I just did a BIG rebalancing on my crypto portfolio. Long story short, I sold all my altcoins and went all-in on Kyber network (KNC) and ICON (ICX). I will explain why I am accumulating KNC heavily right now, what is Kyber Katalyst, Kyber network and what is the future of KyberDAO.
1. Introduction of Kyber Network
Kyber network did an ICO in 2017 and they raised 200,000 ETH in their token sale (worth about US$52 million). The company is based in Singapore and the CEO of Kyber Network is Loi Luu.
In 2014, Loi Luu came to Singapore from Vietnam to do his PhD in computer science at NUS. He was researching on cryptocurrencies, blockchain and smart contract security. Loi subsequently founded Oyenete, which is an open-source analysis tool to detect security bugs and vulnerabilities in smart contracts.
This is really good for Kyber’s development as you have the CEO himself who understands the framework of smart contract security.
In 2016, he got the Microsoft Research Asia PhD Fellowship. Then in 2017, the Dean’s Graduate Research Excellence Award, NUS School of Computing. In 2018, he was named Forbes Asia’s 30 under 30. And in 2019, MIT Technology Review’s Innovators Under 25. Really impressive credentials.
I have personally met the team before while doing my internship with Digix. Very humble and bright people who are easy to work with. Back then, I was busy organizing all these etheruem meetups and Kyber came to one of them. Really good exposure.
2. What is Kyber Network?
Alright, that is a brief intro of Loi Luu and how Kyber Network started. They are only about 2 years old+ now but they are gaining huge traction in the crypto space. So what does Kyber Network do?
What Kyber is trying to solve is liquidity.
Originally, there is only one token, bitcoin. Then came Ethereum, which allows many applications to be built on top of it and create their own tokens. That is how ICO and altcoins came about. Suddenly you have an explosion of tokens in crypto. Thousands of them.
2.1 Problems in the Crypto World
Here comes the problem. Most crypto projects tend to create a new token that is ONLY limited to its own specific use case.
For example, SIA creates a loyalty token that can only be used for SIA’s platform. Tencent creates a gaming token that can only be used on Tencent’s platform. Alibaba creates a shopping token that can only be used on Alibaba’s platform. *fictional examples
Each of them is operating in their own silo space. You can’t use SIA loyalty tokens to play games on Tencent’s platform. Neither can you use Alibaba’s shopping token to fly SIA. That is the first problem. There is no interoperability.
Next, can you imagine if you are using 10 of such services daily? That means you would have to own 10 different types of tokens for 10 different types of applications. This is the second problem. It is hard to manage and keep track of all the different tokens in your wallet.
Finally, if I only have Tencent tokens and I want to fly SIA, then I have to sell my Tencent tokens into bitcoins and use bitcoins to buy SIA tokens. Similarly, if I have some excess SIA tokens and I want to do some shopping, then I would have to sell SIA tokens into bitcoins, then use bitcoins to buy Alibaba tokens. This is the third problem. Too troublesome and inconvenient.
The above three problems sum up the problems in the crypto world. We would never reach mass adoption if there is no solution for it. Simply because it is not user-friendly and it is too cumbersome. So how does Kyber solves it?
2.2 Solution of Kyber Network
How Kyber solves the problem is it allows a direct token-to-token swap.
For example, if I ONLY have Tencent tokens, it can be directly swapped to SIA tokens (when I want to fly) or Alibaba tokens (when I want to shop). That’s it. This simple solution solves all the problems we mentioned above.
This is huge. Because with this token swap, any coin you hold can be used in any applications on ethereum. Previously it was token A for platform A, token B for platform B and etc. Now any token can be swapped into anything and be used anywhere.
You can think of Kyber Network like a bridge that connects all tokens and all applications together. Without Kyber, it was one token for one application. With Kyber, it becomes one token that can be used in a thousand applications.
2.3 Use Cases of Kyber Network
The use case of it is massive. Imagine Starbucks accepts crypto payments, but only stability tokens like gold (DGX) or stable coins (DAI). This is not a problem as Kyber can just swap whatever tokens I have to DGX or DAI in the back end. Now I can use my SIA loyalty tokens to buy Starbucks coffee EVEN THOUGH the merchant only accepts DGX or DAI.
Another use case could be Decentralised Finance (DeFi) or asset management. Melonport is one of them. By the way, you can set up your own asset management fund with less than $50 and define your own investment parameters.
Anyways, asset management involves the rebalancing of a portfolio when certain conditions are met. That is where Kyber comes in again, doing all these swappings at the back-end seamlessly and instantaneously.
It wouldn’t be possible without Kyber. Can you imagine the cost of rebalancing your portfolio if you have to transfer your tokens to a centralised exchange, sell to bitcoin, buy another coin, transfer back? How much spread costs and withdrawal fees would you lose in between? Not to mention the fluctuations of asset prices while waiting for your block to be confirmed in a transaction. It is going to be inefficiently costly.
3. How does Kyber Network Works?
Alright, so how does this token-to-token swap works?
3.1 Aggregating Liquidity Providers
First, Kyber aggregates various liquidity source into one single platform. Liquidity source can be thought of as individuals who hold a substantial amount of tokens or a professional market maker willing to buy and sell from people.
Basically, the liquidity providers ensure that whenever you want to swap a token, there is someone on the opposite end willing to exchange it with you. That is what liquidity is all about.
Usually, the main problem of a decentralised exchange is an illiquid market. That is where Kyber comes in to solve this problem. This is in contrast with a centralised exchange where it is more liquid but also more vulnerable to hacks as it is a single centralised place where all the users’ funds are held custody.
3.2 Determining the Best Conversion Rate
Secondly, each different liquidity provider will have different conversion rates that they have set in the smart contracts. Whenever a user makes a swap, Kyber queries through all the rates and take the BEST conversion rate to make the swap. So a user not only gets guaranteed liquidity, but they also get the best conversion rate.
3.3 Accessible On-Chain Protocol
Thirdly, Kyber is an on-chain liquidity protocol that is accessible and compatible with other smart contracts. What that means is everything happens on the blockchain. Everything is transparent and decentralised.
Kyber smart contracts can talk to other smart contracts on ethereum. The integration is straightforward and there are no complicated off-chain components.
The downside of on-chain is scalability. Kyber is built on top of the ethereum network. At 14 transactions per second on the ethereum base layer, it is just not possible to see global enterprises coming in.
Ethereum 2.0 is trying to solve all these issues. So if the transition towards scalable ethereum is successful, then a part of that value would definitely cascade down to Kyber.
Because of the compatibility ease, big exchanges like Coinbase are using Kyber to facilitate token swaps on their back-end. Enjin, which is integrated with Samsung Galaxy S10, also uses Kyber. MyEtherWallet (MEW) also uses Kyber and their partnerships are just growing every month.
There is a saying “Liquidity begets liquidity”. Once a platform is proven to have liquidity, everyone would flock there. This creates a snowball effect where volume and liquidity increase exponentially. The more people use Kyber, the more liquidity it gets and that would even attract more people.
4. What is the Utility of Kyber Network Crystal (KNC)?
KNC is a native token to the Kyber Network. So what is the utility of KNC?
During Kyber’s ICO, they minted about 215 million Kyber Network Crystal (KNC). Around 60% of it was distributed to the public, 20% to the company and another 20% to the founders and advisers. This 215 million KNC supply is all there is ever going to be. No new supply would come in.
It is important to note here that users who want to swap tokens on Kyber Swap DO NOT have to hold KNC tokens. If you want to swap your altcoins for other altcoins, you can just connect your wallet directly and make the swap. This is to encourage mass adoption and higher volume transactions.
In that case, who needs KNC? It is the liquidity providers. If you want to provide liquidity on Kyber’s platform, you have to pay in KNC.
4.1 Tokenomics of KNC
More specifically, the amount they pay is 0.25% of the transaction value. If someone makes a swap that is worth $5,000. Then liquidity providers have to pay (0.25% x $5,000) worth of KNC tokens.
Out of this 0.25% that the liquidity providers pay, 30% of KNC tokens go to all the decentralised applications (DApps), vendors and wallets. It is like an incentive reward for helping Kyber to bring in traffic and trading volume.
The other 70% of KNC tokens gets burned (Remove in circulation entirely).
This means that the total supply of KNC tokens will keep on falling. As more tokens get burned, the supply reduces. Assuming demand remains constant or increases, the value of KNC tokens should theoretically rise.
It is sort of an indirect way to transfer profits to token holders. Binance is also doing this as they used to burn their BNB tokens which are pegged to the profits they earned. The more they earn, the more they burn, and the more the value of the token rises. But they have now changed the pegging from profits to volume.
That is the brief tokenomics of KNC.
Till date, about 4.76 million of KNC tokens has already been burnt. The total supply since its ICO date has fallen from 215 million KNC to about 210.8 million KNC now. This is good for investors who hold KNC. The lower the supply, the more scarce or valuable it should become.
Kyber has a tracker that tracks how much fees they have collected and the accumulated burnt KNC tokens. It seems that the rate of burning is picking up. Since everything happens on-chain, you can view all the transactions and it provides a good level of transparency.
5. Katalyst: Kyber Protocol Upgrade
Alright, now you have a good understanding of how Kyber Network works and what they do. Here comes the bomb. Kyber Katalyst is coming by end of Q2 2020. This is a big major protocol upgrade and its a huge milestone for Kyber Network. Here are the key changes.
5.1 KyberDAO and KNC Staking
Those who hold KNC tokens can now participate in the KyberDAO and earn staking rewards in ethereum.
KyberDAO is a decentralised autonomous organisation, a concept that meant there is no hierarchy in the organisation. Governance is run by a network of community and token holders decide the strategic direction of the company. If you own KNC, you are part of KyberDAO. You can vote and you earn ETH.
I had a brief experience of voting on the DAO using my DGD tokens. You can read more about it if you are keen. Pretty interesting and fun.
Previously, the parameters were decided by the core team of Kyber. It was 70% KNC tokens burn and 30% to DApp integrators. Now decision-making has been decentralised. KNC holders will collectively vote and decide on the allocation.
One of the first task coming up for KNC holders is to vote on the parameters.
- How much staking rewards should be distributed?
- How much KNC should be burned? And
- How much fees should be given to liquidity providers?
In the future, people can submit new ideas and proposals to the KyberDAO. Token holders will then vote and decide whether to accept or reject those proposals. This will encourage more robust growth for Kyber ecosystem since you have a pool of community coming in.
5.2 Liquidity Providers
Liquidity providers also benefit from this Katalyst upgrade.
Previously they only earn from their own custom spreads. Now, liquidity providers have a bonus incentive that will be decided by KNC holders in KyberDAO. Remember that one of the parameters is to decide on how much % should go to the liquidity provider? (3rd point)
This would attract more liquidity providers into Kyber and they are now incentivised to perform better. The big professional market makers would come into the game if the economics are profitable.
Next, liquidity providers are now not required to maintain a KNC balance. In the past, they must hold a large pool of KNC balance to operate. This should lower the barrier of entry for liquidity providers who want to join Kyber.
5.3 DApp Integrators
Finally, DApp integrators are now allowed the flexibility to customise their own parameters or spread. Previously they earn a fixed 30% of the 0.25% fee that liquidity providers pay. This fee-sharing model is removed now. This encourages more DApp developers to come on board and build on top of Kyber.
6. Kyber Network Stats
Here is a quick overview of Kyber’s performance over the past 12 months. You can see that they are growing really fast and the volume is picking up. This is especially so when DeFi has become the trending narrative for ethereum this year.
More and more of such loans, payments, derivatives, trading DApps are propping up and Kyber plays an integral role in this whole ecosystem. You can think of them like the lubricant oil that keeps the gears running smoothly.
Kyber is also the number 1 used project in the DeFi space according to Binance Research. There is a total of 35,570 unique users in 2019 and they are the top 10 tokens by volume. So this should dispel the doubt if anyone wonders whether there is any utility to KNC. It is one of the most “used” tokens in the crypto space.
Adding on to that, KNC recently got listed on Coinbase and Coinbase Pro on Feb 2020. This used to have a big pump effect in the past but not anymore now. Nevertheless, it is huge news that should give investors the assurance that KNC is a solid token.
To get listed on Coinbase, you have to meet a very stringent set of standards defined by them. No random shitcoins can just get themselves on Coinbase. With KNC listed on Coinbase, it would bring about more investors to get onboard Kyber. The evidence of that can be seen from the increasing monthly unique addresses in the charts above.
7. Future of Kyber Network
I am really excited towards Katalyst, KberDAO and Kyber Network staking. The tokenomics of KNC benefits investors who hold KNC tokens one way or another.
First, KNC holders get rewarded monthly from the staking feature. Second, a % of KNC tokens are burnt in every transaction. An analogy would be to think of a share buyback program that is happening every single day. Third, a % of KNC tokens are used to incentivise liquidity providers. This brings in more market makers, more liquidity, more volume, which in turn benefit the entire Kyber Network ecosystem.
If the rollout of ethereum 2.0 succeeds, there would definitely be an influx of new DApps that are being built on top of it. Not to mention the traditional wall streets or global enterprises. These new DApps would integrate Kyber on their back-end so that they can gain more exposure in the crypto world. Kyber’s volume and network fees would inevitably shoot up.
Kyber’s business model is also robust and resilient. They benefit in both good and bad times. When the crypto market crashes, volatility is high and everyone would be swapping out to stable coins. All these generate volume spikes and network fees for Kyber. That is the reason why you see their stats for March is at record-high. It is because of the bitcoin dump in March.
Similarly, when the market is good, people would be swapping to riskier assets to chase for alpha returns. Think of it like a broker that earns commissions regardless of whether the market is going up or down. As long as there are volatility and volume, Kyber benefits from it.
7.1 Future of DeFi for Kyber Network
In the DeFi space, we are super early in the game. There is only about US$840 million value locked up in collaterals. These collaterals are assets like ethereum (ETH) where people deposit them in exchange for loans or complex derivatives.
If we look at the traditional derivatives market, it is worth $544 trillion! The alternative lending market is worth about $312 billion in 2020. Look at where we are? It is not even a billion.
If crypto just takes only a conservative 1% of the traditional market share in finance, the DeFi space would blow up. Kyber volume would double, triple or even quadruple easily.
It is said that DeFi would drive ethereum growth even larger than the ICO craze. Kyber network is riding on the big wave. It is well-positioned at the key areas of growth in the crypto space. We are moving towards DeFi and Decentralised Exchanges (DEX).
7.2 Kyber Network Waterloo Bridge
This is still a work in progress. Kyber Network is trying to connect the Ethereum Blockchain and the EOS blockchain. EOS is a competitor to Ethereum and they are also a smart contract platform that allows people to build DApps on top of it. Both are separate blockchains living in a separate universe.
This is an extremely complicated challenge. Now you are not making smart contracts talk to other smart contracts on the Ethereum network. You are making the ethereum talk to EOS. If the Waterloo Bridge becomes a success, it will open up a huge universe of opportunities for Kyber.
Kyber has done it before with bitcoin. Initially, it was not possible to do a token-swap with bitcoin. This is because bitcoin is not an ERC-20 token on the ethereum network.
The Kyber team came up with a solution to create something called the Wrapped bitcoin or WBTC. It is basically an ERC-20 token that is backed 1:1 with bitcoin. so 1 WBTC = 1 BTC. But this WBTC can interact on the ethereum chain.
I believe Waterloo would become a success just like how Kyber solves the bridge between ethereum and bitcoin.
8. How to Buy Kyber Network (KNC)?
Alright, if you are as pumped as me on Kyber, the next question would probably be how to buy Kyber Network Crystals (KNC)? If you want to participate in the crypto DeFi space, be part of the KyberDAO and believes in the future of crypto, here are some ways you could buy KNC.
If you are from Singapore, the easiest way would be to buy directly from Coinhako. There is no need to get bitcoins or what. You can just buy some KNC tokens in SGD. For more details on recommended crypto exchanges in Singapore, do check up my previous post.
Note that Binance Singapore currently does not have KNC token listed on their exchange.
Right now KNC is selling for about $0.88 each. Their ICO token price is around US$0.38. The current price is not too far away from their ICO. In my opinion, I think these crystals are massively undervalued.
Alternatively, you can just buy them on Binance or Coinbase using Xfers or your debit/credit card. If you use TheBabylonian’s link, you would get an extra US$10 if you make a trade > US$100. You can use the US$10 to get some extra KNC tokens for yourself.
The other method to get KNC tokens is to use KyberSwap. But this method is for people who are already in the crypto space and has some ERC-20 tokens. Just connect your wallet to it and make the swap. It is that simple.
In summary, Kyber Network aims to become the single liquidity endpoint for all takers and makers in DeFi. I am bullish on KNC and I believe in the Kyber Network team. Personally, I am accumulating KNC heavily before Katalyst. By the time Kyber goes wild, it would be too late to get into the game.