Cryptocurrencies have exploded onto the global technology and financial scene in 2017. As of August, 2017, there are over 800 different cryptocurrencies with a total market capitalization of over $80 Billion according to CoinMarketCap. However, with this growth has come incredible multi-million dollar hacks on cryptocurrency exchanges like Bitfinex, Bithumb, Mt. Gox, and many others.
One of the main reasons behind this is that the current offerings for exchanging currencies in this vast and expanding ecosystem all lie with centralized exchanges, meaning all of the data and information exists in single location. But unlike a online bank, these relatively new exchanges don’t have billions of dollars to spend on security each year. And in addition to security concerns, centralized exchanges are also prone to price manipulation, DDoS attacks, internal fraud, and high costs, all of which leave consumers with a general feeling of distrust towards the entire industry of cryptocurrency exchanges.
KyberNetwork is a new decentralized exchange and payment service, which aims to bring a more secure approach to crypto token exchanges. In short, KyberNetwork’s technology will allow users to exchange or receive payments from any cryptocurrency through a completely decentralized network. No tokens or currencies are stored in a centralized location.
The primary goal of KyberNetwork is to bring a new trustless, decentralized platform which allows for instant trading and conversions between any crypto-assets. Which will prove to be a much-needed capability, since the ecosystem of crypto-assets is becoming much more diverse and the sheer number of tradable tokens and currencies are growing exponentially.
Unified Tokens and Instantaneous Transactions
Perhaps the biggest challenge facing cryptocurrency and crypto token exchange is the fragmentation of the token ecosystem itself.
KyberNetwork’s new smart contract interface allows existing wallets, which in the past only accepted certain specific tokens (e.g. one that only accepts REP, GNT, etc. but not others), to now receive any existing or future token (e.g. PAY and CVC). KyberNetwork also accomplishes that without having to modify the token contract code, thus enabling smart contracts and recipients to access a wider class of users and receive contributions and payments from any token that the platform supports. That all happens behind the scenes, without any end user interaction required.
The platform is also block-instantaneous, which means that the latency between when an order is made and when it is filled is significantly reduced. Or more simply put, as soon as the transaction that initiates an order is accepted into a block, the trade is confirmed. That process gives users greater trading security by eliminating the window of vulnerability often presented during the acceptance process of a transaction. Security and speed is further enhanced by the fact that the KyberNetwork operator does not hold users’ tokens and orders are enforced by smart contracts, so these tokens are secured from theft losses.
Bringing Liquidity into the Crypto Token Mix
Crypto tokens are suffering from highly volatile exchange rates, fueled by an irregular and unpredictable supply and demand. That makes it more difficult for users to trade or liquidate tokens and also prevents token holders to hedge their positions to reduce the risk of adverse price movements in the future.
KyberNetwork is introducing a new system for any user to trade any token instantly and completely securely with guaranteed liquidity. Their approach is through the utilization of reserve managers, who are incentivized by monetizing their otherwise idle assets. By serving trade requests from users, reserves earn profit from the spread determined by reserve managers. As the network gains more traffic through collaborations with wallet providers and various other token projects, reserve managers will benefit directly from the trading volume due to network effects within KyberNetwork.
In addition, KyberNetwork’s support for option contracts allows users to hedge against adverse price movement for a fee known as a premium. A “call option” gives the owner of the contract the right to purchase a crypto-asset at an agreed price, while a “put option” allows the owner of the contract to sell a crypto-asset at an agreed price. The premium is calculated using the implied volatility of the underlying crypto-asset.
With a forward contract, involved parties agree to execute a trade at a later date at a price specified in the present. Forward contracts will prove to be useful in situations where token holders need a specified number of tokens at a later date. The idea here is to prevent pricing volatility from impacting token values, allowing token holders to purchase a forward contract, which can negate the risk of token price fluctuations.
KyberNetwork will soon be releasing on testnet, with a roadmap that plans for a ‘mainnet’ launch in Q1 of 2018.