Posted June 09, 2019
Hi guys, bare with me through this review as it's my first time using goDYOR. I chose to review Kyber Network (KNC) as it is one of my most followed projects, therefore I feel like I know enough to give an un-bias review. There will most likely be some points I fail to mention, so if that's the case feel free to comment (if that's possible). In this review I'm going to try and keep it short and simple, so I also may avoid some of the deep technical aspects of the projects, as it may not be worth getting into in this review to keep things easy. The point of me reviewing it is simply so people who are familiar with crypto but not KNC can get a basic of what Kyber is and why it's important. I am not affiliated with Kyber team or any other association, I just enjoy the project.
What is Kyber Network?
Kyber Network is a liquidity protocol built on Ethereum. You might think okay great, but what the hell does that mean? To break things down to the definition, liquidity itself is the availability of liquid assets to a market or company. Why is "liquidity" important at all though, who cares? Well, in the current space of crypto, we have hundreds of different tokens. Not to mention, although there is tech behind blockchain and crypto, at the end of the day a good majority of these assets are used for speculation purposes, and trading of these assets has much more popularity than actually using these assets.
I'm sure everyone reading this is well aware of the security issues in centralized exchanges, as we have seen time after time again. Because of the issues found in centralized exchanges, a lot of people prefer decentralized exchanges. A decentralized is an exchange very similar to a centralized exchange, only it is usually powered by a smart contract protocol meaning that no single entity or company has control of the assets you trade on the exchange. This usually means you are safe from any exchange issues.
Kyber Network allows anyone to transact or trade an asset for another asset in a fully decentralized way, using a reserve system (will be explained later). More importantly than just that though, Kyber Network makes it very easy to implement Kyber into your very own website, decentralized application (dApp), wallet, or more. So what does that mean exactly? Anyone, from anywhere, can trade any supported asset, at any time, on the network - and guarantee the liquidity is there. Some 'decentralized' exchanges (I'm looking at you IDEX) have terrible liquidity, so sometimes when purchasing lesser known coins you're subject to very large slippage rates - usually costing you more money.
Kyber Network is already implemented in dozens of wallets/exchanges/applications. MyEtherWallet, Enjin Wallet, KyberSwap, Set Protocol, Nuo.Network, Ledger Live, HTC Exodus, and many more.
How does Kyber Network differ from KyberSwap?
Kyber Network itself is the "protocol", and it goes much more beyond just KyberSwap. KyberSwap is an exchange built using Kyber Networks liquidity by the Kyber Team. It is their own in-house exchange, therefore is subject to regulation of Singapore laws unlike Kyber Network. It is up to the implementer what regulation they decide to enforce, if any - and anyone can implement Kyber Network. While in the past KyberSwap was closely associated with Kyber Network itself, the team is working more to separate the association so people understand the distinction between the two.
What is a dApp and how does Kybers liquidity help these so-called dApps?
A dApp is a decentralized application, most notably built on Ethereum. The difference between a dApp and an app you'd find on say, an iPhone, is that much like a decentralized exchange, the application is not controlled by a single entity, nor are any of your assets/property involved in the dApp. So what is that even good for? Well, there's currently a lot of things we have yet to explore in the world of crypto so a lot of potential killer dApps may still be unknown, but I can list some very good examples of dApps made possible with Ethereum that benefit from Kyber. One of the most notable are margin trading dApps such as Nuo - and I'll give you a brief overview of what that looks like.
Say you have $100 in Token A. You think Token B is going to go up in value, so you want to invest in it. You have such a good feeling though, that you want to make 3x as much profit as you would by just buying it (hence margin trading). The only problem is, you know Token A is a good investment so you don't want to get rid of it or risk trading it. With Nuo, you can use Token A as collateral - open a leverage trade on Token B using borrowed money (since Token A is your collateral, they can trust you to borrow you x amount of money). If token B goes down in price, you will have 3x as much losses and might have to sell Token A to cover those losses, but if Token B goes up, you'll make 3x as much profit, keep all of your Token A, and walk away with profit - no issues. No authority or entity to hold your funds, nothing like that. How is Kyber involved in that? Every time you open a long or short, you're borrowing money to purchase or sell the asset (only much more than you could originally afford). Every time there is a purchase/sale, it uses Kybers liquidity to grab from.
Another notable dApp utilizing Kyber is Token Sets. Set protocol (which poweres token sets) is still very early however they have a few "sets" available currently. A set is a contract that automatically rebalances and manages a fund (similar to an ETF) without any authority. For example, one of their sets is ETH Enthusiast. This is a token that (at time of writing) is worth $135.00. The token is weighted 75% ETH, and 25% BTC. It automatically rebalances after certain criteria is met. This allows for portfolio management and diversity without any manual work, and can be used in a similar manner to ETF's we see today. As I said earlier it's very early stage, but in the future they plan to support custom sets, and much more. Kyber Network is utilized in token sets every time a token is rebalanced - it uses Kyber to rebalance the weight of the token set.
Those are just 2 dApps. There are lots of dApps to explore if you haven't already, dozens of which are utilizing Kyber. The two I listed were examples of finance dApps, however it goes far beyond just finance. All of these dApps provide volume to Kyber Network, and in cases like Nuo, you're bringing 2-3x the volume for a single transaction to Kyber, all while never actually trading any crypto to begin with.
What is a reserve?
This section may be slightly more confusing, so if you don't understand I highly recommend reaching out on Telegram or scouring google for more information. Kyber is a liquidity protocol, and you can't be a liquidity protocol if you can't guarantee the liquidity. Kyber manages to guarantee this liquidity through what are known as reserves. Anyone can become a reserve, and there are already over a dozen reserves currently market making. These reserves provide liquid assets, which are available on every implementation of Kyber Network. Anyone can tap into a reserves assets unlike a traditional exchange where you have to have a seller. The reserve manager is able to choose how he wants to run his reserve, as there are many different reasons someone would want to run a reserve, and several different market making techniques one can use with a reserve to guarantee profit for the reserve, and fair liquidity at a competitive price to the users.
For every trade completed on Kyber Network, the reserve itself must burn a small fee of the total value of the transaction just completed. The fee is 0.25% for each transaction, paid only by the reserve. No user ever pays a fee. This fee is paid in Kyber Network Crystal (KNC) - and later burnt. To promote implementation growth for Kyber, they've introduced a fee sharing program for implementors as well. What does that mean? So any dApp, wallet, website, etc. that has integrated Kyber, can receive 30% of the 0.25% fee collected from the reserves, meanwhile the other 70% gets burnt out of circulation.
This incentivizes content creators to implement Kyber, which benefits Kyber by bringing more activity and volume.
What is Kyber Network Crystal (KNC), where does its value come from?
KNC is the native token for Kyber Network. As explained in the reserve section above, a small fee of KNC is collected from reserves for each transaction on the network. Majority of which are later burnt out of circulation.
Valuation in cryptocurrencies is still very early, so it can be hard to find where value comes from in a token, and what the true valuation should really be. Kyber Network however uses a very basic function for their token, which makes the source of value relatively clear. Similar to a stock buyback in a traditional market, Kyber burns existing tokens from the circulation supply. In a stock buyback, those shares no longer outstanding (therefore lowering the supply), and with Kyber burning tokens, those tokens are no longer existing (ever again), therefore lowering the supply.
Most people are aware of simple supply and demand economics, which basically shows: if the supply keeps increasing, demand decreases. If supply keeps decreasing, the demand increases. Lower supply, equal or higher demand = higher price. Of course supply and demand doesn't work for every asset, things that become irrelevant or outdated are supplied less, and both demanded less. But with a protocol like Kyber the demand will always come with volume on the network. There has been constant growth in volume, more so in the past 3 months than the past 1 year. Over one million KNC has already been burned out of circulation.
What is a DAO? What is KyberDAO?
A DAO is a decentralized autonomous organization. Think of it more like, a decentralized governor/government. It's an organization that need not trust each other, but yet can be used to govern and make changes to a protocol/project/anything without relying on one central authority. This is important because in projects like Kyber, and practically every other project, decentralization is a key component. Therefore there will need to be changes made, or steps taken for who knows what the future may bring, and having a DAO means you will probably find the best solution as a group rather than relying on one team/person to make a large decision. KyberDAO is a DAO, but obviously for Kyber and the future of it. It's very early stages for Kyber DAO (very, early). However they've already completed one question and have a KyberDAO #2 proposal coming up later this month.
The DAO itself is another buy signal for KNC as people who have a stake in Kyber or want to have a stake in Kyber, will need to buy and (most likely) sit on these KNC for governing purposes.
Random thoughts/more info:
- If you want a more technical explanation, please do not read my review and just go start reading the protocol paper - it will do a much better job than me.
- Kyber has tons of stuff in the works, and has continued to deliver time and time again. They are constantly doing stuff on social media, constantly pushing out updates/new stuff. Too much stuff to list all in this post.
- Order books are possible! Some people dislike how at the moment Kyber mainly "swaps" these tokens for the best possible rate (which is convenient for dapps/websites/etc.) - however traders themselves typically order books that they can set, as well as stop-loss, etc. Well, that is possible, there are permissionless orderbooks by Kyber however it hasn't gained too much traction as it's still very new/unheard of, not to mention the current bear market. So if you are a trader put off by Kyber because of the lack of order books, it will be here sooner than you think.