Analysis of Kyber ICO – Decentralized Exchange for Instant Trading

Summary

  • Project name: Kyber Network
  • Token symbol: KNC
  • Website: https://kyber.network/
  • Whitepaper: https://kyber.network/assets/KyberNetworkWhitepaper.pdf
  • Hard cap: 200,000 ETH (ICO contributors own 61.06% of total token supply if hard cap is reached)
  • Soft Cap: None
  • Conversion rate: 1 ETH = 600 KNC
  • Maximum market cap at ICO on a fully diluted basis: US$102 million if hard cap is reached (assuming current ETH price of $310)
  • Bonus structure: None
  • Pre-sale / white list available: Sign up for the white list is over
  • ERC20 token: Yes
  • Timeline: September 15, 2017 (please refer to Kyber’s website for the most up-to-date information)
  • Token distribution date: Tradable 1 week after the token sale (September 24, 2017)

Project Overview

What does the company/project do?

Kyber Network is a new decentralized exchange that allows for instant trading and conversion of cryptocurrency. It has the following key properties:

  • Trustless: All transactions occur via smart contracts and no funds are held on the exchange.
  • Liquid: They will utilize a network of reserve operators, who will maintain a reserve of all tokens to provide liquidity for transactions.
  • Instantaneous: Kyber claims that it will have no waiting time for confirmations and no deposits will be required. Users can get their tokens as soon as the transaction is put on the blockchain.
  • Locked-in conversion rate: Users will know the conversion rate before sending the transaction and receive the corresponding amount.

Below is a flowchart showing how KyberNetwork works.

Kyber Network flowchart

Primary uses of KyberNetwork include:

  • Exchange: Convert and exchange tokens securely and instantly. At the moment, KyberNetwork does not collect any fees from the users’ exchange transactions.
  • Proxy payments: Users can pay anyone in any token with their own tokens. Kyber performs the conversion and forwards the payment.
  • Derivatives: Users can hedge against price fluctuations by engaging in forward transactions.
  • Cross-chain payments: For example, users can receive payments in Bitcoin and other cryptocurrencies in Ether.

KyberNetwork does everything on-chain because off-chain channels do not provide settlement guarantee, relies on trusted third parties and has low compatibility with Ethereum smart contracts.

KyberNetwork can provide instant liquidity because they have a reserve system. Initially, Kyber will be the sole reserve manager to ensure they have the tokens available when users request an exchange. Over time, anyone can become a reserve manager, provide liquidity and earn income from the role.

Here is Kyber’s intro video (video is 2:23 long)

How advanced is the project?

Kyber released the MVP on Testnet in August 2017, which included the main KyberNetwork contracts, a user web-wallet and the reserve dashboard for reserve managers. You can check out the MVP here. 

The future roadmap for Kyber is listed below:

  • Q1 2018: First mainnet launch, support trading between tokens and ETH.
  • Q2 2018: Support trading arbitrary token pairs.
  • Q3 2018: Support trading advanced financial instruments.
  • Early 2019: Support cross-chain trading.

Here is a video demo of the MVP (video is 2:16 long):

What are the tokens used for and how can token holders make money?

KNC tokens have two primary uses.

KNC tokens are required for reserves to participate in the network and to reward various parties who will help generate more trading activities in the platform. Before operating, KyberNetwork reserves need to pre-purchase and store KNC tokens. In every trade, a small fraction of the trade volume will be paid by the reserve to KyberNetwork platform in KNC.

The collected KNC tokens from the fees, after paying to the supporting partners, will be burned, i.e. taken out of circulation. The burning of tokens could potentially increase the appreciation of the remaining KNC tokens as the total supply in circulation reduces.

The value of KNC will be mostly derived from the second use – profits to be used to buyback KNC tokens and taken out of circulation. This acts like a share buyback in the stock market.

It can cause the token value to appreciate even if the project itself does not appreciate in value. For example, even if the market cap of Kyber stays the same, because profits are used to buy back tokens, the number of KNC tokens in circulation will decrease. Token holders will own a larger piece of the project, causing token value to appreciate.

As the value of KNC tokens hinges on how much profit KyberNetwork can generate, the more volume and profit the network generates, the more valuable KNC tokens should be.

Download the Free Checklist for Crushing ICOs!

This is the guide that help me find the most profitable ICOs!


Kyber vs. 0x

Kyber and 0x are both high-profile ICOs that tackle similar problems, so we dedicate this section to do a comparison between Kyber and 0x. You can read our analysis on 0x here.

Areas where Kyber is better:

  • Kyber’s idea, if implemented successfully, would create a better product than 0x. The features not available from 0x are listed below.
  • Guarantee liquidity: Users can always find a counterparty to settle their trades so they don’t need to worry about not being able to trade their cryptocurrency, no matter how illiquid the tokens are.
  • Instant transfer: Once users enter into a trade, they can receive the token that are being exchanged instantly. With the 0x protocol, unless you are the taker of the trade, you don’t know how long it takes until another party takes your order.
  • Kyber lets you pay a merchant with any tokens and the merchant would receive another cryptocurrency (for example, Ether) in return, eliminating the need to convert your tokens back to a more popular cryptocurrency before paying the merchant.

Areas where 0x is better:

  • 0x has first mover advantage with many dApps and relayers using 0x as part of the component. Projects that partners with 0x include Ethfinex, Augur, District0x, Status, among others. You can see the list of dApps and relayers that adopt the 0x protocol.
  • Ethfinex is probably going to be the first functioning decentralized exchange that is actually good and widely used because its creator, Bitfinex, has extensive experience running one of the largest cryptocurrency exchanges in the world. This is just one of the relayers built on top of 0x, demonstrating the potential of the 0x project. 
  • Kyber is an exchange while 0x is a protocol where other dApps can use it as a component. All else equal, protocols are more valuable because different projects can be built on top of it.
  • Since both Kyber and the reserve operators need to make a profit, we imagine that the fees charged by Kyber (i.e. the bid/ask spread) would be higher than existing exchanges.

Having compared the two projects, Kyber is actually more similar to ShapeShift than 0x. Kyber is like a decentralized version of ShapeShift. ShapeShift charges higher fees than most exchanges because they take on the risk of being a market maker. Same thing goes for Kyber.

At the end of the day, we believe it all depends on the fees that Kyber will charge (in the form of bid/ask spread). If Kyber can match or get close to the fee level that 0x relayers charge, then Kyber is better than 0x because of the guaranteed liquidity and instant exchange features. However, if Kyber’s fees are much higher, then 0x is better than Kyber for most users.


Team

The team is currently comprised of 7 members. The three co-founders previously worked together at SmartPool, an open source project for the decentralization of mining pools in existing cryptocurrency which had Vitalik Buterin as an advisor.

Loi Luu, CEO & Co-Founder – Blockchain veteran who developed different projects in the past. He developed Oyente, the first open-source security analyzer for Ethereum smart contracts. He was a co-founder/developer of SmartPool, a decentralized mining pool project. Loi is a PhD candidate in Computer Science at National University of Singapore.

Yaron Velner, CTO & Co-Founder - Yaron holds a PhD in Computer Science from Tel Aviv University. He has over 10 years of experience in software engineering and was also a co-founder/developer of SmartPool.

Victor Tran, Lead Engineer & Co-Founder – Victor is a backend engineer and Linux system administrator with experience in developing infrastructure for social marketing and advertising networks. He co-founded and was the CTO for several start-ups in social marketing. He was also a developer at SmartPool.

Kyber Network is backed by strong advisors, including Vitalik Buterin (Founder and Chief Scientist of Ethereum), Prateek Saxena (research professor at National University of Singapore) and Leng Hoe Lon (CEO & co-founder of Shentilium Technologies, co-founder of TrackRecord Asia, CEO of Tudor Capital Singapore, and Managing Director of Goldman Sachs).

They are also partnered with a number of VC firms, including HyperChain Capital, BITSSET, Finden Capital, Pantera, Fenbushi Capital, Kenetic Capital, FBG Capital and Danhua Capital


Opportunities

  • The project’s idea is great and would push cryptocurrency as a whole forward. Instant exchange in a decentralized manner? Imagine how much better it would be compared to the exchanges that we are dealing with now.
  • The project has a strong team who worked together in another blockchain venture prior to starting Kyber.
  • Kyber is one of the two projects that Vitalik is an official advisor of, with the other being Omise GO. Omise GO is one of the most successful ICO this year and became the most valuable token after trading for just two months. It generated 37x return compared to Ether over the same period.
  • Kyber ICO has generated great awareness. Its Slack channel is the largest in the world with over 33,000 members. There are 38,000 white listed participants for the ICO, make Kyber one of the most anticipated ICOs of the year.
  • KNC token allows token holders to enjoy the profits made by Kyber in the form of token buyback. Because of this, KNC tokens have better value proposition than most other ICOs.

Concerns

  • The reserve system is pretty capital intensive. Guaranteeing liquidity for every tokens out there require reserve managers to hold a non-trivial amount of random illiquid tokens and it can tie up a lot of capital.
  • The final stage for Kyber, cross-chain trading, will take a few years, if ever, to realize as Polkadot and Cosmos will not be usable anytime soon.
  • Kyber is slower than 0x in terms of development. If relayers built on 0x protocol are successful, users may not want to switch to Kyber.


Conclusion

Overall, I like this ICO both for its flipping and long-term potential. My thoughts on buying the tokens for flipping and investing for the long term are as follows:

For flipping

Good. Kyber is one of the most anticipated ICOs of the year with 38,000 white listed participants. Many of them would not be able to invest as much as they would like to, leaving plenty of unmet demand.

For long-term holding

Good. Kyber’s idea is great and has a good chance of success if executed corrected. ShapeShift is already a successful and fast-growing venture, and Kyber aims to be a better version of ShapeShift. The cryptocurrency trading industry is large and there can be multiple winners in this space.


Download the Free Checklist for Crushing ICOs!

This is the guide that help me find the most profitable ICOs!

  •  
    93
    Shares
  • 37
  • 40
  •  
  • 12
  • 4
  •  
  •  
  •  

Click Here to Leave a Comment Below