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What is the Kyber Network (KNC) and How Does it Work?

By Brian Nibley · October 26, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What is the Kyber Network (KNC) and How Does it Work?

What is Kyber Network?

Kyber Network is a decentralized finance (DeFi) project that gives users the ability to exchange one cryptocurrency for another without having to use a centralized exchange. Merchants can also use the Kyber Network to accept different cryptocurrencies and still receive payment in the crypto asset of their choosing.

The average crypto project often has its own native crypto token. This token is often required to use the protocol (for example, Ether is used to run decentralized applications on Ethereum).

Users who don’t have the native token of a network usually have to go to an exchange and buy some before they can participate. The goal of Kyber is to eliminate the need for this step by making it easier for people to switch between tokens.

Recommended: What is DeFi? A Guide to Decentralized Finance

How Does the Kyber Network Work?

The Kyber Network provides a way for people to exchange ETH and other ERC-20 tokens in an instant, decentralized way, by using liquidity pools — pools of different cryptocurrencies that any project has the ability to tap into. There’s no need for registration or account creation as there is with centralized exchanges.

For example, with the Kyber Network a vendor can let customers pay in the cryptocurrency of their choice and still receive payment in the vendor’s own preferred crypto.

Decentralized applications (dApps) are another potential use case. The way things work right now, you can’t use a dApp if you don’t hold the native token of its network. With Kyber, anyone can take the tokens they currently have, swap them for the token of the dApp they want to use, and be on their way.

The token swaps happen on the Ethereum blockchain, so transactions are transparent. That said, one of Kyber’s goals is to work with other blockchains. To this end, the developers have focused on creating software that will allow anyone to incorporate the Kyber tech onto any other smart contract-powered blockchain.

A variety of dApps, wallets, and vendors have used this to their advantage so far. Other decentralized exchanges, like the Uniswap DEX, have also partnered to share liquidity between their protocols.

Recommended: What is a Decentralized Exchange (DEX)?

Kyber Network Technical Details

There are a few key network components that allow Kyber to create a service for people to exchange crypto.

•   Smart contracts: These provide the infrastructure allowing for one token to be swapped for another.

•   Reserves: These provide the needed liquidity for the swaps to take place on the network.

•   Takers: They execute the trades and take some liquidity out of the network.

To provide liquidity, the Kyber Network uses a system of reserves. When a user places a trade, the network searches for reserves to select the best possible rate that takers are currently offering.

Takers can efficiently convert tokens from three main types of reserves.

•   Bridge Reserves: They work to access additional liquidity through other decentralized exchanges.

•  Automated Price Reserves (APR): They rely on smart contracts to determine rates for tokens. APR transactions occur directly on the Kyber Network blockchain. Smart contracts are utilized to keep tokens secure and transfer them between users.

•   Price Feed Reserves (PFR): These act as a decentralized form of market makers. These price fees calculate exchange rates between tokens and record the data in smart contracts. Takers then get referred to reserves via the smart contract so they can calculate exchange rates for tokens.

Kyber Network reserves were once required to hold KNC, an Ethereum token used for fee payment on the network. (Random fun fact: KNC stands for Kyber Network Crystals, and was named after the crystals that power light sabers in the Star Wars movies). But a software upgrade changed this, making things smoother for reserves. Kyber now collects fees in ETH, with some of those tokens going into reserves.

Who Owns the Kyber Network?

The Kyber Network was founded in 2017 by Yaron Velner, Victor Tran, and Loi Luu. The team behind Kyber raised 200,000 ETH (worth about $50 million at the time) in an initial coin offering (ICO) for its KNC crypto.

The software was launched on Ethereum in February of 2018.

How Much Will the Kyber Network Be Worth?

The value of the Kyber Network depends on the amount of people using the network and the degree to which people speculate on KNC in cryptocurrency markets.

The Kyber Network had already seen over $1 billion in volume and over 1 million transactions as of July 2020.

As with any altcoin, the value of the KNC cryptocurrency could see a steady rise, or it could fall to zero. It’s impossible to predict exactly what will happen with the value of KNC or the Kyber Network.

Is the Kyber Network a Good Investment?

Kyber Network Crystals (KNC) can be considered a speculative investment at best. Unless someone is actively using the Kyber Network (or staking KNC), there’s no other reason to hold KNC beyond hoping for speculative gains.

For those seeking quick profits in the crypto markets, KNC may be as good as any other altcoin. Users can stake KNC, receiving rewards in the form of ETH. The amount gained in the form of staking rewards will be dependent on the value of KNC and ETH and the current APY rate, all of which are in constant flux.

Recommended: What is Staking Crypto?

Stakers also get to vote on network changes such as fee models and rates. This has been the case since a July 2020 upgrade to the network called Katalyst, which introduced the KyberDAO, a decentralized autonomous organization (DAO). This DAO gives KNC holders the ability to participate in governance of the Kyber Network, meaning they have a say in future changes to the network.

All that said, many altcoins have gone to zero, and the possibility of that happening with KNC can’t be ruled out.

The Takeaway

Kyber is a DeFi tool that provides crypto traders the ability to quickly swap between different tokens without having to use a centralized exchange. Holders of the KNC cryptocurrency can stake their tokens for a regular reward and vote on future changes to the network.

Investors looking to trade crypto can do it with ease at SoFi Invest® online brokerage. Here, you can trade dozens of cryptocurrencies including Bitcoin, Litecoin, Cardano, Dogecoin, Solana, Enjin Coin, and Ethereum.

Find out how to get started with SoFi Invest.

Photo credit: iStock/dusanpetkovic

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