Kyber Protocol 3.0 To Introduce Complete Overhaul: Purpose-Driven Liquidity Protocols, Dynamic Market Making And Gas Optimizations

Kyber Protocol – the popular DeFi liquidity provider and aggregator announced it’s plans to introduce the third iteration of the protocol on 21 Jan ‘21. It will allow the protocol to keep up with the latest DeFi trends and adapt to major changes in the Automatic Market Making (AMM) field. The Kyber 3.0 will be a complete overhaul of the existing architecture to enhance modularity and upgradeability. 

We're excited to announce Kyber 3.0 transitioning Kyber from a single protocol to a hub of purpose-driven liquidity protocols catered to various DeFi use cases. This is the biggest change to Kyber's architecture incl. the new DMM & a KNC Migration proposal https://t.co/pgffnUKjsx

Kyber 3.0 will be designed and implemented in two phases of Kaizen and Katana, with the mainnet launch expected around March ‘21 and the whole upgrade expected to be completed by Q3 ‘21. Kyber will transition from a single liquidity protocol connected with reserves to multi liquidity protocols with customized parameters, allowing it to optimize operations and move away from the current “one-size-fits-all” model. This will allow composability and rapid integration of different protocols, according to specific needs.

Kyber DAO And KNC Migration 

The Kyber team will present a proposal to the decentralized governance on-chain to the Kyber DAO for approval. If approved, the entire ecosystem will move to a new contract. This is necessary to implement new major changes and facilitate development. The intention is to enhance Kyber DAO governance power and finding new ways of KNC tokens value accrual. Kyber DAO also needs to prescribe ways to fund DeFi innovation and liquidity infrastructure.  

Kyber 3.0 will bring new areas of involvement for the Kyber DAO, which was before only dealing with a single liquidity protocol, but would need to govern multiple liquidity protocols in the future. These new liquidity protocols will enhance Kyber usage and fees collection for KNC tokens. The same phenomenon would provide new use cases for the KNC token, as it would be required to vote on protocol funding, protocol fees determination and the liquidity mining programs to empower. 

Powerful And Simple Interface

Kyber 3.0 interface will be designed to be simple and powerful, through lessons learned from other AMMs and the general needs of the market. This will allow it to be used by basic users for providing liquidity and executing trades, without being much complex and confusing. It’s highly necessary to increase the usage of the Kyber protocol.  

3/ #DeFi has many use cases and possibilities. No single liquidity protocol can fit the needs of all LPs, takers, and other market participants. This new architecture will allow Kyber to rapidly innovate and integrate new protocols into our network to cater to different needs.

Gas Optimization 

The new upgrade will allow the liquidity reserves to choose the most optimized way for conversion, to save on processing costs. Lately, the Ethereum network has become congested, due to high activity. Hence transactions have become slow and expensive. Before, there was a single network end point and a single fixed reserve interface for all types, this didn’t allow aggregators to use the source that they needed directly and requirement to route trades through ETH pair. 

2/ Kyber 3.0 will remove past limitations to growth (e.g. high gas consumption, partially-permissioned model) to allow Kyber to quickly adapt to DeFi trends and foster innovation, while providing a host of new benefits to liquidity providers, takers, developers, and $KNC holders.

Kyber 3.0 will allow DApps to source liquidity directly from the protocols they need and skip unnecessary steps, allowing potential savings on gas. Further, it won’t be necessary to route all trades through ETH trading pairs. Instead, the trades can be routed through multi-quote pairs, direct token-token and stablecoin-stablecoin pairs, as necessary.

Advanced Trading Features And Derivatives Protocol

As the DeFi trends have changed and decentralized AMMs/aggregators have moved on from providing simple exchanges, Kyber is planning to introduce advanced trading functions beyond market buy/sell, much like centralized exchanges. A derivatives protocol is also under consideration, to allow Kyber to move beyond crypto-assets. 

Dynamic Market Maker (DMM)

In a decentralized finance (DeFi) first, Kyber will launch an automated dynamic market maker (DMM) available for all participants to combat capital inefficiency and impermanent loss. By design, current AMMs use the same parameters for all asset types. Kyber DMM will optimize the parameters dynamically in response to market conditions to level the playground for liquidity providers and traders. This will be done through a programmable pricing curve for allocating / amplifying capital in an efficient manner and introduction of dynamic fees to counter impermanent loss. The pool creators will be able to take advantage of these customization for extracting maximum benefit. 

Future Layer- 2 Migration For Scalability 

It’s within consideration to migrate the Kyber Protocol on a Layer-2 scaling solution also, seeing the Ethereum network congestion amidst rising demand for it’s block-space. This will enable users to trade tokens with low fees and processing times. The determination of the Layer-2 scaling solution to be used is yet to be made. 

About Kyber Protocol

Kyber Network is an on-chain liquidity provider for crypto-assets that lets token holders provide liquidity by maintaining and running reserves. The reserves can be of different kind and exist as a smart-contract. Kyber protocol can instantly exchange/swap tokens by checking the best price across all reserves and executing the conversion transaction, unlike traditional order-book matching.

It is a major component of the Decentralized Finance (DeFi) eco-system. It can be used by businesses, DApps, wallets and protocols to swap tokens or for payment. Kyber native token is KNC, which is a pre-requisite for activity on the network. For instance, its used to pay network fees and as a stake for running reserves on the protocol.