Kyber Network Review: The On-Chain Swap & Liquidity Protocol

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The Kyber Network is quite an established project that is trying to change the way we think of decentralized cryptocurrency exchange.

They are developing a decentralized exchange protocol that will allow developers to build payment flows and financial apps. This is indeed quite a competitive market as a number of other such protocols have been launched.

So, with the increased competition, is Kyber Still worth it?

In this Kyber Network review, I will attempt to answer that. I will also analyze the long term adoption potential and use cases of the KNC tokens.

What is the Kyber Network?

The Kyber Network is project based on the Ethereum protocol that seeks to completely decentralize the exchange of cryptocurrencies and make exchange trustless by keeping everything on the blockchain.

Through the Kyber Network, users should be able to instantly convert or exchange any cryptocurrency – or so they claim. We’ll have to take a deeper look to see if they will be able to live up to these claims, what progress has been made so far, and how they differ from competitors such as the 0x Project or Bancor.

What is the Kyber Network

Image via the Kyber Network Website

The Kyber Network has seen very rapid development. After being announced in May 2017 the testnet for the Kyber Network went live in August 2017. An ICO followed in September 2017, with the company raising 200,000 ETH valued at $60 million in just one day.

The live main net was released in February 2018 to whitelisted participants, and on March 19, 2018, the Kyber Network opened the main net as a public beta. Since then the network has seen increasing growth, with network volumes growing more than 500% in the first half of 2019.

Although there was a modest decrease in August 2019 that can be attributed to the price of ETH dropping by 50%, impacting the overall total volumes being traded and processed globally.

Why Build the Kyber Network?

While cryptocurrencies were built to be decentralized, many of the exchanges for trading cryptocurrencies have become centralized affairs. This has led to security vulnerabilities, with many exchanges becoming the victims of hacking and theft.

It has also led to increased fees and costs, and the centralized exchanges often come with slow transfer times as well. In some cases wallets have been locked and users are unable to withdraw their coins.

Decentralized exchanges have popped up recently to address the flaws in the centralized exchanges, but they have their own flaws, most notably a lack of liquidity, and oftentimes high costs to modify trades in their on-chain order books.

Kyber Integrations

Some of the Integrations with Kyber Protocol

The Kyber Network was formed to provide users with a decentralized exchange that keeps everything right on the blockchain, and uses a reserve system rather than an order book to provide high liquidity at all times. This will allow for the exchange and transfer of any cryptocurrency, even cross exchanges, and costs will be kept at a minimum as well.

The Kyber Network has three guiding design philosophies since the start:

  1. To be most useful the network needs to be platform-agnostic, which allows any protocol or application the ability to take advantage of the liquidity provided by the Kyber Network without any impact on innovation.
  2. The network was designed to make real-world commerce and decentralized financial products not only possible but also feasible. It does this by allowing for instant token exchange across a wide range of tokens, and without any settlement risk.
  3. The Kyber Network was created with ease of integration as a priority, which is why everything runs fully on-chain and fully transparent. Kyber is not only developer-friendly, but is also compatible with a wide variety of systems.

How Kyber Network Works

In addition to being an exchange, the Kyber Network is also being built as a transfer mechanism for cryptocurrencies. The great thing about the Kyber Network’s transfer capabilities and something that differentiates it from existing exchanges is that the tokens sent don’t have to match the tokens received.

With the Kyber Network, once it is fully functional, users will be able to send any token and have it converted on-chain to any other token before it ends up in the receiver’s wallet.

While this is great for individuals, it also has great potential for businesses, because it means a merchant could accept ANY cryptocurrency and by using the Kyber Network they would be receiving only the currency of their choice, whether that be Bitcoin, Ethereum or some other coin.

The Kyber Network includes three components which contribute to its functionality:

How Kyber Works

Overview of Token Swap in Kyber Network. Image via Whitepaper

The first of these is Kyber Swap, which allows for the instant exchange of many different tokens without wrapping, or any order books or deposits. This instant transfer network is ideal for merchants who need to know transactions are complete before goods can be delivered.

Next is the Kyber Reserve, which functions to provide liquidity to the network as third-parties contribute tokens to the pool that can be used across any platform. Security in the reserve fund is maintained through the use of a transparent fund management model, where all trades completed by reserve managers are recorded.

Kyber Developer has been instrumental in bringing new dApps, exchanges, wallets and other projects to Kyber as it gives developers all the documentation and tools they need to integrate any decentralized project into Kybers liquidity pool.

Kyber Network Roles

There Kyber Network functions through coordination between several different roles and functions as explained below:

  • Users – This entity uses the Kyber Network to send and receive tokens. A user can be an individual, a merchant, and even a smart contract account.
  • Reserve Entities – This role is used to add liquidity to the platform through the dynamic reserve pool. Some reserve entities are internal to the Kyber Network, but others may be registered third-parties. Reserve entities may be public if the public contributes to the reserves they hold, otherwise they are considered private. By allowing third parties as reserve entities the network adds diversity, which prevents monopolization and keeps exchange rates competitive. Allowing third party reserve entities also allows for the listing of less popular coins with lower volumes.
  • Reserve Contributors – Where reserve entities are classified as public, the reserve contributor is the entity providing reserve funds. Their incentive for doing so is a profit share from the reserve.
  • The Reserve Manager – Maintains the reserve, calculates exchange rates and enters them into the network. The reserve manager profits from exchange spreads set by them on their reserves. They can also benefit from increasing volume by accessing the entire Kyber Network.
  • The Kyber Network Operator – Currently the Kyber Network team is filling the role of the network operator, which has a function to adds/remove Reserve Entities as well as controlling the listing of tokens. Eventually, this role will revert to a proper decentralized governance.

Kyber Network Team

The Kyber team was founded by Loi LuuYaron Velner, and Victor Tran and has its headquarters in Singapore. Luu was previously the co-founder of the decentralized mining pool project SmartPool, as well as the creator of Oyente, the first open-source security analyzer for Ethereum contracts.

Additionally, the team has attracted Ethereum founder Vitalik Buterin as one of their advisors, as well as having an advisory team that is both experienced and knowledgeable.

Kyber Network Team

Kyber Network Team Members

Loi Luu remains the CEO of Kyber Networks, overseeing the rapid growth that the platform is seeing in 2019. Much of that growth now comes from Decentralized Finance apps, or DeFi, which is interesting since the term didn’t even exist a year ago. According to Luu:

“We’re finding strong burgeoning growth for decentralized financial products and the implications of this on finance, banking, and trade are tremendously understated. With monolithic companies like Facebook investing into the industry, the Kyber team remains committed to providing a decentralized framework for all blockchain stakeholders to break up the monopoly of data, wealth and authority that lies ahead.”

Yaron Velner has continued at Kyber Network as the CTO. Velner holds a Ph.D. in computer science from Tel Aviv University. His research is focused on game theory incentives in blockchain protocols and formal verification of smart contracts.

Yaron is one of the global top contributors to the Ethereum Bug Bounty Program. Velner is also an experienced software developer with over 10 years as a senior software engineer and a technical leader at EZchip semi-conductors.

Victor Tran has remained at Kyber Networks as the Head of Development. He is experienced in building high-performance multi-platform applications. Victor has been involved in blockchain and cryptocurrency development since early 2016 and is a lead engineer at the SmartPool project.

Kyber Network Community

Even though it doesn’t have a long history, the Kyber Network has been able to build a strong and supportive community, which is evidenced by their large social media followings.

On Twitter, the Kyber Network is approaching 100,000 followers, while their Facebook page has 7,000 followers. They are far more active on Twitter, and it is known as a larger platform when it comes to cryptocurrency projects, so the discrepancy isn’t surprising.

On Reddit, which is also known as a hotbed for blockchain enthusiasts, the Kyber Network sub-Reddit has garnered just over 6,700 followers. While that isn’t the largest sub-Reddit by far, it’s still a pretty active group, with multiple posts each day and a good number of responses and replies.

Finally, there’s the Kyber Telegram group, which is just shy of 8,900 members. That’s a pretty good number, and when I checked there were almost 600 online, which is also a fairly active group when compared with other blockchain projects.

All combined the community behind the Kyber Network is quite supportive and active, which is a good sign for any blockchain project.

Kyber Network Crystal (KNC) Token

The KyberNetwork Crystal (KNC) is the backbone of the Kyber Network. It works to connect liquidity providers and those who need liquidity and serves three distinct purposes. The first of these is to collect transaction fees, and a portion of every fee collected is burned, which keeps KNC deflationary.

The KNC also ensures the smooth operation of the reserve system in the Kyber liquidity since entities must use third-party tokens to buy the KNC that pays for their operations in the network.

Finally, the KNC token is the connection between the Kyber Network and the exchanges, wallets, and dApps that leverage the liquidity network. This is a virtuous system since entities are rewarded with referral fees for directing more users to the Kyber Network, which helps increase adoption for Kyber and for the entities using the Network.

Kyber Network Crystal

How Kyber Network Crystal Tokens Work

The Kyber Network Crystal (KNC) was released in a September 2017 ICO at a price around $1. There were 226,000,000 KNC minted for the ICO, with 61% sold to the public. The remaining 39% are controlled 50/50 by the company and the founders/advisors, with a 1 year lockup period and 2 year vesting period.

Currently, just over 168 million coins are in circulation, and the total supply has been reduced to 213.35 million after the company burned it’s 1 millionth KNC token this past May 2019 and then its second millionth KNC token just three months later.

That means that while it took 15 months to burn the first million KNC, it took just 10 weeks to burn the second million KNC. That shows how rapidly adoption has been growing recently for Kyber, with July USD trading volumes on the Kyber Network nearly reaching $60 million.

KNC is required by Reserve Managers to operate on the network, which ensures a minimum amount of demand for the token. Combined with future plans for burning coins, price is expected to maintain an upward bias, although it has suffered along with the broader market in 2018 and more recently during the summer of 2019.

KNC Price Performance

After the September 2017 ICO the price of KNC tokens more than doubled within a week. It quickly dropped back however and was back at $1 by the end of October. And while it tripled in December 2017, the gains weren’t nearly as impressive as many other cryptocurrencies.

KNC Price Performance

KNC Price Performance. Image via CMC

On January 9, 2018, it hit its all-time high of $6.00. From there it declined steadily throughout 2018 and into 2019, hitting an all-time low of $0.113650 on February 6, 2019. While it has more than doubled from that low and sits at $0.233448 as of September 17, 2019, that is still far below the ICO price.

Buying & Storing KNC

Those interested in buying KNC tokens can do so at a number of exchanges. Binance has the largest trading volume for the token, followed closely by MXC. There is also a decent amount of trading volume at VinDAX and Coineal as well as several other exchanges.

The trading volume is well spread out at these exchanges which means that the liquidity is not concentrated and dependent on any one exchange. You also have decent liquidity on each of the exchange books. For example, the Binance BTC / KNC books are wide and there is a decent turnover. This means easier order execution.

Binance KNC

Register at Binance and Buy KNC Tokens

KNC is an ERC20 token and can be stored in any wallet with ERC20 support, such as MyEtherWallet or MetaMask. One interesting alternative is the KyberSwap Android mobile app that was released in August 2019.

It allows for instant swapping of tokens and has support for over 70 different altcoins. It also allows users to set price alerts and limit orders and works as a full-featured Ethereum wallet.

Kyber Development

While it is clear that the Kyber Network team are quite active, it can sometimes be hard to determine exactly how much protocol work is being done.

That is why I like to take a look into the public code commits. It is a great way to see the exact amount of developer output and progress.

Hence, I dived into the GitHub of the Kyber Network and check out their repositories. Below are the total commits over the past year for their top three most active repos.

Kyber Network GitHub

Total Code Commits to Select Repos in Past 12 Months

As you can see there has been quite a bit of activity in these repos. It is also worth noting that there are a further 37 other repositories with varying degrees of code commits.

This is more than the general activity on other projects. In fact, if we were to take a look their development activity compared to other projects. They are ranked 25 when it comes to their code commits and 34 for total activity.

If you want to keep updated on the latest from the project then you should follow their official blog. They do a pretty good job of sharing development timelines and releases.

Conclusion

The Kyber Network is positioning itself to become the leading decentralized exchange with its focus on an immediate, trustless, inexpensive exchange of any cryptocurrency right on the blockchain. In fact, this might be exactly what’s needed for merchants to adopt the acceptance of cryptocurrencies in greater numbers.

Reviews of the network have been consistently positive, citing the ease of trading and immediate transfers. And usage of the network has been growing rapidly in 2019 as more exchanges, dApps and wallet projects have turned to Kyber for liquidity.

The integration of the Kyber Network for token swaps in the Samsung S10 wallet and the HTC Exodus wallet will help push Kyber, and cryptocurrencies, in general, closer to mainstream adoption.

While it is disappointing to see the huge drop in the price of the KNC token since its ICO, the growth in usage of the network is encouraging, and complete recovery in the token price is a possibility as the project moves forward and continues to grow its market share.

Images via Fotolia