KNC

Most recent update: [June 26, 2023]

What Is the Kyber Network? 

The Kyber Network is an on-chain liquidity protocol that facilitates the exchange of cryptocurrencies without the need of an intermediary. Its intended use is to be integrated with decentralized apps (dApps), crypto wallets, and decentralized finance platforms (DeFi). The protocol is governed by holders of its native token, the Kyber Network Crystal (KNC), through KyberDAO, a decentralized autonomous organization (DAO).  

The primary goal of the Kyber Network is to solve liquidity issues by enabling dApps, decentralized exchanges (DEXs), and other user easy access to a liquidity pool that offers the best rates. They hope to build the infrastructure that will allow developers to build products and services without worrying about liquidity. Users on the Kyber Network can easily exchange one cryptocurrency for another, allowing the network itself to handle any conversions in the process. 

Who Is Behind the Kyber Network? 

Founded by computer scientists Loi Luu, Victor Tran, and Yaron Velner, it was released in 2017 during the ICO boom on the Ethereum blockchain, securing $60 million of funding in the process. They are currently headquartered in Singapore. 

Loi Luu is a blockchain researcher and an advisor for numerous blockchain projects. He is the developer of Oyente, the first open-source security analyzer of Ethereum smart contracts. Luu also co-founded SmartPool, a decentralized pool mining protocol.  

Victor Tran is a senior backend engineer and Linux systems administrator. Formerly CTO of Clixy and 24/7 Digital Group, as well as being a developer for several projects in his home country of Vietnam. 

Yaron Velner, a postdoctoral researcher, is the current CEO of B.Protocol, a decentralized backstop liquidity protocol. In 2019, he stepped down from his position at Kyber to pursue other projects.  

The team at Kyber is also comprised of several executive advisors, including Ethereum creator Vitalik Buterin. Their official LinkedIn page shows they have over 50 employees, most based out of Vietnam or Singapore.  

How Does the Kyber Network operate? 

What makes the Kyber Network such an important innovation is that it is the first tool that allows anyone to instantly swap tokens without the need of a third party, like a centralized exchange. As the architecture of Kyber was designed to be modular and developer-friendly, the protocol can easily integrate with apps and other blockchain-based protocols. 

The Kyber Network consists of a set of smart contracts that can be implemented on any other smart contract-capable blockchain. These smart contracts can then handle the exchange process between one cryptocurrency to another all on a single contract. The protocol achieves this by aggregating liquidity from a varied pool of reserves, including token holders, market makers, and decentralized exchanges. It is designed so that anyone can contribute liquidity to the network, enabling Kyber’s primary users (dApps, vendors, and crypto wallets) to execute instant token swaps without the use of a third party.  

In practice, Kyber allows vendors, for example, to let customers pay for services in whichever currency they wanted, but still receive payment in their preferred token. For dApp users, it would allow you to seamlessly use your existing tokens for the dApp token of your choice.  

The Kyber protocol currently only runs on the Ethereum platform, with Kyber Network Crystals produced as ERC20 tokens. Trades for tokens can only be made on other Ethereum-based blockchains. There are plans to expand this in the future, but the functionality for Ethereum-based blockchains is remarkably easy for the end users: 

• For example, if a user wanted to trade their ETH for BAT, they would send their ETH to the Kyber Network smart contract, which would then search its reserves for the best ETH to BAT exchange rate. The contract would then send the ETH to that best exchange rate reserve, which in turn would send the user their BAT.  
• If a user wanted to trade BAT for DAI, it would be a similar process where ETH would instead act an intermediary, much like XLM works for fiat currency. The protocol would take the user’s BAT and trade it for ETH at the best possible exchange rate, which then finds the best ETH to DAI exchange rate, sending the resulting DAI back to the user – all on a single smart contract.  

Despite there being a difference in steps between the two trades, they are all performed on a single blockchain transaction. Furthermore, they are instantly settled on the blockchain, and if they are not executed in full, they are reverted, meaning that trades are never partially executed.  

KyberSwap 

KyberSwap is Kyber’s native platform for facilitating transactions, users do not need to create an account, but an Ethereum wallet is required. On KyberSwap, you can place three different types of transactions: swaps, transfers, and limit orders. The amount of gas a user is charged is dependent on which type of transaction they are performing. Limit orders are a newer development on the Kyber protocol and allow users to set a specific price on which they would like to exchange their currency of choice, rather than whichever price is currently going on the network. Unlike traditional exchanges, users do not lose custody of their assets when placing limit orders on Kyber. 

Understanding Kyber’s Reserve Model 

As one of the Kyber Network’s main goals is to solve liquidity issues, it is important to understand how they can achieve seamless currency exchanging on their network. The Kyber Network utilizes “liquidity pools,” which are reserves of currencies provided by investors, also known as “liquidity providers,” by aggregating these funds, costs are reduced allowing a user to get the cheapest exchange rate when swapping tokens. Because the network searches for the most competitive rate automatically, this removes the need for a centralized order book, considered to be a security risk as the rates are already determined by the network’s reserves. 

The Kyber Network has three different types of reserves: Price Feed Reserves, Automated Price Reserves, and Bridge Reserves:  

• Price Feed Reserves (PFR) extrapolate data from other price sources, such as other exchanges, to calculate exchange rates and store these into smart contracts. These are considered to be used for professional traders.  
• Automated Price Reserves (APR) change the price automatically based on the number of tokens that are being exchanged and the size of the reserve. These are for those that hold large tokens. All APR transactions are done on the Kyber Network blockchain, and smart contracts are used to store tokens and swap them with other users. 
• Bridge reserves are meant to deepen liquidity by accessing other decentralized exchanges, such as Uniswap. 

Previously, Kyber Network reserves were required to hold KNC to pay for network fees, but an upgrade removed this requirement to reduce friction in the reserves. Most transactions on the network collect fees in ETH, with a percentage allocated to reserves, collecting them based on the amount of liquidity they provide. 

Kyber Network Crystals (KNC) and the KyberDAO 

The native token of the Kyber Network is the Kyber Network Crystal. KNC plays a crucial role in maintaining and operating the Kyber network, by staking KNC, users can vote on network upgrades and policies (such as fee models or rates), with each vote being proportional to the amount of KNC that is staked. Users participate in the growth and development of the Kyber Network through KyberDAO, Kyber’s decentralized autonomous organization, users that stake KNC receive ETH rewards for their contributions.  

When transactions occur on the network, the fees are charged in KNC. These tokens are then burned in an effort to permanently reduce the currency’s supply. Originally, there were around 215 million KNC in supply, but burning of tokens (what is known as deflation of supply) during transactions is meant to keep the cryptocurrency valuable. KNC can sometimes be awarded to integrated dApps as incentive to facilitate their growth. As of July 2021, there are around 205 million KNC in circulation, but this is expected to decline due to the aforementioned token burn.  

Unlike other cryptocurrencies, which require mining to earn more cryptocurrency, staking is the primary way (other than purchasing on traditional exchanges) of earning more KNC. However, this does require that a user owns KNC to begin with.  

Due to the Kyber Network running on Ethereum, transactions on the platform are beholden to Ethereum gas prices, when gas prices are high, they can deter transactions on the platform. The team behind Kyber recently implemented a system called “reserve routing,” where the network can route to specific reserves, this pre-determines how a swap will take place before it is carried out, lowering the number of transactions and subsequently lowering gas costs.  

Security 

As an ERC20 token, Kyber is built with the same protection that is offered by the Ethereum blockchain. Kyber also features an extensive trust and security model built into the protocol and smart contract level, protecting users from delinquent administrators or exchanges. The platform has been audited by several third-party security firms, including Chainsecurity, who have determined that the protocol is secure and free of vulnerabilities.  

Developments of the Kyber Network 

Kyber aims to be a one stop solution for powering liquidity and token swapping on Ethereum, ironically running on Ethereum is one of Kyber’s drawbacks. While cross-blockchain functionality is implemented on the Kyber protocol, it can only be with other Ethereum-based blockchains. The price of Ethereum gas on transactions also hinders the performance of Kyber, and the devaluation of ERC20 tokens because of high gas prices will in turn devalue KNC. Fortunately, the Kyber Network is hard at work expanding the types of blockchains that can run the Kyber protocol.  

The Kyber Network is an active participant in the DeFi community, and expanding and supporting developers is one of the network’s main goals. Kyber provides developers with a portal containing the necessary documentations and tools needed for seamless integration. They often give back to the dApp community by organizing engagement campaigns and have partnered with Etheremon and CoinGecko for community giveaways through various social media outlets. 

Risks 

As we stated previously, because KNC runs primarily on Ethereum, it is subject to Ethereum’s gas prices. As the network becomes increasingly active, the load could cause high gas fees to users on either the Ethereum or the Kyber Network. Some users on the web have found that staking their KNC to participate in the network is difficult due to the gas fees outweighing the benefits of receiving more KNC tokens because the network is dependent on user interaction for growth, this could hinder expansion of the network and drive new users away from dipping their feet into the Kyber Network.  

Drawbacks and Risks 

As we stated previously, because KNC runs primarily on Ethereum, it is subject to Ethereum’s gas prices. As the network becomes increasingly active, the load could cause high gas fees to users on either the Ethereum or the Kyber Network. Some users on the web have found that staking their KNC to participate in the network is difficult due to the gas fees outweighing the benefits of receiving more KNC tokens. Because the network is also dependent on user interaction for growth, this could hinder expansion of the network and drive new users away from dipping their feet into the Kyber Network. 

Related articles 

If you would like to learn more about the Kyber Network, check out these articles here: 

Kyber Network on Gemini: https://www.gemini.com/cryptopedia/what-is-kyber-network 

Kyber Network on Binance Research: https://research.binance.com/en/projects/kyber-network 

Kyber Network on CoinMarketCap: https://coinmarketcap.com/currencies/kyber-network-crystal-legacy/ 

Kyber Network on Coinbase: https://www.coinbase.com/price/kyber-network 

Kyber Network on Kraken: https://www.kraken.com/learn/what-is-kyber-network-knc 

What is the Kyber Network? (Decrypt): https://decrypt.co/resources/kyber-network-explained-learn-guide-simplified 

Kyber Network analysis by Wealthsimple: https://www.wealthsimple.com/en-ca/learn/what-is-kyber-network#how_is_kyber_network_different_than_bitcoin 

Due Diligence  

Prior to listing Kyber Network on the VirgoCX Platform, VirgoCX performed due diligence on Kyber Network and determined that Kyber Network is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:  

• The creation, governance, and location of Kyber Network and/or its primary development team; 

• The supply, demand, maturity and liquidity of Kyber Network; and 
• Legal and regulatory risks associated with Kyber Network.  

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.