**Kyber Network is one of the most popular decentralized exchanges (DEXes). It allows users to conveniently trade Ethereum and ERC-20 tokens without having to give up the keys to their digital assets or any of their personal data. **
Why Are DEXes Important?
In comparison with more traditional exchanges DEXes have several great advantages. For example, they are non-custodial, so they don’t store and control user funds, thus preventing the risk of hacking attacks that have plagued even the largest and most trusted exchanges. From a user perspective, trading on DEXes is also more private since you don’t have to register and share your personal data.
DEXes can operate thanks to an innovative approach called Automated Market Maker (AMM). It means that DEXes don’t deal with centralized order books to manage the liquidity on the exchange. Instead, AMMs like Kyber host pre-funded liquidity pools, each of which usually relates to a pair of tokens to cover both sides of a trade.
These pools are funded by actual users called liquidity providers, who get incentivized for staking their crypto funds. The incentives to the liquidity providers are paid from the trading fees on the platform.
How Is Kyber Unique?
The Kyber Network uses reserves to offer liquidity. It works like this: when a user places a trade, the network automatically searches for available reserves to find the best price.
There are several types of reserves that enable takers (end users) to swap Ethereum-based tokens within seconds at the best available price:
Fed Price Reserves (FPR) – This reserve is mainly used by professional market makers that want to provide liquidity to Kyber Network for a large number of tokens. The FPRs offer control over pricing strategies and risk exposure, applying safety mechanisms to keep the makers’ funds safe.
The FPR has two main components:
- An on-chain component of smart contracts that store market makers’ tokens, offer conversion rates and swap their tokens with users.
- An off-chain component that hosts the market makers’ trading strategy and calculates and feeds conversion rates as well as rebalancing their reserves of tokens.
Automated Price Reserves (APR) – An APR is used by liquidity providers that want to offer liquidity for dedicated tokens. This reserve has a predefined smart contract-based algorithm that automatically provides rates for the token. While the APR is easier to maintain and has a low deployment cost, it requires higher deposits from liquidity providers. The APR transactions are conducted on the Kyber Network blockchain.
Bridge Reserves – These reserves are responsible for accessing liquidity from other decentralized exchanges, like Uniswap. Basically, this functionality makes Kyber act as a DEX aggregator.
This combination of different reserves aimed at potential liquidity providers that can range from individuals to institutions is what makes Kyber so flexible and unique.
Thanks to Kyber, a wide range of dapps, vendors, and wallets can all benefit from a decentralized infrastructure to access thousands of Ethereum-based tokens in a single place. For example, vendors can let customers pay in whatever token they prefer while receiving payments in their own preferred token.
The Kyber network is fueled by a proprietary token called the Kyber Network Crystal (KNC). Reserve owners pay fees in KNC for the right to manage reserves. The KNC collected as fees are either burned or awarded to integrated dapps as an incentive.
KNC holders can also participate in the KyberDAO, which was launched in July 2020 to govern the ecosystem.
The KNC token increases in price based on the demand on the Kyber DEX, so holding it may generate a decent return in the long-term. However, you have to do your due diligence before getting exposure to any token.
You can see from the chart above how the changing demand for KNC tokens influences its price. With a fairly broad range, and the tendency to trend well, KNC could potentially offer traders a good opportunity at its extremes.
Sign up with SMART VALOR to trade KNC and join the DeFi trend!