A Guide to Kyber Network – The Asset Exchange of the Future

Iulian Lesanu

@Iulian

Kyber Network

The Kyber Network is a bit over three-years-old, but it has already become one of the best-established projects in the crypto space. The protocol developed from a decentralized exchange into a full-scale DAO. Today, Kyber is a token-swapping seamless service where DeFi platforms, merchants, and individuals come together.

Kyber Network is not the only DeFi project of its kind. However, its ambition to become the go-to liquidity service for the decentralized finance ecosystem is unprecedented. Some would say that Kyber is the asset exchange of the future, and today, we’re out to find out if it can live up to the expectations.

What is the Kyber Network?

Kyber Network is an instant digital asset exchange service, built on the Ethereum blockchain, aiming to provide easy access for decentralized exchanges and DApps to liquidity pools.

The project’s idea is that as long as everything remains on the blockchain, decentralized exchanges should become entirely trustless. Users of the Kyber Network should be able to convert or exchange any crypto-asset instantly.

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All the transactions taking place on the Kyber Network are easily verifiable through an Ethereum block explorer. Users can also build products and services in the form of DApps on the network without worrying about liquidity.

The Kyber Network doesn’t use order books. Instead, trades occur depending on the best price across all the liquidity pools, also known as reserves. There are numerous kinds of Reserves on the network, and each one functions under the control of a smart contract.

Like many decentralized exchanges out there, Kyber also has a native utility token, called Kyber Network Crystal (KNC). According to its website, KNC is the “glue that connects different stakeholders in Kyber’s ecosystem.”

KNC holders can use their tokens to determine the value of rewards that liquidity providers receive in exchange for their support. They can also stake their tokens in the KyberDAO, which enables trustless, decentralized governance of the network.

A Brief History of the Kyber Network

Kyber Network is one of the fastest developing projects in the crypto space. The platform saw the light of day in 2017 under Loi Luu’s leadership, a blockchain researcher and developer of Oyente, an open-source security analyzer for smart contracts on Ethereum.

Besides Luu, other leading developers that took part in the creation of Kyber include Victor Tran, a senior backend engineer and Linux system administrator, and Yaron Velner, who is the current CEO of B.Protocol, a decentralized backstop liquidity protocol.

According to the LinkedIn page of Kyber, the platform has more than 50 employees on the payroll. Most of them are based in Singapore, where the network’s headquarters is also, and Vietnam.

Kyber managed to attract more than $60 million worth of Ether in just a day through an ICO event in September 2017.

In February 2018, the platform launched its main net to whitelisted users, and a month later, it opened to the public.

In 2019 alone, Kyber Network registered an increase of its volumes by 500%. The correlation with Ether’s price has caused several drops in its value every time Ethereum’s value plummeted as well.

Since its release, Kyber has enjoyed the support of many important voices in the crypto industry. Among them is Vitalik Buterin, the co-founder of Ethereum, also one of the Kyber advisors.

Towards the end of 2020, the cryptocurrency market has witnessed a remarkable surge in value that saw Bitcoin overcome its all-time high (ATH) value. Several altcoins are increasing considerably as well. Kyber Network profited from the Ether price surge and recorded substantial volume enhancements with more than $300 million per month.

How Kyber Network Works

Kyber aims to support “seamless token swaps, anywhere.” To do so, the network aggregates liquidity from various sources, such as token holders, projects, and liquidity pools. It then places this massive amount of value into a single pool that provides the best rates and fuels other entities on the chain, such as DApps, Wallets, DEXs, and end-users.

Unlike other exchanges on the market, Kyber enables swaps between entities without requiring that the tokens be sent to match the tokens received.

Through Kyber, users should be able to send any token, have the network convert it, and see it land in another wallet in the form of another token. This way, both regular users and businesses could engage in transactions regardless of their tokens in their wallets.

The Kyber Network works thanks to seamless collaboration between these three elements:

1. Kyber Swap

Kyber Swap enables instant swaps of numerous tokens without the need for wrapping, deposits, or order books.

2. Kyber Reserve

Kyber Reserve delivers liquidity to the network from third-party entities that provide tokens to the pool. The reserve funds’ security is kept through a transparent management model where every trade is recorded, visible, and verifiable.

3. Kyber Developer

Kyber Developer is in charge of exchanging other exchanges, wallets, and DApps to the network. It provides developers with the necessary tools and documentation to incorporate into the Kyber pool any decentralized project on the chain.

Kyber Network is steadily turning into one of the most popular exchange services on the Ethereum blockchain, and it owes it all to the perfect distribution of roles on the platform, which includes:

The Kyber Users

Users can be businesses, individuals, or merchants, and all they need to do is send and receive tokens through the network.

Reserve Entities

The reserves are the equivalent of liquidity pools on other DeFi protocols. The only distinction is that, on Kyber, they can come from different sources, including public liquidity pools, third-parties, and other dynamic entities on the blockchain. Regardless of where they come, they all pour their assets into the Kyber pool, from which they can convert further into the tokens that DApps and other projects require.

The advantage of using reserve entities allows users of less-known tokens to use Kyber and put their assets to good use.

Reserve Contributors

This role belongs to entities that provide liquidity on the Kyber Network but are already members of the platform and do not come from the public area.

The Reserve Manager

This entity plays one of the most important roles on the Kyber Network. It is the manager that calculates exchange rates and shares them on the network.

Kyber Katalyst Upgrade

On July 7, 2020, the Kyber Network went through the Katalyst upgrade, which has established its position as a relevant liquidity layer in the DeFi space. Several changes to the initial protocol have made the network even more attractive to liquidity providers and DApp developers.

At the time of this writing, important names from the industry that have already joined Kyber include

• Cream Finance (CREAM)
• Uniswap (UNI)
• Sushiswap (SUSHI)
• Curve Finance (CRV)
• Yearn (YFI)
• YFValue (YFV)
• Swerve Finance (SWRV)

The Katalyst upgrade has created a better ecosystem by increasing the incentives to stakeholders, enabling reserve managers to provide liquidity much faster than before, and giving more power to KNC holders.

The Katalyst upgrade was a decisive step into transforming the Kyber Network into a decentralized autonomous organization (DAO), called KyberDAO.

From there on, KNC holders play a crucial role in the development of the network. They receive incentives for taking part in the governance system and have more freedom to stake their tokens. Additionally, they can also decide upon key parameters of the network.

Both staking and voting on the Kyber Network take place once every 2 weeks after a period known as an “epoch.”

The epochs are measured in Ethereum block times, and they help the KyberDAO participants make faster decisions on proposals and send rewards just as quickly.

Staking will be a new addition, and together with voting, it will be done in fixed periods called “epochs.” These epochs will be measured in Ethereum block times, and each KyberDAO epoch will last roughly 2 weeks.

What is the Kyber Network Crystal (KNC) Token?

The Kyber Network Crystal (KNC) is an ERC-20 token built on Ethereum that acts as a bridge between liquidity providers and projects requiring development funds.

Kyber uses KNC to collect transaction fees, and it maintains KNC deflationary by burning a portion of every fee it collects.

Entities who want to use Kyber have to use their third-party tokens to purchase KNC first. In return, they get access to the network and interact with exchanges, wallets, and DApps that support the massive liquidity pool.

After reaching its final stage of decentralization and becoming a DAO, Kyber also enables KNC holders to stake their tokens or use them for governance purposes.

Kyber released KNC in September 2017 through an Initial Coin Offering (ICO) at the price of just $1. More than 226,000 tokens were minted for the event, and they were sold as follows:

• 61% to the public
• 39% divided in half between the company and the founders and advisors with a 1-year lockup period and 2-year vesting period

The event helped Kyber raise more than $60 million in less than 24 hours.

At the time of this writing, KNC had a market capitalization of $171,757,481. There were over 200 million units in circulation out of a total supply of 210,341,647 KNC. One token was selling for roughly $0.88.

You can buy KNC from many popular crypto exchanges, such as Coinbase Pro and Binance.

To store KNC, you can use any crypto wallet that supports ERC-20 tokens, such as MyEtherWallet, Metamask, and KyberSwap Android.

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The Bottom Line – A Guide to Kyber Network

The Kyber Network is quickly evolving into one of the most reliable exchange services on the cryptocurrency market. The use of the network has been growing substantially in recent months, especially after the platform became a DAO.

Nowadays, Kyber puts more focus on its users and builds a secure, transparent environment to integrate more projects and DApps. Several DeFi protocols have already joined it to boost its credibility even further.

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The only thing about Kyber that is somewhat worrying, at the moment, is the low price of KNC, which struggles to increase in value despite its significant market cap. Nevertheless, considering the protocol’s steady progress, the eyes of many crypto investors will be on the Kyber Network and its evolution for many years to come.