Katalyst Protocol Update by KyberNetwork
About Kyber Network
Kyber’s on-chain liquidity protocol allows decentralized token swaps to be integrated into any application, enabling value exchange to be performed seamlessly between all parties in the ecosystem. Using this protocol, developers can build innovative payment flows and applications, including instant token swap services, ERC20 payments, and financial DApps — helping to build a world where any token is usable anywhere
What new the features update?
- New staking mechanism for KNC holder
- Decisions made through the KyberDao
- Improvement to liquid contribution
- Costumisable fee for Takers/DApps
How does the KyberDAO Work?
• For KNC Holders
Staking and participation rewards: Kyber will introduce a new staking mechanism to the token model. This new model will allow KNC holders to receive part of the network fees by staking KNC and participating in the KyberDAO. More details will be shared in following posts.
KyberDAO to decide on key parameters: We will develop and launch the KyberDAO, giving the community of KNC holders the power to decide how the fees for the network (currently at 0.25% per trade, subject to change) will be used, by voting on the ratio / percentage between burning, staking rewards, and maker (reserve) incentives. In the future, the DAO will likely also be able to decide on listing tokens, reserve approvals, and network development grants. We expect key members of the DeFi ecosystem to actively participate in Kyber governance.
• For Reserve Managers
Reserve Incentives: Part of the total fees collected will now go towards incentivizing reserves based on how much trades and volume they facilitate for the network. This type of incentives, known as rebates in traditional finance, is a well-known and widely used mechanism to attract market makers. We expect this to incentivize more reserves creation and market making activity on Kyber, leading to much higher liquidity and broader reach.
Simplifying the fee system: Previously, one significant barrier to the creation and running of reserves was the need to maintain a KNC balance, which in turn will be collected regularly and burnt as network fees. Moving forward, reserves no longer need to maintain a KNC balance for fees. We intend to have the fees automatically collected in every trade and burnt or used for rewards and incentives, removing a major friction and pain point for reserves that want to integrate with Kyber. This does not affect the competitive rates that our takers are enjoying now.
• For DApp Integrators
Ability to set their own spread: It is critical for the evolution of the blockchain and DeFi space that DApp builders have the ability to decide their own business model. We are removing the previous fee-sharing program (30% of the 0.25% fee) and instead allow these developers to set their own custom spread. This will encourage many more DApp developers to build with Kyber, while at the same time giving them the ability to innovate on both business model options or target users with different needs.
• For The Ecosystem
We believe these changes will significantly encourage participation and align incentives in the Kyber and DeFi ecosystem. DApp integrators and liquidity providers will have much stronger incentives and fewer barriers to focus on Kyber. KNC holders will benefit not just from the burning and rewards from the increased trade volume, but also by contributing to the many decisions needed for the long term growth of the network.
The above changes are slated to be completed in early Q2 next year. Before then, our main goal is to ensure that we have actively engaged all stakeholders to review the necessary tradeoffs for the first deployment of the Katalyst protocol upgrade.
How will KNC create Value?
In the past, burning (70% of the 0.25% network fee) was the only way for KNC holders to gain value from the growth that has happened in Kyber. While it was an excellent approach for long term value accrual, KNC holders now have additional options for value creation and can take on a more active role in the success of the network:
- Participation Rewards: Immediate value creation. Holders who stake and participate in the KyberDAO get their share of the fees designated for rewards. The more KNC staked, the bigger the share of fees.
- Burning: Long term value accrual. The decreasing supply of KNC will potentially improve the token appreciation over time, while also benefiting those who did not participate.
- Reserve Incentives: Value creation via network growth. By rewarding Kyber reserves based on their performance (i.e. amount of trade volume they facilitate), it helps to drive greater volume, value, and network fees.
Who will benefit from this new upgrade ?
In every well-functioning ecosystem, there needs to be strong incentives for stakeholders to participate, as well as strong alignment towards a common end goal.
This Kyber protocol upgrade is meant for 3 key groups of Kyber stakeholders — 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.