Kyber Network (KNC), one decentralized exchange platform and aggregator on Ethereum, announced plans for Kyber 3.0, a complete overhaul of its platform.
With the 3.0 release, Kyber turns into a network of specialized liquidity pools, similar to how different exchanges optimize for different types of assets. For example, Kyber 3.0 allows very high gains for pairs between different wraps of the same asset, similar to Curve. The team says this slips a 100-fold improvement. Other less stable pairs such as Bitcoin (BTC) to Ether (ETH), could benefit from a five to ten fold improvement in capital efficiency.
The optimization is achieved by implementing dynamic market makers or DMMs. This iteration of the original concept allows for more precise adjustments to the main parameters of a liquidity pool. Makers can adjust the relative weights of each asset – similar to Balancer – and set a custom gain to reduce slippage.
Trading fees are also dynamically adjusted: during periods of high volume, fees will increase, and vice versa, they will decrease during periods of lower volume. Such a mechanism helps some of the damage as a result of temporary loss, the phenomenon where the assets of a liquidity provider are constantly rebalanced to sell the winner and buy the loser. Since most of the temporary loss occurs during decisive and probable high volume moves to both sides, a higher rate parameter helps capture some of the benefits.
Another important improvement is gas optimization. Previous iterations of Kyber generally took up a lot more block space and thus were more expensive to run. Speaking with Cointelegraph, a team spokesperson explained that this was due to Kyber using a single access point to interact with its many reserves and routing paths. The new version offers more flexibility, allowing users to get liquidity directly from the source they need, in addition to an overall improvement in gas efficiency. The new architecture is also designed to support future cross-chain and layer-two scaling solutions.
These improvements are just the beginning, the spokesman said. Future plans include more specialized liquidity pools for certain user niches. These include the Professional Liquidity Protocol, a specialized liquidity model for professional market makers, the Bridge Protocol to obtain liquidity from external sources and an emerging derivatives trading platform.
KNC’s token economy will also be overhauled to align with other governance tokens:
“In the upcoming proposal, KyberDAO will have multiple sources of value creation, including the new DMM and all new liquidity protocols. The governance utilization of KNC will also be significantly improved as they now have effective oversight of these various protocols. KyberDAO will also have the opportunity to vote and fund new protocols for the network. “
The details of the change will be discussed and approved by the existing community, the spokesperson clarified. The KNC token also has several value capture mechanisms, with holders entitled to some of the fees generated by the protocol.
The upgrade will be rolling out in two phases called Katana and Kaizen. The first contains the DMM and a proposal for KNC revision and migration. While no specific dates have been selected, the full transition is expected to be completed late in the third quarter of 2021.