As one of the leading DEXs, Kyber Network has been gradually raising the bar for DeFi exchange potential. In the lastest ecosystem report, Kyber shared that they reached over $400M in total volume, 2M ETH traded, 500K on-chain trades and a new daily high volume of over $7M. While these stats are certainly not staggering when compared to a behemoth like Binance, they do signal a strong increase in demand for compelling DEXs across the board.
For those unfamiliar with Kyber’s protocol, the exchange uses a native token, Kyber Network Crystals ($KNC) to align incentives between key stakeholders – ultimately aiming to allow token holders to capture upside as the network grows. The existing token economy places a heavy reliance on burning, in which fees collected from the exchange are used to burn KNC.
“KNC is an ERC20 token that is used by reserve managers to pay transactions fees required to execute trades (operate a reserve) and award third parties for generating trade volume. Kyber charges a small fee in KNC for each network transaction, then burning a portion of the KNC tokens collected from these fees.”
What was unfortunate was that despite the surge in volume on Kyber, the amount of burning did not cause any serious growth in the token price, something that made stakeholders upset. It was a common consensus that the token model was outdated with many begging for a redesign.
In the past month, Kyber’s CEO Loi Luu answered these requests by announcing there would be “a significant rework” of KNC tokenomics in the coming year. This resulted in a strong surge in KNC volume and today, we’re happy to announce that those changes have been vocalized from a high level.
In today’s official article, Kyber announced the frameworks for their new model along with their plans of 2020. The changes were targeted at 3 main stakeholders, described as follows:
“Reserve managers who provide liquidity to Kyber, DApps who connect takers to Kyber’s protocol and of course, KNC holders who are at the heart of Kyber Network.”
Let’s take a look at some of the changes:
- Staking Rewards – KNC holders receive network fees relative to how many tokens are staked.
- DAO Governance – KNC will be used to govern KyberDAO, a new mechanism for determining major protocol roles such as network fees, burning ratios and reserve incentives.
- Reserve Rebates – Reserve managers will be granted rewards based on the amount of liquidity they provide to the platform.
- Easier Onboarding – Reserve managers will no longer be required to maintain a KNC balance to provide reserves to the protocol.
- Custom Fees – Developers will now be able to set their own fees, rather than following Kyber’s preexisting fee-sharing schema (30% of the 0.25% fee).
It’s important to note that these updates are merely conceptual at this point and that more advanced details surrounding their implementation will be announced in the coming weeks. The article notes that these changes are set to take place *roughly* in early Q2 of 2020.
Why Does this Matter?
For one, we’re starting to see prominent DeFi projects taking much stronger consideration over their utility tokens. In an age where virtually all ICO tokens are headed to zero, it’s refreshing to see more serious projects taking matters into their own hands.
While these changes do not mark anything too groundbreaking, it does signal another step towards decentralization but putting governance power back into the hands of token holders.
Similarly, the introduction of KyberDAO goes to serve as another example of the Rise of DAOs, largely highlighted by the increasing number of projects choosing to use a DAO framework in an attempt to garner increased participation.
Lastly, the implementation of staking rewards points to a larger trend of utility tokens being staked in exchange for some claim on network revenue. This is a use-case that we have heard rumored might be implemented by other prominent projects as well.
In short, it’s likely that Kyber will continue to increase in usage so long as DeFi continues to grow in parallel. These changes should result in a strong correlation between the growth of the exchange and the performance of the KNC token.
In the meantime, we’ll be keeping a close eye on when these changes actually go live, along with any further details announced about token economic upgrades in the near future.
For more information on all things DeFi, follow us on Twitter!
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.