What is the Kyber Network protocol and how does it work
By Iaroslava Kramarenko 392 1 Feb 2023
Kyber Network is a decentralized multichain liquidity aggregator that facilitates the exchange of tokens without an intermediary.
Decentralized applications (dApps), crypto wallets, and DeFi platforms can be integrated into the Kyber Network. The PoS protocol is governed by the holders of Kyber Network Crystals tokens (KNC) through KyberDAO, a decentralized autonomous organization.
The system has its own DEX KyberSwap, which supports around 100 tokens and has already processed more than $100 billion worth of transactions.
The founders of Kyber Network say that their goal is to create a global platform where any token can be used for swaps and payment services. The same objectives are also mentioned by most peer-to-peer (P2P) projects: Aave, Cake, Uniswap, etc.
How does Kyber Network work?
Kyber Network consists of a set of smart contracts that can be implemented on any Ethereum-compatible blockchain. The protocol aggregates liquidity from a variety of sources, including token holders, market-makers, and decentralized exchanges into a single liquidity pool. Kyber Network enables decentralized applications, traders, and crypto wallets to execute instant token swaps without the use of a third party.
There are two types of trades in the network. In every trade, there is a token that represents the core asset. ETH currently acts as this token, so any transaction must involve an exchange of ETH for another asset.
For example, the algorithm for exchanging ETH for BAT (Brave) will be as follows:
1. You send ETH to the Kyber Network smart contract.
2. The contract queries all of its pools for the best ETH to BAT exchange rate.
3. The contract sends the ETH to the reserve with the best ETH to BAT exchange rate.
4. The reserve sends you your BAT.
If you do not have an ETH in your wallet, and you want, for example, to exchange BAT for DAI, some additional steps are required:
1. You send BAT to the Kyber Network smart contract.
2. The contract then queries all of its pools for the best BAT to ETH exchange rate.
3. The contract sends the BAT to the reserve with the best BAT to ETH exchange rate.
4. That pool sends ETH to the contract.
5. The contract queries all of its pools for the best ETH to DAI exchange rate.
6. The contract sends the ETH to the reserve with the best ETH to DAI exchange rate.
7. Finally, that reserve then sends you your DAI. The contract is fulfilled.
All trades on Kyber Network are instantly settled and either executed in full or reverted. In other words, your trades will never be partially executed the way they may on DEX. Additionally, all exchange rates offered by crypto reserves are publicly verifiable if you query the smart contracts.
What are KyberDAO and KNC?
KyberDAO is a decentralized autonomous organization that governs the project. It is powered by the native token of the KNC platform.
By freezing their tokens, KNC holders can vote on the network’s fee model, earn staking rewards denominated in ETH, and enjoy transaction discounts. KNC is a deflationary staking token, which means its supply will decrease over time. The current supply of KNC is 164,893,760 tokens.
KNC is an ERC-20 token, but Kyber Network developers promise that it will also be implemented on other blockchains soon. Its supply will be managed as if it were a single token. Right now, Kyber Network is developing technologies that will enable the transfer of KNC over cross-chain bridges.
Currently, Kyber Network Crystal is only available on the Ethereum and Polygon blockchains. Such a restriction holds back the interest of users and negatively affects the price of the token. The network update, which assumed the expansion, was supposed to take place in 2022, but never happened.