The Cryptonomist had the chance to interview Loi Luu, CEO and co-founder of Kyber Network.
Tell us about Kyber Network, what is it and what is its mission?
Kyber Network is an open-source liquidity protocol that uses the blockchain to enable seamless exchange of tokens/cryptocurrencies in any application, in a decentralized manner and without the need for any intermediary/middleman.
- Since there are many tokens in the crypto space and token liquidity is scattered across different platforms, Kyber integrates multiple liquidity providers (Reserves) and connects liquidity into one single endpoint for applications and end-users to access.
- When an application or user requests a trade, the protocol will scan the entire network to find the reserve that offers the best token price and take the required tokens from that particular reserve. Tokens will then be exchanged seamlessly and securely through Kyber’s protocol.
- Anyone and any application can use this open-source protocol permissionless.
We foresee Kyber’s protocol being integrated in the majority of DApps and becoming critical infrastructure for decentralized finance, usable on any smart contract-enabled blockchain. With Kyber, developers can focus on building and shipping, without needing to worry about liquidity or integrating multiple systems.
Kyber Network is the most used liquidity protocol in DeFi. Can you explain to us the reasons for this success and what was the team’s determining factors that made it possible to achieve these results?
Kyber is the most used DeFi (decentralized finance) protocol in terms of a number of users (over 32,000 unique address in 2019) and developers, integrations (almost 100 integrations since inception), and trading volume (Facilitated over $500 million in 600,000 fully on-chain trades in 2019).
Kyber operates fully on the Ethereum blockchain. Such a design allows seamless integration and composability with blockchain applications, a.k.a. decentralized apps (DApps), as well as full transparency and transaction verifiability. This is required by DApps but is not possible with other off-chain or hybrid approaches.
The integration of a large variety of liquidity providers also makes Kyber uniquely capable of supporting the various needs of DApps and financial platforms. Kyber has over 40 reserves supporting almost 100 tokens.
What is the role of the KNC token and what plans do you have for its future?
KNC will be the FIRST deflationary token with a staking mechanism, where token burn and staking rewards are determined by actual network usage and DeFi growth after our Katalyst upgrade in Q2. After the Katalyst protocol upgrade:
- For each trade that occurs through Kyber, a certain percentage of the trade value is collected as network fees.
- Kyber will launch the KyberDAO, a decentralized autonomous organization (DAO) comprising a community of KNC holders who will vote and decide on key protocol parameters.
- Based on decisions made by the KyberDAO, part of the network fees will be:
- Given as rewards in ETH to people who stake KNC and vote in the KyberDAO
- Given as rebates for reserves based on their performance
- Used to burn KNC, permanently reducing its supply
DeFi and Kyber growth go hand in hand. Katalyst upgrade will create a virtuous loop and harmonize Kyber’s efforts towards providing a single on-chain liquidity endpoint for both takers and makers in DeFi, ultimately enhancing liquidity for the ecosystem, Kyber Network growth, and KNC value creation.
Where do you see DeFi in 5 years time, will it be just on Ethereum or are you already developing products for other blockchains?
We expect to see an increase in the number of examples of financial legos and composability between DeFi DApps. For instance, InstaDApp has created a Compound to MakerDAO Vault bridge and also integrated Kyber Network for on-chain token swaps. This combines the benefits of various protocols into one single platform and abstracts a lot of the complex processes involved.
More professionals and developers from traditional finance will start to understand the value of DeFi and we will see the DeFi space flourish, with a brain drain of talent going towards DeFi startupS. Specifically for Kyber, there will be a huge demand from professional market makers to market make on-chain, and we will have the necessary tools for them to contribute liquidity to DeFi efficiently.
We already have implemented Kyber’s swap protocol on other blockchains, including EOS (yoloswap.com) and Tomochain (tomoswap.com). Kyber’s protocol has been successfully deployed on each chain to facilitate token swaps.
For the interoperability between different chains,You can read about our latest cross-chain (EOS-Ethereum) efforts here.
Ethereum is currently the most popular platform for DApps and devs, and Kyber is the most popular DeFi protocol there in terms of no. of users, DApp integrations, and trading volume. So right now we are focusing on Ethereum as well as our upcoming Katalyst protocol upgrade.
Are there any competitors for Kyber Network in the blockchain space and where do you stand on this?
There are very few projects like Kyber Network that are fully on-chain and pool decentralized liquidity efficiently from a wide variety of sources to provide the best token rates.
For example, 0x is not fully on-chain. It is a hybrid, partly off-chain protocol, and cannot be easily integrated into native on-chain DeFi applications. Such protocols might face limitations in fully on-chain DeFi use cases or the amount of decentralized liquidity that can be used in the network.
Uniswap is a great source of pooled liquidity since they allow anyone to contribute any token on-chain – Kyber has already integrated Uniswap as a bridge reserve (also Maker’s OasisDEX and Bancor) to tap into their liquidity as well. However, Kyber’s Automated Price Reserve (APR) allows much more efficient utilization of ‘locked’ token inventory compared to Uniswap.
In general, Kyber is able to provide better liquidity, offer lower spreads, and serve more volume, with the same amount of token inventory, due to how we allow the pricing of tokens in a specific range. Moreover, unlike Kyber’s Fed Price Reserves (FPR), Uniswap’s Automated market maker (AMM) model is also not suitable for professional market makers that require more advanced pricing tools.
In any case, our greatest competition comes from centralized exchanges, which have much higher trading volume than all the DEXs combined – we have to work together as a community to drive as much innovation, users, and liquidity on-chain as possible.