What is Kyber Network (KNC)?
Kyber Network is one of a growing number of DeFi cryptocurrencies seeking to build an alternative to traditional exchanges where users can buy and sell crypto assets.
This means that Kyber Network is seeking to provide a similar service as Kraken itself, except, instead of being operated by a single company, its exchange is powered purely by code, a distributed network of software users and the Ethereum blockchain.
Toward that goal, the Kyber team has built three tools designed to run on Ethereum: a protocol for decentralized exchange, an application programming interface (API) for asset conversions and the KNC cryptocurrency, which helps users govern their maintenance and operation.
Together, these tools have already helped launch KyberSwap, a decentralized exchange application that allows users to swap crypto assets without a central order book or operator.
Instead, conversion rates for available assets are built directly into the protocol, meaning users only pay fees in ether (ETH) for executing trades, which then settle on Ethereum.
Kyber Network’s cryptocurrency, the Kyber Network Crystal (KNC) is then used to pay for key operations outside of this exchange, including voting on updates to the software’s rules.
As of July 2020, Kyber Network has seen over $1 billion in total volume from over 1 million user transactions. Users seeking to stay connected on the current development status of Kyber Network can follow its official blog for up-to-date details.
Who created Kyber Network?
Kyber Network was founded by Loi Luu, Victor Tran and Yaron Velner in 2017.
At the time, the Kyber team raised 200,000 ETH (approximately $50 million) in an initial coin offering of its KNC cryptocurrency. During the sale, a total supply of 226 million KNC were created, most of which were sold to buyers and investors.
In October 2017, the Kyber Network burned over 10 million KNC tokens, bringing the maximum supply down to about 215 million KNC.
The software went live on the Ethereum blockchain in February 2018.
How does Kyber Network work?
To understand how Kyber Network works, it’s important to review the network components that, together, help provide an exchange service.
These include:
- Smart Contracts : Provide the infrastructure for tokens to be traded and exchanged.
- Reserves : Offer liquidity to the network.
- Takers : Execute trades and take liquidity out of the network. (Examples include Dapps, vendors, and wallets.)
Kyber’s Reserve Model
The Kyber Network relies on reserves to provide liquidity.
This means that when a user initiates a trade, the network conducts a search for available reserves to find the best available rate being offered by takers.
There are three main types of reserves that provide takers the ability to convert tokens instantaneously for the most competitive price:
- Price Feed Reserves (PFR) : PFRs act as the protocol’s alternative to market makers, using price feeds to calculate conversion rates and store this data in smart contracts. Reserves then refer takers to the smart contract to calculate token conversion rates.
- Automated Price Reserves (APR) : APRs serve liquidity to the network and rely on smart contracts to provide rates for available 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 : Bridge Reserves are responsible for deepening liquidity by accessing other decentralized exchanges (e.g. Uniswap).
In the past, Kyber Network reserves were required to hold KNC to pay for network fees. However, an upgrade to the network removed that feature, removing friction for the reserves.
Kyber Network collects fees in ETH, with a portion of them going to these reserves, who collect them based on the amount of liquidity they provide.
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Cryptocurrency