The Kyber Protocol (KNC) is a protocol focused on decentralized finance (DeFi) whose main function is to be a means for the creation of decentralized exchanges (DEX) for the exchange of tokens.
PTo achieve this, Kyber creates an entire integrated platform that offers liquidity provider and token aggregator functions, which applications can target to enable decentralized token exchanges.
All this allows Kyber to work with token projects that require a market where they can be traded while having the need for liquidity. Also with existing Liquidity pools in the DeFi universe (such as Curve, Uniswap or Balancer) and token holders, that is, users in general.
Best of all, Kyber is built on top of Ethereum, making it easy to integrate Kyber with DApps, wallets, and other services that support the Ethereum network.
Origin of Kyber Network (KNC)
The origin of the Kyber Network takes us to the year 2017, the year in which the development of Kyber began, a system that sought to facilitate the exchange of ERC-20 tokens. Facing the development were Loi Luu, who is CEO of Kyber, Victor Tran and Yaron Velner, who are its co-founder and CTO respectively. That same year, on September 15, the Kyber team started an ICO in which they managed to collect a total of 52 million dollars (200 thousand ETH) for the development of the project. Following the success of the ICO, the team accelerated the pace of development and finally, in February 2018, the Kyber Network mainnet was officially launched. With the launch of the network, the Kyber Network issued 226 million KNC tokens allocated as follows:
- 19,47% allocated to the project treasury
- 19,47% for founders, advisors, and seed investors, with a one-year lock-in period
- 61,06% distributed to participants in the token sale
- On October 14, 2017, the burning of 10.374.651,16 surplus KNC tokens took place. The total initial offer was reduced to 215.625.348,84.
Since then, the Kyber Network has offered its liquidity provider services through network-controlled reserves. In compensation for their control over liquidity, the nodes that manage this system are rewarded using the spread that is created in each of the transactions that take place in the network and the tokens traded.
How does Kyber Network work?
Kyber Network is a network of nodes that works in such a way that its nodes guarantee the existence of a series of reserves that serve to maintain a liquidity of tokens within the network. Said liquidity is used to carry out exchanges (swaps) for users who use Kyber and, consequently, each exchange is accompanied by a spread (price differential) that feeds the rewards of the nodes that serve as guarantors of the system's reserves. .
This is the general way the Kyber network works, and you will surely see that it is very similar to projects like RenVM (with its external nodes serving as guarantors for the creation of tokens like RenBTC) or projects like ChainLink (where a series of nodes serve information to the oracle network and are rewarded for it).
In any case, Kyber Network depends on these guarantee nodes, because they are the ones who maintain the accounting, functionality and security of the system.
An important point of the operation of the Kyber network is that every operation has a cost. Thus, for example, a taker operation has a commission of 0,20% (previously 0,25%) on the amount exchanged. Of that percentage, 30% will serve as a reward to the taker where the operation has been carried out, and this serves to encourage the provision of service by the nodes of the network. Said reward payments are made in KNC tokens (Kyber's native token) and are made jointly in the same operation in a transparent manner for both the user and the taker.
Thus we have that in Kyber the operations comply with:
1. Complete execution of the exchange. That is, there are no partial executions, if you exchange 10 ETH, all of those 10 ETH will be exchanged in the same operation.
2. The operation can be chained in the middle of a whole series of integrated exchanges, but in the end, the entire execution is reflected in the same operation. This saves Gas within Ethereum and allows to pay less commissions to the user of the exchange.
Reserves or sources of liquidity, the heart of the Kyber Network
The reserves or source of liquidity are in charge of providing liquidity to the actors that make up the Kyber protocol. The idea of this system is simple: on the one hand, Kyber acts as a liquidity provider, keeping the reserves for operations under its control. But on the other hand, it also allows third parties to integrate and add more liquidity for your operations. In this way, Kyber ensures that the network always has liquidity availability in its token pairs to make exchanges as required.
The integration is complete. For example, a DApps can directly join Kyber and offer trades from ETH to a DApps native token, so that users have access to the DApps and their features. It is also possible for other DEXs to join Kyber in order to offer or seek liquidity for their own exchanges if necessary.
This reservation system is under the control of the Kyber network nodes, who have special programming that allows them to offer liquidity services using customizable managed prices. In other words, the manager of a Kyber node can offer liquidity for a pair of cryptocurrencies, and at the same time, indicate the price of each one of them at their discretion. However, Kyber also offers various styles of reserves, among which we have:
Price Feed Reserve (PFR)
These types of reserves fund providers (liquidity) have control and flexibility over the pricing algorithm in token swaps. The managers of this modality assume the costs of development and maintenance on the chain of blocks.
This reservation modality is convenient for professional managers or market makers who manage their own funds, or who have been commissioned with projects that seek to give liquidity to their token. These participants generally have their own trading and pricing strategies. Additionally, it is also suitable for individuals who trade a large number of tokens. The required amount of entry is $20.00.
Automated Price Reserves
In this modality, reservation managers will delegate control of their pricing strategy to an already predefined algorithm written on a smart contract, which will provide the exchange rates. The ease of maintenance and low development cost of this reserve comes at the expense of high financial liquidity requirements, starting at $50.000.
This type of reserve is convenient for project teams that are already exposed to their token, and individuals who have a considerable amount of value in tokens and estimate that it will have an appreciation in value, likewise, they do not require frequent rebalancing of the portfolio or need for adjustments.
Bridge Reserve
These are the reserves of other protocols such as UniSwap, Oasis, DutchX or Bancor, which Kyber accesses always looking for the best conversion price.
Kyber Core Smart Contracts, the operators of network exchanges
The Kyber Network makes extensive use of Ethereum smart contracts for its operation, and its main piece is known as Kyber Core Smart Contracts. These smart contracts are in charge of carrying out the swaps or exchanges that are carried out on the network. Its operation can be simplified as follows:
- Juan enters the Kyber Network, and requires an exchange of 10 ETH for BAT tokens.
- The trade request is sent, received by the Kyber network and sent to the Kyber Core Smart Contract.
- The Kyber Core Smart Contract performs a query on the network to find the best exchange for the request. In this way, the best exchange of those 10 ETH for BAT tokens is searched in each of the available reserves.
- The best exchange is returned to the user and the operation is carried out under his acceptance.
This whole process is done in a matter of a few seconds, and in the end, as a user of the network, you have obtained the best possible exchange within the system. While on the other hand, the network nodes and liquidity providers have also made a small profit thanks to the price spread and fees charged for the trading process.
KNC Token, the economic heart of the Kyber Network
Kyber Network has created the KNC native token with a very clear purpose: to be the economic bridge to manage rewards and governance within the network. For example, every time an exchange is made within the network, the nodes that are responsible for the proper functioning of the Kyber Network receive a small reward in KNC tokens for their work.
Currently the KNC token has two functions:
1. Receive rewards and incentives for the work done on the network.
2. Serve as staking to be used within the KyberDAO, the on-chain governance system of the network.
However, there are two interesting points in the tokenomics of this system, and that is that:
1. Its issue is limited, with a total of 215.625.348,84.
2. A certain number of KNC tokens are burned in each operation. This reduces the existence of KNC tokens over time, making them more and more valuable.
Security within Kyber
Kyber security is something that is not taken lightly. First of all, smart contracts are constantly being reviewed and audited by both the development team and the community itself. This ensures that smart contracts comply with certain guarantees when carrying out operations or participating as maintainers
or reservists within Kyber.
On the other hand, entering the system to offer services, although it is free, requires certain requirements to be met. This is intended to prevent malicious actors from entering the system to harm the system. For example, offering conversion rates that do not meet the minimum of the system. Or to prevent a trade from being executed in the event that slippage causes the conversion rate of a trade pair to drop below a specified minimum rate. This would, for example, prevent a user from making a trade with a serious loss.
In any case, Kyber has stood out as one of the safest DeFi projects in the Ethereum ecosystem. Thus keeping a fairly clean security history and with a constantly reviewed and proactive security.
Kyber 3.0, the future is here
Kyber Network is a network in constant evolution and we can see that with the launch of its v3. Known as Kyber 3.0, it seeks to turn the network into what is known as a DeFi-oriented protocol liquidity hub.” Among the new features of Kyber 3.0 we can highlight:
1. Kyber DMM, which is an AMM (Automated Market Maker) designed to maximize the use of capital by allowing extremely high capital efficiency and reacting to market conditions to optimize the performance of liquidity providers . This protocol is designed to react to token pairs and market conditions to optimize commissions for liquidity providers and fees for takers.
2. The arrival of amplified liquidity pools, which are nothing more than pools designed to obtain great liquidity for Kyber DMMs. The idea is to optimize the liquidity base of the pools, avoiding large slippages (sliding prices) and at the same time reduce the footprint of commissions in the operations.
3. Dynamic commissions. This new measure seeks to improve the profits of the liquidity pools and reduce the impact of trading commissions, since they are adjusted to the conditions of the on-chain market.
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