Investigating the Top 50 Cryptocurrencies, Part 16/50: Kyber Network

Kyber Network is a soon-to-be-launched decentralized token trading network. Kyber uses smart contracts and a variety of reserves that will enable APIs for atomic swaps between tokens.

_{source: https://kyber.network/}

Kyber aims to create a simple and elegant way to allow atomic swaps at an API level so anybody can pay merchants in tokens of their choice. The buyer can spend one token and the seller can receive another.

It’s a great idea. Right now the network only exists on a testnet. I’m interested to see if they can launch their real token exchange network by Q1 2018 like they say they’ll do on the roadmap.

This post will do a deep look at Kyber Network and its underlying token. Here we go:

About This Series + Disclaimer

This post is part of a new series where I investigate each of the top 50 coins by marketcap (based on coinmarketcap.com's rankings on October 11, 2017). My goal is to help steem’s userbase become the most knowledgable blockchain community in the world.

Disclaimer: I am not an investment expert and will not be providing investment advice. I will teach you about the top 50 coins, and you can do what you want with that info.

How Does Kyber Network Work?

Most token transactions right now are done through centralized exchanges like Bittrex or Poloniex. Kyber Network wants to create the APIs for the blockchain net that enable merchants to receive their preferred token regardless of what the spender uses to buy.

_{Kyber Network enables seamless digital transactions.}

If the spender sends $10 of Litecoin, the smart contract can automatically and immediately convert that to the merchant’s chosen token of, let’s say, steem dollars. Both parties participate in the transaction without thinking twice. This use case would open up a lot of cryptocurrency spending.

The smart contracts exchange tokens by checking the available reserves on the network. Anybody with enough money can create a reserve These “reserves” are digital pools of money that can accept one token and send out another.

At first, only Kyber Network will run a reserve. They hope to get other groups on the network as soon as they can. This is an important step for the security of the network.

What Stage of Development is Kyber Network at?

Kyber Network is running on a testnet right now. That means no real money is changing hands, but fake tokens are being used to test the product. This is a good idea to check for security holes before launching for real.

_{source: pixabay.com}

Time will tell if they can build a working product with real tokens. If they do it and gain some traction, it will be an enticing way to trade your cryptocurrency.

Token Distribution Model

The token underlying this network is called Kyber Network Crystal (KNC). KNC tokens must be held by reserve operators to participate in the network.

Whenever a reserve executes a trade on the network, they receive a small amount of profit. Some of that profit must be paid into the network as KNC tokens. These tokens are held in an account and burned periodically.

_{Burn. source: pixabay.com}

The periodic burning of KNC tokens is supposed to help push the market towards higher valuations for the token over time.

The total existing number of KNC tokens is 215,625,348.84, with 33% of those tokens being illiquid for the next two years (the advisor/founder tokens).

More than 60% of tokens were offered in a crowdsale, with the vast majority being purchased. This makes for a diverse token economy, especially before the founder/advisor tokens become liquid.

The Team Behind Kyber

There are four people on the Kyber team (most of the info in this section comes from the white paper):

Loi Luu: is a cryptocurrency researcher with a bunch of published work. He founded a few cryptocurrency-related projects prior to Kyber Network.

Yaron Velner: Co-founded the prior SmartPool project with Loi Luu and specializes in the game theory aspect of blockchain development. Prior to blockchain, he worked for a decade as a senior software engineer for semi-conductors.

Victor Tran: Victor is the current lead engineer for Smartpool and is the backend engineer for Kyber Network.

Cuong Nyugen: Cuong is a web developer with a lot of experience in the blockchain space. He spends a lot of time on bitcoin and ethereum.

Early Centralization of Kyber

One issue that I can see with Kyber is over-centralization. When the main network first launches, the official team will be the only reserve. Until there are many reserves on the network that can act as checks and balances to each other, the network will be vulnerable to poor pricing or outages of tokens.

There’s also the “KyberNetwork Operator” role on the blockchain which is run by the team right now, pending some future governance model. This operator controls a few key features of the blockchain like listing & delisting coins.

That operator role gives the official Kyber Network team some centralized control over the blockchain. The proposed decentralization governance model should be a priority IMO.

Market History

The value of the token has been on a steady decline ever since the ICO. This happens to some tokens as a natural result of the initial hype generating a lot of excitement that can’t sustain itself during a slow development process.

Steem had this kind of graph for a while and then began to recover earlier in 2017. I wouldn’t worry too much about the token.

Final Thoughts

Kyber Network is an elegant solution to enable atomic swaps for everybody. If it succeeds, if could take us one step closer to the future where we all hold vast portfolios of coins and transact them seamlessly with each other.

The current model is much more limited. You need to find somebody with the exact same token as you to do business. We will move past this problem eventually.

Question: Do you have any experience with Kyber Network?