What is Kyber Network? (KNC)
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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.
- 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.
Why does KNC have value?
The KNC cryptocurrency plays a key role in maintaining and operating the Kyber Network.
By staking KNC, users gain the ability to vote on network upgrades and policies (fee models and rates, as an example), with each vote being proportional to the amount of KNC they stake.
Users can also delegate their tokens to other validators, allocating votes to them while still earning a portion of the block reward.
Of note, users who stake KNC will receive rewards in the form of ETH for their contributions.
Investors should note that network fees paid for in KNC will be burned over time in an effort to permanently reduce the cryptocurrency’s supply. Thus, while the initial supply was a little over 215 million KNC, this may gradually decrease, making KNC more valuable over time.
Kraken's Crypto Guides
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Why use KNC?
Users may find the Kyber Network appealing based on its mission to provide an alternative to more traditional centralized exchange platforms.
To date, there are a variety of wallets that have already integrated the Kyber Network to allow users to trade cryptocurrencies within their ecosystem.
Furthermore, a few projects have even incorporated Kyber’s API to facilitate transactions. Some examples include the popular virtual reality platform, Decentraland, and Edcon, an Ethereum development conference.
Investors may also seek to buy KNC and add it to their portfolio should they believe in the future role of decentralized exchanges in expanding and broadening access to crypto assets.
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