Brief introduction:
decentralizsed finance or defy is one of the hottest sectors on the market so hot in fact that it can sometimes be hard to keep up, flash loans, Dex's, derivatives and portfolio management the list goes on, every day sees the launch of a project just trying to take your breath away now I'm not one to be swayed but I have to say that defi is here to stay and if this is the case then the kyber network is perhaps one of the project's best positioned to take advantage, in this article I'll be taking about at where the kyber network stands today as well as exploring some of the most exciting things yet to come finally I'll be giving you my personal take on where I see Kyber and KNC going this year so be sure to stick around till the very end now I'm raring to go but before I get ahead of myself this is not investment advice and I sure hope that you are not using it as such please do your own research it's definitely not overrated let's get cracking with Kyber before I can take a look at what Kyber is up to I need to give you a brief intro into what the Kyber network is?
what is kyber?
it's a decentralized exchange protocol that provides on chain liquidity what do I mean by that well it basically gives users the ability to exchange ERC20 tokens with one another on the ethereum blockchain in one seamless transaction through the use of smart contracts
the Kyber Protocol offers a single interface for the best available token exchange rates to be taken from an aggregated liquidity pool across diverse sources I won't go into the exact mechanics of how this works right now but to give you a short overview,
How kyber works?
the Kyber network consists of takers that remove liquidity from the protocol by calling the Kyber's core smart contract, basically they are initiating a token swap from one to another, these takers can be end-users exchanges wallets or dapps
then on the other side of the market you have your reserves which you can think of as your makers they all provide the liquidity to the network in terms of both token inventory and prices these reserves will interact with the reserve interface contract when Kyber is trying to match a trade all of these reserves will be queried through an interactive process to find the best trading conditions this is all done in a decentralized automated and instantaneous fashion pretty cool right anyways these reserves are usually liquidity pools token holder projects etc
oh you also have the maintainers on the network which is basically any entity that has the permissions to access the functions in this case it is the kyber network team now that is a short overview of how the kyber network functions.
four primary features of using kyber
but what benefits does this have well there are four primary features of using Kyber's on chain liquidity protocol firstly you have that instant trade settlement we don't have to wait for any sort of order fulfillment settlement and matching is done in a single on chain transaction secondly there is no concept of partially executed orders like you get on centralized exchanges or other Dex's the trade is either fully executed or is reverted another great feature of the kyber protocol is the transparency of it anyone can verify the rates that are being offered by the reserves so they can make sure that they are indeed getting the best rates finally the kyber network protocol remains one of the easiest to integrate with through their smart contracts api's and widgets other applications can use them to seamlessly exchange tokens and this point is part of the reason why I think that the kyber network is best positioned to take advantage of the defi boom by offering a seamless integration solution numerous exchanges wallets and defi projects are using kyber
now let's explore this a bit more firstly you have the crypto wallets the ability to be able to swap tokens right there on the wallet is a great feature now although you may be able to do this with some wallets
it's important to note the difference between an off chain and an on chain exchange many wallets including coinomi, atomic walletn guarda etc offer off chain non-custodial conversions through services including shape-shift changelly etc these come with fees and are not done in a single on chain protocol swap centralized so to speak however when a wallet integrated with kyber they are using the protocol to exchange tokens with the reserves or makers quickly and with no fees here are some wallets that have already integrated with the kyber network
Coinbase, myether wallet, trust wallet etc moving on to another kyber network integration use case you have decentralized ecommerce payments how cool would it be if you could accept payments in any token and have it converted into your preferred one all done instantaneously and in an automated fashion someone could buy that item in your online store with ethereum and have it instantly converted into DAI stable coin
this could bring more certainty to commerce you won't have to first sell the tokens in order to secure the Fiat value here are some of the projects are they using kyber to do
just that another really cool integration that was recently announced was that of the AxieIinfinity which is using Kyber's liquidity protocol to accept ERC 20 payments for non fungible tokens or NFT's this is a sector that I'm also really bullish on and it's great to see that kyber is the go-to solution for Unchained payments, one of the most compelling use cases for kyber is for those much vaunted defi projects how are they using the kyber network well they take advantage of the onchain liquidity a Kyber network to liquidate assets or rebalance crypto portfolios for example you have SET which is a portfolio optimization dapp it uses kyber in order to automatically rebalance your crypto portfolio to desired percentage allocations you also have FULCRUM which is a defi platform for tokenized lending and margin trading they use the kyber protocol in order to provide swapping services and create the margin positions there are of course a host of other Defi projects that are using the kyber Network I won't go into them here but you can see a full list on their website
and you also have one of Kyber's owned apps in Kyber swab this is basically Kyber's own unique decentralized exchanged app that uses the kyber protocol to exercise its trades it has a pretty slick and user-friendly interface that allows you to exchange over 70 different tokens.
all of these integrations show the immense use cases for the Kyber a Network and the numbers don't lie take a look at the kyber defi volumes here indeed the entire kyber ecosystem is seeing a great deal of growth across a number of use cases here are a number of the quarterly trades that have been completed the number of unique addresses and the dollar volume it's also not just the kyber network that is keeping tabs in Binance 2019 defi report they list the kyber as the most used project in defi
okay so it's pretty clear that kyber is one of the go-to protocols in the space but what can we expect looking forward well firstly is the work that is taking place on cross chain interoperability one that I want to take a look at is the EOS ethereum bridge called Waterloo
this was first proposed in February of last year and it is Kyber's solution to communication across these chains once the implementation goes live it will allow for the transfer of value between these two eco systems the exact mechanics of how this bridge will work are beyond the scope of this article but I have linked to some resources below that should make things a bit clearer the main thing to understand is that this bridge will open up the entire EOS ecosystem to those whose Ethereum it will allow for decentralized trading and price discovery in unchain markets that you've never seen before pretty exciting now I should of course caveat that this is still in development the developers did complete a proof of concept in July
but there is still a lot that has to be done before Waterloo can be made a production level working bridge either way I'll be keeping my eyes closely on that moving on another really important update that you need to know about is katalyst with a k'
now what the hell is that well basically katalyst is an upgrade to the core Kyber protocol that will not only increase liquidity but also increased general stake holder participation for example they plan to change the way that fees are distributed on the protocol
you may know that in the current Kyber protocol design fees are either burned or they are paid over to the dapp integrations however there is no fee reward paid to those that are providing the liquidity this means that you don't really have an incentive for the makers in the reserves to provide said liquidity these reserve operators or makers also have to hold a significant amount of KNC tokens if they want to integrate with Kyber this has often been a barrier to entry for many however with the katalyst upgrade this minimum balance requirement will be removed this will hopefully reduce the barrier to integration there will also be a new fee distribution model that will see fees be given to these market makers as rebates use to great effect on centralized exchanges in addition to rewarding liquidity providers in the reserves some of these fees will also go towards KNC takers who vote on protocol parameters
this is actually called the kyber DAO it's Kyber's attempt to strengthen the broader governance of the eco system essentially this DAO will bring in a wide array of KNC stagers including the dapps VC's wallets etc not only will they vote on protocol improvements that I mentioned before but they'll also vote on issues like protocol fees listing tokens, reserve approvals etc
so what does all this mean well all of those defi daps wallets and partners I mentioned before will be able to have a say on how the kyber network progresses oh and there's one more thing that katalyst is doing that will encourage more dapp developers and that is giving them the ability to charge their own price spread previously kyber worked on a fee sharing program with the developers with the new model they have more control over their own finances and pricing they can select a price commensurate with their own promotional models
so if you have a dapp and you wanted to provide razor-thin spreads you didn't have much freedom previously however with the upgrade you can choose the spreads most applicable to your business model okay okay I know what you're thinking what does all this mean for Kyber's KNC well quite a bit as it happens so let's take a look into that shall we currently the dynamics of the kyber network.
is such that burning was one of the only ways that KNC holders would directly benefit from network growth 70% of the network fees were taken out of circulation which would of course drop supply and lead to long-term capital growth while this does have benefits for those who hoddle longterm it did not encourage active participation by those in the network in reality the only way that a protocol really gains adoption is if more people want to actively participate not just huddle this is set to change with the release of the kyber DAO and the reserve incentives
burning will still take place on the protocol but holders will also have an opportunity to earn more KNC for example with the release of the kyber DAO staking will be introduced on the kyber network for the first time the amount of rewards will be proportional to the amount state so not only will those who stake see along-term application through the burning of KNC but they will also have the opportunity to earn more KNC through the participation process
then of course you have those reserve incentives that I talked about before they will be rewarded for providing liquidity to the system and making markets of course this has broader positive benefits for the entire kyber network as it leads togreater liquidity deeper markets and more trading opportunities I can actually see a kind of positive feedback loop happening here
more liquidity sees greater benefit to the dapp integration which sees more takers and users which increases demand for KNC and the protocol and while these protocol updates are still some time away the markets seem to be going in a positive direction
for KNC 2020 has so far seen a resurgence in trading volume and price of KNC just to put a cherry on top of this crypto cake coinbase recently listed KNC on their main exchange that's right it's one of the few coins that of both the esteemed to be listed on coinbase Pro and coinbase and not only do you have increased retail trading demand but you also have to factor in that decreasing .