Kyber Network wants to enable Ethereum addresses to receive payments from any kind of blockchain. That’s the top deck view of what they intend to do, and perhaps their best offering. Although they appear to believe that the exchange nature of their platform is what is important – and that definitely adds value to their offering, as well. We should open by saying we applaud the academic and informed approached taken by the team behind Kyber.
Kyber lists “risk of centralization” as one of their chief motivating factors.
However, despite the decentralized and trustless natures of cryptocurrencies and crypto tokens, most of the trades happening on centralized exchanges are vulnerable to internal fraud and external hacking. This is an ongoing concern and a number of hacking incidents has been reported at various exchanges affecting thousands of users and loss of hundreds of million of dollars.
Another is a “lack of instant exchanges.” While not mentioning the several allegedly instant exchanges out there, the point Kyber focuses on is that most exchanges take too much time to execute transactions for the user. Instant trades would be preferable, but these are not possible for most centralized operations like ShapeShift.io or Changelly.com. Both of these efforts would quickly go bankrupt if double-spends were flagrantly allowed, and the only way to prevent against them is to require a certain number of confirmations for each different blockchain. With Bitcoin, for instance, ShapeShift requires at least one, sometimes two confirmations. They utilize a third-party service called BlockCypher to determine the quality of transactions. In a world where Kyber.Network and similar technologies are in play, ShapeShift, BlockCypher, and other centralized exchanges become obsolete for standard users.
Kyber Network Particpants
Kyber proposes an ecosystem of several layers, including the ability to exchange and make payments in cryptographic tokens in a universal fashion. They want to be able to conduct all the functions currently served by various centralized services in one-click – if a merchant only accepts a certain token, the user will simply pay the equivalent value in the tokens they do have. Rather than maintaining and regulating a global order book which determines exchange rates, Kyber prefers to offer a fair spread across the board and simply horde coins in order to serve orders. The management of these reserves is carried out by a class of network participants called reserve managers, who determine the exchange rates and must all agree on them.
Other roles in the system are mostly related to the maintenance of reserves. Before diving into them, we should note the other two of five roles there are to be played: users and “operators.” Operators are essentially the network miners, responsible for the ultimate officiating of information on the network.
The other three roles in the network are directly involved in the management of reserves. The first is the reserve operator, who takes liquidity from the second, the reserve contributor, who derives part of the network’s profits along with the operator and the third role, the reserve manager. Splitting these roles up among three different groups is presumably meant to ensure that all moving parts work correctly before rates are published and used in the network.
Unlike many cryptocurrency projects, the user needs to only send a transaction. Their transaction is immediately valid, while the reserve components of the network are responsible for moving the numbers around, and the network operator is responsible for ensuring all records make it to the top side of the network.
Kyber already has a working smart contract to fulfill the vision of the network. In the month of August, they intend to create a minimum viable product. The white paper does not mention specific rates that the network will derive for various types of transactions, but this is due to the trustless and decentralized nature of it. One concept that is covered is the idea of “dynamic reserves.” This means that several reserves of, for instance, Ether could exist, some managed by larger entities on the network for larger pairs and some being registered on the network by smaller interests in order to support the trading of less popular pairs. For example, if Aragon network were receiving less volume globally and they wanted to ensure some liquidity in their token, participants of their network could create reserve funds specifically for that pair. Exchange rates would be determined by the triumvirate of reserve personnel. This equates to a form of democracy in the exchange of the equities. Allowing for this all to happen on one chain is important – the multi-wallet functionality alone will make the Kyber Network attractive to veteran crypto traders who want to hold tokens outside of exchanges, everything from Bitcoin to Ripple.
Everyone in the executive branch of the Kyber Network is a worthy opponent for the industry they intend to disrupt. Beginning with co-founder and CEO, Loi Luu, who is an active researcher in the cryptocurrency and smart contract space. Having someone with this sort of expertise, and immersion, is at the helm of an ICO, is refreshing. It might help explain why they want to be sure they are prepared before they actually do the token launch, which they’ve yet to fully announce.
Aside from Luu, we’ve got Israeli computer science PhD Yaron Velner, who is acting as CTO and is also a co-founder. As a researcher, Velner is a valuable addition – he has several Ethereum flaws to his credit, for which he was compensated under the bug bounty program. Critical infrastructure work of this kidn means he will know what to look for when hiring other talent later on.
The rest of the team appears formidable as well.
Being that we don’t know much about the token distribution or the cost of the tokens, nor what real utility they would play within the network (perhaps they would be used as the base token of exchange, giving them an inert form of value from the start), we have to rate this project purely on the idea.
The idea is there, although it is perhaps misleading to assert there is a lack of “instant” exchanges. For there are plenty, but there is no such thing as actually instant within the cryptocurrency realm of things.
We believe that several options will emerge over time which will totally subvert the need for centralized exchanges, and that the best of these will be very prosperous endeavors indeed. For token holders to experience this growth, however, the token has to be somehow tied to it. We would prefer to see more tokens which directly compensate their holders with profits from the operations of the company which offered them, rather than speculation thereupon. This is a better, more equitable way for people to comfortably invest – in order to realize their own value, at that point, the companies must perform. If this is the case with Kyber.Network, we can award them an extra point on top of the overall rating which follows.
In terms of growth regardless of the above, we can see that these types of technologies are bound to take off. Kyber intends to release a minimum viable product very soon, and this will be an encouraging sight – more people will take interest in the project when it is demonstrably workable. Being able to send and receive any token at all via a single network, “instantly,” is a great plus. For this novelty and its potential to disrupt the entire exchange industry – being that anyone can really play a role in the ecosystem – we lend 7 points off the top.
We believe there will be many efforts at creating decentralized networks on which all chains can trade. These efforts will not stop multiplying, and so the market will soon be split. Kyber has a heavy onboard cost in terms of technical investment, and one must remain invested to recoup time invested. As such, we must deduct a full 1.5 points for the possibility that among a sea of competitors, Kyber will just not attract enough people to create the sort of volume that will be necessary across global pairs. For their network to truly function and prosper, they require a lot of volume and activity.
All the above outlined, we have a simple equation with Kyber – 7 – 1.5 = 5.5.
Don’t forget the above note wherein we can add a full point if token holders are allowed to profit from the token once it is released. That would be a valuable addition, and give the token an actual value – people would be willing to pay more up front for tokens which promise later revenues. This is the ideal situation and we think ICOs will figure this out more and more moving forward.
Unfortunately, there are no details yet on the Kyber ICO. There will be this year, however, and you can stay tuned with them by subscribing to their mailing list or following them on social media. This is definitely one to watch, and as they engage with the community more, they may improve various aspects, only increasing their potential for being a profitable investment.