What is Kyber Network?
Kyber Network is a blockchain-based liquidity hub that connects liquidity from a wide range of sources to power instant and secure crypto exchange in any decentralized application e.g. DeFi apps, DEX aggregators, Wallets, Asset management platforms.
As Head of Marketing, I lead Kyber’s branding and communication efforts, and manage our community of over 210,000 users and developers. I’ve been working with Kyber for over 3 years and I previously did marketing at a couple of multinational corporations before diving deep into the crypto rabbit hole in early 2017.
Looking back, my first foray into DeFi was as a regular community member, before I joined Kyber and before DeFi was even an established concept! Aave (previously ETHLend), Bancor, Chainlink, 0x, and Kyber were some of the noteworthy Ethereum projects that I researched and used back in 2017-18 that have grown from strength to strength to become the DeFi powerhouses everyone knows about today.
I’ve also been using DeFi Pulse from the beginning and it’s one of my favourite resources for all things DeFi!
My mission now is to raise awareness and accelerate adoption of Kyber Network and its protocols.
What is one of the most notable changes in DeFi you’ve seen since joining Kyber?
Back then, there weren’t many functional or user-friendly Dapps, even on Ethereum. I remember only being able to use Etherdelta and hoping a trader ‘fat fingers’ an order with a misplaced decimal point so that I can swoop in to take the trade. If you know, you know.
Ethereum DeFi and the UI/UX in the space have come a long way since then. There has been an explosion of tokens and use cases and there are now so many Dapps with beautiful interfaces that rival mainstream fintech apps.
What’s new in Kyber V3? When can we expect the update to be completed?
Kyber V3 will transition Kyber from a single protocol into a hub of purpose-driven liquidity protocols that are catered to different DeFi use cases. This is the biggest change to Kyber’s architecture and token model since its inception and is being implemented over 2 phases — Katana and Kaizen.
Phase 1: Katana (Q1-2) is already complete:
- KNC Token and KyberDAO Upgrade
- Kyber Dynamic Market Maker (DMM) protocol launch
Phase 2: Kaizen (Q3-4) has just begun:
- Rainmaker Liquidity Mining Program on Ethereum and Polygon
- The full network upgrade with all the other planned improvements will be complete, with new liquidity protocols being developed for DeFi
- Release updates on our scaling/L2 research
- More liquidity mining and ecosystem initiatives
Kyber DMM is only the first major protocol on Kyber 3.0’s new liquidity hub architecture. Over time, ecosystem developers can work with Kyber to build new unique protocols to be added to the Kyber liquidity hub to cater to different DeFi needs.
Can you tell us more about Kyber DMM? What are its key advantages?
Using Kyber DMM, liquidity providers can maximize their capital by earning more fees with relatively less capital deposited compared to other platforms, while takers (traders, Dapps, DEX Aggregators) are able to use that liquidity to swap tokens with better slippage and competitive rates.
Kyber DMM has 2 key unique features:
- Amplified Liquidity Pools:
Liquidity providers have the flexibility to create or select amplified liquidity pools that greatly improve capital efficiency and help reduce trade slippage. For example, with the same pool and trade size, stable token pairs with low variability in the price range (e.g. USDC/USDT) can be 100–200 times better compared to other platforms. As such, liquidity providers can provide better prices and earn more fees compared to other platforms.
As a liquidity provider, you receive an LP token and earn trading fees that are automatically claimed when you withdraw your liquidity. You can then stake your LP tokens on eligible pools for any ongoing liquidity mining programs to earn KNC rewards.
- Dynamic Fee Model:
Unlike typical AMMs which are severely inhibited by a rigid fee model and capital inefficiency, Kyber DMM collects trading fees dynamically based on market conditions (high or low market volatility) to maximise return for liquidity providers.
Kyber DMM basically increases fees during high volatility periods to capture more rewards and decreases them during low volatility periods to encourage higher volume and more fees overall. This mimics a strategy used by professional market makers to optimise earnings for liquidity providers over time.
Feel free to watch this short Kyber DMM video later over coffee or a drink.
How does amplified liquidity affect the performance of Kyber DMM?
Amplified pools have an AMP or Amplification factor used to customize the price curve and amplify the liquidity in the pool. Higher AMP, higher capital efficiency within a price range; achieving better rates with less capital when compared to other protocols.
Our Total Amplified Liquidity is derived from multiplying the AMP factor x Token inventory in the pool. With the current value of tokens deposited on Kyber DMM ($350M+), when boosted by Kyber DMM’s high capital efficiency, it is equivalent to $38B in TVL on a typical AMM.
For example, we can do a simple comparison between Uniswap and Kyber DMM (just an example scenario, but feel free to test!)
Uniswap has approximately $557M in combined USDT + USDC TVL, while Kyber DMM currently has $100M worth in an amplified USDT-USDC pool (AMP=200).
Since this Kyber DMM pool is amplified by 200x, liquidity can be enhanced tremendously, equivalent to $20B on a typical AMM. As such, if you consider a $100K USDC to USDT trade, Kyber DMM in this particular case is able to provide a better rate.
Of course, this is just a very simple example and token rates at any given time will depend on other factors as well including fees, trade size, token pair etc. I just wanted to demonstrate the powerful benefits of an amplified liquidity pool.
With concentrated or amplified liquidity comes the potential risk of amplified impermanent loss (IL), how does Kyber DMM address IL for liquidity providers?
In the context of liquidity protocols such as Kyber DMM, I am going to define ‘impermanent loss’ as the (temporary) opportunity cost of adding liquidity for a token pair instead of simply holding these tokens in your wallet, or instead of holding 100% in one type of token. With big price changes over time, it is possible that the total USD value of your assets in the pool ends up being less at a given moment compared to the time of your deposit.
Although higher amplified liquidity (bigger AMP factor) with larger virtual token balances enables higher capital efficiency, it could potentially result in higher IL as well.
Based on Kyber’s research, IL has a strong correlation to high market volatility, especially for non-stable pairs. Kyber DMM’s Dynamic Fee model aims to help reduce the impact of IL by mimicking a strategy used by professional market makers; increase fees during high volatility periods to capture more fees, while reducing fees during low volatility to encourage higher volume. This optimises earnings for liquidity providers over time to help achieve greater profitability and reduce the impact of IL.
Kyber DMM liquidity pools with very high AMP factors are usually stable pairs such as USDT-USDC, with very low IL to begin with. For other pools, an appropriate AMP factor can also help to provide better slippage for takers, boosting volume and fees collected for liquidity providers. More information on our approach can be found in the DMM Litepaper.
Kyber DMM recently launched on Polygon in addition to Ethereum. How has the introduction of KyberDAO and community governance shaped this process for Kyber Network?
Community is at the heart of Kyber Network’s success and future progress. With over 210,000 members across our social channels, they’ve always played an important role since our inception.
Previously, without KyberDAO, the opinions of community members were not directly actionable. KNC holders had a lot of feedback for the team but they were not able to determine the result of important decisions directly.
Now, with KyberDAO and important tools such as our governance forum, the Kyber community can make their voices heard and utilise their KNC tokens to participate in governance and direct Kyber’s development.
Moreover, some of DeFi’s most prominent projects, including DeFi Saver, Enjin, bZx, InstaDApp, Trust, and Unagii, are KyberDAO ecosystem delegates and they both vote and provide invaluable advice to the team and community to help improve our liquidity hub.
Kyber DMM’s deployment on Polygon is a result of lengthy community discussion and the community determining through a KyberDAO vote that this is a great initiative to drive adoption for Kyber, given the popularity of Polygon and increasingly high gas costs on Ethereum mainnet.
How does Kyber plan to attract liquidity across multiple chains?
Kyber’s long term vision is to deliver a sustainable liquidity infrastructure for DeFi. We aim to provide value to the myriad of use cases in DeFi, including trading, token sales, lending/borrowing, liquidations, and derivatives etc. And, this also means potentially exploring beyond Ethereum (though Ethereum remains our focus since it is still where the bulk of DeFi innovation and the most popular Dapps reside)!
Does Kyber plan to expand to other chains or scaling solutions?
Beyond Ethereum and Polygon, Kyber has been researching other blockchains. For example, Kyber is working closely with Mercurial Finance, the leading stablecoin liquidity platform on the Solana blockchain, to create the best venue for users to deposit, swap, and create stable assets on Solana.
Kyber has also partnered with Velo Labs to support smart contract functionality for Velo Protocol which is based on the Stellar blockchain.
In addition, we have a dedicated team working on scaling/L2 research to build upon what we have published previously regarding Rollups.
Kyber will also work with top developers in the space to help bridge Ethereum with other ecosystems, just like how we previously started the Wrapped BTC (WBTC) initiative with Ren and BitGo to bring Bitcoin liquidity to Ethereum.
Overall, these collaborations will greatly benefit Kyber’s research and development as we continue to improve our own liquidity hub (including Kyber DMM) on Ethereum as an important source of DeFi liquidity!
Is there anything else you’d like to share?
Thanks a lot for this opportunity. 🙏
We’ve talked about Kyber DMM earlier FYI, for anyone who wants to try it out: As part of our partnership with Polygon, we just launched the Rainmaker Liquidity Mining Program, with ~$25M in KNC and MATIC rewards being distributed over 3 months to eligible liquidity providers. Read more here. Check out the eligible pools here.
Thanks for reading and thank you Shane for joining us for this informative interview.
You can hear more from Shane by following him on Twitter at @shaneMkt.
And also, follow us on Twitter to join us for future live AMAs.
Disclosure: This post is part of our paid promotional DeFi Pulse Partner Program; We’ve partnered with Kyber Network to help educate and inform the community about new updates to Kyber’s liquidity hub. As always, we’re committed to providing the entire community with quality, objective information, and any opinions we express are our own.