Maggie Ng - Hello everyone! Thank you for joining the Kyber Network and Crypto.com live video AMA today. My name is Maggie. I'm the Head of Marketing at Crypto.com, and I'm very happy to be your host for today's live stream. Joining us today is the CEO and Co-Founder of Kyber Network, Loi Luu.
He's here to talk everything DeFi with us, and the timing is just right, because we have just listed their token KNC on our exchange, we have just finished the allocation of our KNC Syndicate event earlier this week, a lot of you have submitted questions that you would like to ask Loi today, and we have selected about 20 of them.
If your question is going to be featured in our live Q&A session now, that means you have won a share of a 500 KNC prize pool, which will directly distribute to your Crypto.com App Account later. So now over to our guest, Loi.
Loi Luu - Hey, everyone! Thanks Maggie, for having me. My name is Loi, CEO and Co-Founder of Kyber. We have been building it as an on-chain liquidity protocol with liquidity from a wide range of liquidity sources. The main goal is to power instant and secure token exchange in any decentralized application.
We have been working really hard the last couple of years and we are proud that at the moment, Kyber is the most used liquidity protocol in DeFi, with the highest number of integrations and users and more than 1 billion of US dollar worth of trades, facilitated since it’s launch.
Maggie Ng - Well, welcome, and thanks very much for joining us today. Should we just dive right in?
Loi Luu - Sure. All right.
Building on Kyber
First question: Why should any developer build on Kyber Network instead of other DeFi protocols? And maybe more specifically, other token swapping protocols?
I think we expect to see an increase in the number of financial use cases and composability between DeFi apps, like Kyber Network being integrated for on-chain token swaps. This combines the benefit of various protocols into one single platform, to abstract a lot of complexity away from the users.
We are super inspired by the composability in building DeFi applications. That's why in the last couple of years, we have been working on facilitating more integrations.I think really, there are three main advantages that make Kyber stand out and really help developers to easily integrate with Kyber.
The first reason is that everything Kyber runs on-chain. So that means everything is done on the smart contract level. So crypto wallets or any other smart contracts can easily integrate with Kyber, even without our permission because everything is run on the power of the smart contract.
And because everything is on the smart contract, it makes their life easier, right? Smart contracts can only talk to other smart contracts. The moment you have something run off-chain on someone else's server, it is almost impossible to integrate your smart contract to that centralized server. So by having everything running on-chain, it's super easy to integrate with Kyber.
Secondly, we allow the platform integration to set their own custom spread or their own fees on top of every trade. I think it is critical for the integration of the wallet or any other DeFi application to have the ability to decide their own revenue. If they have a really good UI UX, they can actually charge a little bit more in fees — To cover for the transaction fees, for example, so that the users don't have to be aware of the GAS and things like that on Ethereum. And this really allows for more innovation on the blockchain. And we're super excited to see a few of them really take off.
And the third is because Kyber aggregates liquidity sources from different protocols and we have our own dedicated market makers. It is really about the rate. I think most of the time the rates on Kyber are better than other protocols, and the developers only needed to integrate Kyber to find the best rate available on-chain.
What advice in particular, which you'd like to give to developers who are looking to develop DeFi DApps on Kyber or looking to integrate your protocol into their project.
Loi Luu - I think I forgot to mention that we have many members in the IT developer community, and a lot of them are active on Twitter and also Telegram, We also have our developer portal at developer.kyber.network, So if they want to learn more about Kyber or if they want to see how easy it is to integrate with Kyber, they can just go to that developer portal or they can join our telegram channel to be referred to a lot of other developers that have already done the integration with Kyber.
What makes Kyber the most unique, especially now that DeFi is growing really rapidly, and how this unique proposition can become the dominating force for you guys in the DeFi space?
Loi Luu - I think I have briefly mentioned a couple of reasons that really makes Kyber stand out. Being able to run everything on-chain and also the ability to aggregate the liquidity from different sources. And so we recently launched our Katalyst upgrade, which introduced a lot of new features. And one of them is the ability to route the trade via different liquidity sources so that the ticker or the trader will even find a better rate.
And with Katalyst we also introduced the decentralized governance model, for the first time ever for Kyber. With this decentralized governance, the KNC token holder can actually vote on the development direction of Kyber and they can also receive rewards from governance activities.
And most importantly, they will decide all the incentive parameters for different stakeholders in the Kyber ecosystem, including the market makers and the token holders that participate in the process. That really introduced a sustainable model for the Kyber ecosystem. Every stakeholder will now have an incentive to participate in improving the Kyber ecosystem.
Token holders will vote for the best direction to improve Kyber as a protocol and the market makers (or the reserves as we call it in Kyber terms), will have more incentive to provide even better liquidity for Kyber.
Can you explain a little bit more about the design of Kyber reserve on the overall Kyber network ecosystem?
Loi Luu - Right. So basically we call the market makers or the liquidity providers to the protocol, the reserve. And the reserve consists of a wide range of parties. It could be professional market makers, whose main job is to really provide liquidity on various platforms, including Kyber and also centralized agendas and anywhere that really needs their liquidity. But the token teams, they can also play the role of the reserve.
So, basically, If they have their own token and they want to provide their own liquidity, they can also be part of the reserve ecosystem on Kyber by just setting up a smart contract and providing the inventory. And that's it. We also allow typically any user who has the technical know-how and the token inventory to set up their own reserve and be one of the market makers on Kyber.
For a decentralized exchange, liquidity is the major problem compared to centralized ones. How does the Kyber network solve this problem and create the liquidity for DEX which is different from centralized exchange?
Loi Luu - I think this is a super interesting question and I think this question has been around for years. When we presented the idea of Kyber in early 2017 people also asked the same question, and I think really the only solution to improve liquidity is to create a sort of feedback loop ecosystem. Because for liquidity, if there is more demand for liquidity then there will be a higher supply of liquidity. So you’ve got to work on the demand side. We need to get more users, get more DeFi Dapps to integrate with Kyber. We need to get more wallets to integrate with Kyber so that the users can do the trade with Kyber within their wallet. And with that, we can also introduce more demand to the liquidity, so that we can work with more market makers on Kyber.
So for the integrations and for the users, they need to see if there's good enough liquidity or there's a good enough supply of liquidity in order to use Kyber. So it's always a feedback loop like that. We have to work on both sides. We have to improve this side and then work with the other side to improve it a little bit as well. Yeah, and I think we have to keep constantly improving it.
Bit by bit, and it's going to take a lot of time, but I mean compared to the decentralized trading ecosystem just last year I think this year it has been improving by a lot lately.
Maggie Ng - That's because a lot more supplies are coming in finally.
Loi Luu - that is one reason, but also, there's more adoption in terms of DeFi. More people are using decentralized platforms that introduce more and more users that are using decentralized trading platforms.
So as a professional market maker, why should they choose the Kyber reserve platform, instead of other DeFi like, automated market makers or another on-chain order system. What would be more attractive to them? Maybe in terms of incentives?
So I think for professional market makers, if they use something like an on-chain order book model, I think it simply wouldn't work for them because it's just too expensive to maintain the on-chain order book model. With Kyber, we have what we call the Fed Price Reserve (FPR) model, that really allows the professional market makers to do market making on-chain in a very efficient way. For example, they can quote, and they can update the quote in a very efficient way. They can update the price of about 50 different token pairs, and adjust about 450 different price levels.
That is much more efficient than having to send 50 different transactions to update the price of 50 different tokens that you are supporting. That is just one simple example of why our Reserve system is actually a lot better than other similar infrastructure or models. We have a very strong ecosystem of integrations. All the major wallets have already integrated with Kyber. Many DeFi applications have also integrated with Kyber for liquidity.
So there's a lot of demand on the liquidity side. So that you know, naturally, we will attract a lot more market makers to join and also earn profit from our market making activities.
KyberDAO, a relatively new set up as a community platform. What is it? How does it work? What is your design rationale behind this?
Loi Luu - I think our goal is to eventually really make Kyber as decentralized as possible. With the launch of KyberDAO, we took our first major step towards this narration.
So KyberDAO is a decentralized governance protocol for Kyber, in which we allow the currency token holders to stake. They can then vote on the major development direction of Kyber and at the start they can vote on several network parameters, such as how much are the fees going to be? How do they want to distribute the collected network fees to other ecosystem stakeholders? How frequently they want the fees to be burned, as in, some tokens being removed forever. Or you can have all the credit fees be distributed to the market makers, so that the market makers can be better rewarded and continue to improve their liquidity on Kyber. It can also be rewarded to the active DAO members. So, that there would be more incentive for them to participate in the development of the Kyber protocol. But over time, there will be a lot more important decisions that will come for KyberDAO.. For now, I think its first step for us is to launch it.
So how's the participation so far since the launch?
Loi Luu - Well so far it's been quite exciting to see the level of activity. I think we already have more than 2000 unique addresses that have submitted chain votes in KyberDAO and I believe that this is the largest number of voters so far for on-chain data governance. Almost 30% of the total currency supply has been staked. It has only been about10 days since the launch. So far this progress is super exciting and very encouraging for myself and to the team.
Why are staking rewards on Kyber exclusively paid in Ether instead of KNC?
Loi Luu - Oh, just because the network fees are collected in Ether. So technically we can convert the corrected fees to KNC. But doing that on-chain would be expensive.
Also I think we just think that it's a cleaner design to distribute, we work in Ether instead of in KNC.
What is the utility of the KNC token on this on-chain liquidity protocol overall?
Loi Luu - So, currently KNC is like the governance token for the Kyber protocol. What that means is that the KNC token holders can stake and only KNC token holders can stake and after staking, they can vote to decide on the development direction of the project.
So, what do you think is the ultimate benefit for the setup of capital that you can bring into your network ecosystem and also that can nurture the growth of DeFi as a whole?
Loi Luu - I think one important benefit that the KyberDAO can bring is to really let the community be more engaged in the development of the project. And this is super important because at the end of the day, our final goal is to really make Kyber belong to the community, given by the community and run by the community.
Secondly, it really balances out the incentive and really makes the incentives align between different stakeholders in the Kyber ecosystem. Think of the market makers, the currency holders, the integrations, I think that's the second most important benefit.
Is there a specific reason why at the moment Kyber network swap only supports the Ethereum blockchain? Do you have any plans in the future to provide support on the other end to other blockchains as well?
Loi Luu - We have been observing the development of other blockchains in the space but we haven't seen enough traction in other public blockchain yet to consider building something. And I think as many of you are aware, we work closely with BitGo and a few other projects in the space to bring Bitcoin liquidity to Ethereum in the Erc20 format called wBTC. Because if you talk about liquidity you have to work with Bitcoin. You have to be able to support Bitcoin.
Technically, now we are able to have a WBTC token on Ethereum with this backed 100% by Bitcoin and the Bitcoin is kept by BitGo, which is fully licensed custody in the US. I hope all the DeFi applications and decentralized trading platforms find various ways to support Bitcoin or Ethereum where Ethereum users can get the exposure to Bitcoin and try out more interesting user-cases.
As for the other blockchains and other assets, the only thing that we can do now is to just observe them and see whether there is enough traction in demand for us to do anything there.
Let's talk a little bit about your future plans in context of your recent partnership with ParaFi. I think that's opened up quite a lot of other connections for you as well. What are the future plans in terms of building the infrastructure for DeFi?
Loi Luu - With the partnership with ParaFi, our main goal is to really engage different stakeholders right into KyberDAO. That also includes institutional investors, like ParaFi. And they really play an important role in KyberDAO together with other institutional investors, because they have a broader view of the ecosystem. And because they work closely with many other projects, they have the knowledge, they have the insight, and they can give valuable feedback to the project.
I think funds and VCs like ParaFi and a few other reputable funds in the space really play an important role. First of all, they have skin in the game. Secondly, they know which project will potentially work much better than others. And for Kyber, I think launching WBTC together with other projects is one of the most important initiatives that we have done so far, to really prove the infrastructure for DeFi. Moving forward, we will try to improve liquidity so that Kyber will become the liquidity infrastructure for the whole DeFi space as well.
Are there any exciting initiatives that you're planning in the pipeline that you can share with us?
Loi Luu - For the next couple of months there are a few. There are a few initiatives that are not a community initiative that we have been supporting to run community staking pools in a different way. So for example, I think a couple of staking firms already announced that they will launch staking pool support for KNC with the smart contract developed by an independent party. Which just is not from the Kyber team. That really allows people to approach staking in a very interesting way.
For example, you can add your currency into a pool and your voting contribution would be represented by a different token. Anytime you want to claim your reward, or you want to exit the pool, you just send that token and redeem it is quite interesting, and it's a totally different way to do a staking pool. This goes to show that there is a lot of innovation that can be done by the community. We really tried to support more of that.
I think I briefly mentioned earlier, we are going to really have the infrastructure for people to route the transaction, to route the trade, and to split the trade to different market makers so that the rate can be proved even better.
We are trying to support that on Kyber Swap and we are trying to ask a few other integrations to utilize that feature as well. There is going to be some work on the scalability side, but we are still in the research mode at the moment. So we cannot say much about it.
What is your personal view about the current state of the DeFi landscape and the trends? And do you think that we're going through another round of bubble?
Loi Luu - Right. I think you're probably the 3rd person to ask me that question this week. I think it's just interesting to see because there's a lot of doubt in the space, right? There's a lot of doubt out there, but if you look at the level of hype it is nowhere close to what happened in 2017 with the ICO boom.
I think so far DeFi is a playground of community gates and technical people, right? You don't see a lot of details, you don't see that many scam projects, although many projects are trying to raise money and trying to do some weird things by branding themselves as a DeFi project but we don't see as many projects as 2017.
Also, you don't see that many applied retailers or users in DeFi yet so far. I think it's just a place where a lot of innovation is happening and it's good to have innovation for experimentation at this scale, because to be served to retail traders it's big enough to see whether it's something that will work or not. And I think so far we have seen a few things that are not playing well in the long run. For example, if you look at liquidity mining, I think everyone sees that it's not going to be sustainable. And I think the result from the couple of reputable projects in the space have proven that. So really for DeFi, I really think that there needs to be a way to do it in a sustainable way.
That's also one of the main key designs when we launched Kyber and KyberDAO. So the interesting thing about KyberDAO is that the reward is actually from the network fees. So it depends on network performance and the adoption of the network overall. It's not based on printing new tokens, it's not based on inflating the total supply of the token, because we just cannot do that and it's not sustainable anyway. With KyberDAO, we actually have a very, very sustainable way to keep incentivizing different stakeholders, different players in our ecosystem to keep improving Kyber together. I think that's a way to really do something that will last for like decades. Instead of trying to print new tokens or minting new tokens, and I mean, I'm not saying that doing that is bad. I'm just saying that it's not a sustainable way to do it because eventually, the people who are in for the incentive with this are going away and it is not sustainable in the long run.
Maggie Ng - And I think a lot of the speculations are coming from some of those kinds of initiatives.
Loi Luu - That's true. Yeah people just come in because of the incentive and stumble upon it and it's not good. It's good to bootstrap the adoption but perhaps it's good for a short term.
What do you currently think is the biggest obstacle that as a whole we need to overcome towards further mass adoption of the Defi and Defi protocols engine?
Loi Luu - I think we have been talking about this same topic for a few years, right? People were saying the adoption is all about user experience and scalability. when people told me last year that scalability is an issue, I was like, ‘Not really, some of Ethereum blocks are still empty.
But now, I really, I really think that scalability is a big issue for the DeFi options. BecauseI've been really trying to try out a few DeFi protocols, and transaction costs are huge.. We can't expect the retail users to use DeFi if they have to pay that much in fees. And so, the level and also the user experience in general, I mean, it's a lot better compared to last time, to probably last year.
There is still a lot to do. Look at all the different teams and also look at all the layer two solutions out there that have launched their product. I mean, they solve the scalability issues but they haven't really got enough adoption. Why? I think the main issue here is user experience is just too confusing for them. And it requires a lot of technical understanding to use the product well.
If you give people some tool, and if you don't teach them well enough so that they can use it efficiently and use it in the right way, I think it's dangerous, right? You have to give them the tool and you have to teach them to use it in the right way. Or you have to make it so easy so that people can always use it in the right way.
Thanks so much for sharing today. I think that's all of the questions we've got. And also, thanks so much to our community for participating in the event and raising a lot of really interesting questions. Before closing, Loi, is there anything else that you would like to share with our community on Twitter?
Loi Luu - Thanks a lot for having me. It's been exciting to share with everyone about Kyber and about our plans.
What I like about this space is that first of all, there are a lot of innovations happening. And always, every day, there are a lot of new things that have potential. Projects in the space are always friendly and happy you to work together, happy to support each other. Similar to what Crypto.com.com has been doing for Kyber. Thanks a lot!
Again, to our community, if your question has just been featured on the AMA, you have one share of a 500 KNC prize pool, and the prize will be deposited directly into your app within the two weeks or so.
In the meantime, please make sure to follow Kyber Network and Kyber DAO on Twitter, and to stay connected with us and informed about upcoming events and updates via official Crypto.com Twitter and Telegram channels. Once again, thanks so much. Until next time.
Loi Luu - Thank you, everyone. Bye-bye.