintainers whose job is to list and delist token pairs and reserves.
Far from being limited to just an exchange, the Kyber protocol entails much more. It also functions as a sort of mechanism to transfer cryptos. Here is where it differs from the other exchanges out there that can transfer cryptos.
The token you are sending does not necessarily need to be the same as the one to be received. What we are saying here is that you can transfer any token of your liking then Kyber will have it converted on the blockchain to the receivers’ preferred token before it lands in their wallet.
This benefits more than just the users alone, the potential it offers can also serve businesses. That means as a business you are not limited by the cryptocurrency your customers can offer you, since you can simply use the Kyber protocol and receive their payment in any token of your choice.
The Kyber Protocol Functionality
Let’s talk about the three mechanisms that make up the Kyber protocol functionality.
First, we have the Kyber Swap that functions as the interface for immediate swapping of several types of tokens without the need for deposits, order books, or wrapping the tokens. This component of the Kyber protocol benefits sellers a lot as they can be sure a token transfer has been completed successfully before goods delivery.
Secondly, the Kyber Reserve, which we have mentioned briefly earlier in the article. The primary function of the Kyber reserve is to ensure there is liquidity to power the protocol. This liquidity is injected by third-parties.
The protocol employs a transparent fund management model to ensure the funds in the reserve are secured and the security level maintained. Every successful transaction carried out by the reserve managers are recorded therein.
Finally, we have the Kyber Developer that functions in introducing new wallets, projects, Decentralized apps, and exchanges to the Kyber protocol. The protocol has equipped these developers with all the necessary tools and documents for the integration of a new decentralized project.
Let’s break down all the complex English using you as an example. The basic is that we have the token reserves held on the Kyber Protocol that you as a taker can swap your token for. Liquidity providers fund these reserves. Now, assuming you want to buy a good from a merchant that only accepts USDT but you have BAT.
In this case, you are the taker who then initiates a payment in BAT to the merchant who only accepts USDT. Now your payment initiation compels Kyber’s smart contract to also initiate a straight swapping of tokens.
This is done by dipping into the Token reserves to swap your BAT for USDT that is sent straight to your merchant. This eliminates the need for you to first buy BTC then using it to buy USDT before proceeding to pay your merchant with it.
Therefore, the Kyber protocol allows you to explore all Ethereum-based ecosystem linked to the protocol. This gives more utility to any Ethereum-based token you hold.
Kyber Network Crystals (KNC): An Overview
The Kyber Network Crystals also known as KNC is the token created for the Kyber protocol. In the genesis of the project, the tokenonomics varied to what we have now. Then the burning of tokens was the model employed to increase its scarcity. The protocol uses fees accumulated to burn KNC. That changed in the last month of 2019 with a new tokenonomics introduced through an upgrade called Katalyst.
Katalyst redirected KNC to serve mainly as the protocol governance token. This new direction gives the holders the option to vote and participate in the decision making process on the protocol.
Decisions like how the network fees (0.2%) need to be distributed across the Kyber ecosystem.
This includes staking rewards given to users that vote and take part in governance across the protocol through staking.
Also, we have token burns that are appropriated from the network fees for burning KNC.
Lastly, reserve rebates are given to those that inject liquidity; this reward depends on the amount of volume they route via the Kyber protocol.
On launching the Katalyst, staking rewards, rebates, and token burns were split 65%, 30%, and 5% respectively. This could change in the future via the Kyber network governance. The changes brought about by the Katalyst is not limited to governance alone, there were several key upgrades to the underlying network itself.
This includes personalized fees for developers, which allows them to dictate their custom fees instead of being fixed to the protocol pre-determined fee-sharing rates that stood at 30% of the 0.25% network fee. Further changes brought by the Katalyst include lowering entry requirements for reserve managers. They don’t have to be KNC holders before injecting liquidity into the Kyber network.
Then the last change is smart order routing, which means that pulling liquidity from the reserves doesn’t have to be from the one with the best price anymore. It can be drawn from several reserves at once.
Enough about the Katalyst, let’s look at other values the KNC provides to the Kyber Network.
First off, each transaction fee is paid in KNC by reserve contributors and this fee serves as a deterrent to reserve contributors from manipulating market activities through fake selling and buying or wash trading. However, there are rewards meant to stimulate reserve contributors for participation in the protocol. They earn through the shifts in selling and buying prices or earn off the spread, which they have to ensure remains competitive. The operating model of the Kyber protocol of favouring the best price keeps the reserve contributors competitive to ensure the spread is kept reasonable.
Furthermore, KNC is paid out for each transaction on Kyber protocol integration such as wallets and DApps. These network integrations receive the 30% transaction fees collected from reserve managers on every transaction.
Earn transactions earn them KNC token and this encourages more integration thus stimulating them to bring more users to their projects. Thereby expanding the Kyber protocol and its activities.
What Makes The KNC a Valuable Token?
In 2020 when the whole world faced a pandemic infused global recession. Some tokens kept thriving and according to a report by Flipside Crypto, Kyber is one of them.
Although, Kyber is not the only DeFi protocol to come of the covid induced recession unscathed. However, we can arguably say it is the main DeFi protocol that is not only a DEX but also a liquidity protocol that thrived despite the recession.
The value of the KNC token known as the native token of the Kyber network has been increasing steadily since 2019 and the global recession didn’t slow it down either. Presently as of January 8, 2021, the price of the KNC token is nearing $1 and currently stands at $0.913422 with a market cap of $192.12M.
To add to that, the protocol is not lacking in popularity and this plays well for the KNC’s value in the market. Currently, it is fourth on the list of popular Decentralized Exchanges boasting a total locked value at around $20.33M as of January 8, 2021. Despite the lockdowns that occurred around the world, Kyber still processed about $200M worth of transactions in March 2020.
Additionally, Kyber has expanded its team presence into Singapore and Vietnam and the DEX is now part of Chicago’s DeFi Alliance (CDA) alongside notable DeFi protocols like Synthetix, Ox, IDEX, etc. To put things into perspective, joining the CDA is very competitive with more than 100 groups applying and just seven selected of which Kyber is one of them.
Research point at a healthy liquidity base for Kyber and the protocol is said to have around 35,000 users that are active on the platform. Additionally, the Kyber protocol has proven it can withstand stress and perform under heavy transactions on its network. This was evident during March 2020 when the protocol process about $33M worth of transaction s in just a day. During this period, there was no report of any significant glitch despite the dreadful volatility that rocked the wider crypto market.
Kyber Network’s on-chain liquidity protocol has quickly grown to prominence in the #DeFi ecosystem. In March alone, Kyber reached nearly $200M in monthly USD volume
— DeFi Info (@AboutDefi) May 16, 2020
Explaining Kyber DAO and Staking
We mentioned the issue of governance earlier, it is time to elaborate on how the Kyber network achieves this. Initially, Kyber didn’t have the governance team in place but that has changed with the introduction of KyberDAO.
The decentralized autonomous organization enables KNC holders to participate in voting on proposals affecting the Kyber network. Staking tokens in the KyberDAO allows token holders to vote and in return get ETH rewards. There is no limit to the KNC that you can stake in KyberDAO. You can stake as much as you like.
That is not all – for holding KNC tokens on a third-party app like Binance even earns you staking rewards and it is distributed in relation to your balance.
Staking is as simple as visiting the Kyber website and linking your wallet to the protocol then clicking the stake button. The voting and staking of tokens are carried over specified times known as epochs, which are calculated using Ethereum block times. Every epoch lasts about two weeks as decided by the KyberDAO and that is one of the reasons voting is done every two weeks.
This is a faster epoch and it helps the KyberDAO decides on matters faster and earn rewards faster too. Although, that also translates to more frequent activities on the part of the KNC holders and an additional workload for the Kyber team.
Every epoch is designed to hold several campaigns and voters have to take part in all of them for maximum gains in terms of rewards. You get your share of the reward per each campaign you participate in, which is why it is important to participate in all for maximum yield.
KyberDAO introduces delegation ability for the token holders that have staked their tokens. This allows them to assign their voting rights to outside bodies or third-party pools. The entity that is assigned these voting rights is now able to set its structure concerning voting decisions and fees. It is expected that they will make decisions that are in the best interest of the protocol as their votes are visible on the blockchain.
Furthermore, the way KyberDAO is built is geared towards ensuring the best stability for the protocol. While also ensuring the greatest level of transparency ensues as well as the ability of the protocol to recover swiftly in critical circumstances. For starters, the maintainers of the protocol will be the team behind Kyber. However, the team aims to keep the greatest level of transparency concerning their role in the KyberDAO.
To keep the greatest level of transparency, every process and information is saved on-chain wherever possible. All voting decisions concerning allocations and protocol fees will be carried out on-chain and they are considered indisputable.
In places where on-chain activities are not possible, there are a series of governance procedures off-chain that have been built to safeguard every decision taken.
Remember how we mentioned that Kyber is not all about liquidity alone as it also has a functional DEX. That DEX part of the Kyber protocol is the KyberSwap and it serves as the platform for swapping of tokens. The swap protocol supports over 70 tokens, which you can swap instantaneously from your wallet.
You can also trade freely on KyberSwap without trading fees provided that you have 2000 KNC in your wallet but there is a limit of 10 orders daily. That is a straight swap of tokens at given prices and will not earn you any trading fees, instead, you get to pay just the transaction fees on each order.
The transaction fee for limit orders is modest at 0.10% on every successful limit order executed and the beauty is that this also includes the gas fee. To use a limit order, you must have a registered account with KyberSwap and you can’t set lower than 0.1 ETH for a limit order.
Apart from the fact that there are no trading fees, you don’t incur transaction fees either until somebody fulfills your order. However, you should note that for different reasons your limit order might not be fulfilled even when the set price for the order is reached. It could be that you sent your tokens to a different address, which means that irrespective of the price, your order won’t be fulfilled.
Trading on the Kyber is as simple as visiting KyberSwap and linking your wallet. Several wallets are supported on KyberSwap, for example, WalletConnect, Ledger, Torus, Coinbase Wallet, and MetaMask.
Once your wallet is linked, just proceed to select your trading pair and input the token amount that you want to swap on the platform. The amount you will receive is calculated by the Kyber protocol. The gas fee is adjustable and you can customize the maximum slippage rate.
Once you give your confirmation for swapping, KyberSwap will proceed with the swapping process. This leads you to confirm the transaction in your linked wallet.
The emergence of Kyber as DeFi on-chain liquidity protocol and DEX is a unique chance to see how a protocol can combine the two and perform efficiently. So far so good, the Kyber Network has not disappointed and it is on course to be the top dog in the DEX market in the DeFi space. Its emphasis on instant swapping of any token in a trustless and cheaper way on-chain is a key attraction for would-be users.
The ability to make payment in one token and receive it directly in another token entirely could make the adoption of cryptocurrency as a form of payment rise among businesses.
Reports on the Kyber protocol has been generally and constantly good with emphasis on the swift transfer of token. The use cases have also risen in recent times with more wallet, DEX, and decentralized apps seeking out the protocol.
The effect of KyberDAO and Katalyst has also been felt on the positive trajectory of the Kyber network. Thus, positioning Kyber for a good position in the future market.
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