Additional KNCs as Fuel for Kyber Growth

In KIP-6, the Kyber team proposed a KNC upgrade and migration to make the token more flexible and the Kyber community gave their strong stamp of approval with a large majority of 99.89% voting in favour of the proposal.

While the team makes preparations for the actual KNC migration, we would like to kick-start discussions on how to utilise KNC to drive adoption for the Kyber Dynamic Market Maker (DMM) protocol and other future initiatives.

Creating a Kyber Ecosystem Growth Fund

There were interesting suggestions by community members including representatives from HyperChain Capital and ParaFi Capital regarding the use of the KNC token as a catalyst for growth.

Building upon those ideas, we are proposing that a suitable amount of KNC be generated and managed by the KyberDAO as part of a Kyber Ecosystem Growth Fund for 2021 to drive innovation, bootstrap liquidity, and reward early adopters of new protocols such as the Kyber DMM.

For the purpose of this discussion, we would like to first gather feedback on the possibility of generating 42M KNC to start the fund (roughly 20% of the total KNC supply) to be used for a certain time period e.g. the rest of 2021. Any remaining KNC in the fund at the end of the time period should be burnt.

From this 42M KNC pool, KyberDAO can further allocate, through subsequent proposals, a portion of KNC to be used for liquidity provider incentives for the Kyber DMM. Remaining KNC can be used for other critical growth activities suggested by the community to help augment the main liquidity incentive programs.

The suggested parameters and numbers in this post are subject to change and need to be discussed as a community before they are finalised for an official KIP submission and vote by the KyberDAO. All initiatives will be subject to approval from the KyberDAO. Example flow below:

Motivations

  • Bootstrap liquidity: Additional liquidity incentives are necessary to attract more liquidity providers to the Kyber DMM.
  • Showcase Kyber DMM’s benefits to liquidity providers: If they are incentivized to use the amplified pools, liquidity providers will naturally learn about and enjoy the benefits of high capital efficiency and dynamic fees.
  • Bring more DeFi participants and value into the Kyber ecosystem: More liquidity providers using amplified pools would mean more of them receiving KNC rewards and becoming part of the Kyber ecosystem and community, with the ability to stake KNC and vote on the KyberDAO. By receiving KNC, liquidity providers not only gain a useful asset, but also a stake in DeFi’s liquidity infrastructure.

Discussion: Liquidity Incentive Program Parameters

There are certain important parameters that the Kyber community needs to consider when generating KNC tokens and running a liquidity incentive program.

We would like the community to discuss and give feedback on the suggested parameters below. These initial parameters are meant to help facilitate discussion and are subject to change. Feedback provided will help finalise the details for the eventual KIPs.

Suggested KNC Allocation for Liquidity Incentives

Current KNC Total Supply (17th April) 210,252,943
Ecosystem Fund: minting +% of Total KNC Supply 20%
Ecosystem Fund KNC Pool 42M

The majority of the additional KNCs will be used for liquidity mining program as following.

Liquidity Mining Rewards Pool: % of Ecosystem Fund 90%
Liquidity Mining Rewards Pool (KNC) 37.8M

Eligible Liquidity Pools

Amplified pools (AMP>1) on Kyber DMM provide higher capital efficiency compared to typical liquidity platforms. The Kyber team is proposing that only amplified pools be eligible for incentives. Each pool gets an equal number of KNC. The more liquidity you provide, and for a longer period, the greater share of the KNC reward pool you receive.

We are proposing 5 pools that we feel are the best suited for the initial liquidity incentive program, based on the current trading behaviour and trends in the DeFi space. Ideally, with the added bonus of liquidity incentives, Kyber DMM can be the most capital efficient and attractive venue in DeFi to add liquidity for the selected token pairs.

The 5 suggested pools and AMP factors:

Pair AMP* Reason for incentivizing the pool
USDT-USDC 100 Stablecoins pegged to the US Dollar such as USDT and USDC, are among the most traded and held tokens on Ethereum. Strongly correlated/stable pairs also provide the best showcase of the high capital efficiency possible on Kyber DMM.
USDT-ETH 1.5 Stablecoins pegged to the US Dollar such as USDT and USDC, are among the most traded and held tokens on Ethereum. Paired together with ETH, this would be a popular pool to hold USDT while maintaining exposure to ETH.
USDT-WBTC 1.5 Wrapped Bitcoin (WBTC) is the most widely-used ERC-20 version of Bitcoin and a popular choice for liquidity providers.
WBTC-ETH 2 Wrapped Bitcoin (WBTC) is the most widely-used ERC-20 version of Bitcoin and a popular choice for liquidity providers. Paired together with ETH, this would be a popular pool to maintain exposure to both BTC and ETH.
KNC-ETH 1.9 To enhance KNC liquidity and encourage KNC holders to lock up their tokens for a prolonged period, we propose that liquidity incentives be awarded to an amplified KNC-ETH pool. This also acts as a natural counter against inflationary pressure.

*AMP = Amplification factor. Amplified pools have higher capital efficiency. Higher AMP, higher capital efficiency within a tighter price range.

We welcome the community to suggest other suitable token pairs and AMP factors. Token pairs suggested should be popular pools that can attract substantial liquidity.

KNC Reward Emission

KNC liquidity mining reward distribution will be based on a linear distribution by default. The same reward is released every block. The longer you provide liquidity on the DMM, the more KNC rewards received.

However, we would also like to discuss whether we should allocate a slightly larger KNC reward pool for the first few weeks/months of the liquidity incentive program to reward early adopters. This way, the earliest adopters and liquidity providers on the DMM will receive a higher proportion of the KNC rewards.

How to Add Liquidity and Receive Liquidity Incentives

Upon successfully adding liquidity by depositing the required tokens into the eligible campaign pools, you will receive DMM LP pool tokens representing your pool share. You will then need to stake your DMM LP tokens in designated smart contracts to receive liquidity incentives.

KNC liquidity incentives can be awarded to every liquidity provider that adds liquidity to eligible campaign pools, with the reward amount based on their share of the pool over time.

KNC Governance Safeguards

The implementation of a solid set of governance safeguards to prevent potential abuse and malicious behaviour around token generation and usage is an important aspect of any liquidity incentive program. Outlined below are certain mechanisms to ensure network stability and healthy KNC token circulation. The Kyber community should discuss them and suggest changes if required.

  1. KyberDAO Must Approve any New KNC Token Generation and Fund Allocation

Any minting or allocation of funds needs to be a new proposal approved by the DAO. No single centralized party should be able to control the minting process. For example, minting new KNC for an ecosystem fund and what portion of it gets allocated to liquidity incentives requires a new proposal and vote by the DAO.

  1. Timelock for Claiming Individual Rewards

As a safeguard to ensure network stability and healthy token circulation, there will be a timelock (e.g. 30 days) for all new KNC rewards distributed and claimed. Although the user can claim available KNC rewards anytime, they are automatically locked in the KyberDAO until 30 days AFTER the user initiates a claim. After 30 days, claimed rewards are automatically distributed to the Ethereum address.

KNC rewards can be categorized as:

  • Available Rewards
  • Claimed Rewards
  • Locked Rewards (claimed rewards that have yet to be distributed. Auto-distributed on a rolling 30-day basis) with a countdown timer.

Example: Assuming a liquidity provider is awarded 1,000 KNC in rewards after 7 days and immediately executes a claim on this reward. The 1,000 KNC will be locked in the KyberDAO for 30 days before being automatically distributed to the user’s address. KNC received can be used for KyberDAO staking and voting or added to KNC liquidity pools on Kyber DMM for additional rewards.

  1. KyberDAO to Manage Unused KNC Rewards

It is imperative that new KNC token rewards are only distributed and released from the ecosystem growth fund into the circulating supply if there is a corresponding action taken to benefit and add value to the Kyber ecosystem. For example, KNC can be used as a reward for adding liquidity into an incentivized pool or as a grant to fund new projects that bring value to Kyber.

Any unspent KNC from the ecosystem fund should be locked up with the KyberDAO and not be circulating. If spare KNC tokens are not utilized by the end of the stipulated deadline e.g. within 2021, we should consider burning them as well.

Summary

We believe that the proposed Kyber Ecosystem Growth Fund and liquidity incentive program will greatly boost liquidity and adoption of Kyber Network, starting with the Kyber DMM protocol. As always, all important decisions pertaining to new token generation/burning, new protocols, and growth initiatives, will be decided as one Kyber community in a transparent manner.

We encourage and welcome the community to discuss how to use the KNC token as a catalyst for growth.

4 Likes

We mint tokens for DMM, DMM will be used in other kyberswap competitors dapps, but DMM does not charge a fee to those other dapps for KyberDAO.

Why this altruism (the moral of self-sacrifice) of printing KNC and providing our technology advantage of DMM to other dapps AND the KNC inflation SUBSIDY for liquidity providers to those dapps as well, if we are not going to charge them a DMM fee that should go to KyberDAO?

The competitors will no longer have to use thier token inflation to subsidy thier LP’s. Now they will use instead OUR inflation subsidy through DMM! A technology that we are also providing to them for free. Awesome for them!

WE are going to subsidize the DMM Liquidity pools with KNC, the same liquidity pools that our competitors will EXTRACT liquidity from without providing a subsidy. Only we are going to provide subsidies? Why the altruism, can you answer? Or im wrong? please answer.

2 Likes

The intention is to really fuel the growth of DMM, which will eventually benefit the Kyber ecosystem. While there is no immediate plan to extract the fee from DMM to contribute back to the Kyber DAO yet, if you think its something necessary please raise it in a separate topic. We as a community should actively discuss whats the best for Kyber.

Regardless, I personally think the additional KNCs to support the liquidity mining program for DMM is utterly important, and I really hope the community can approve to make it happen.

1 Like

I’m not talking about fees. I’m talking about subsidies, inflation based subsidies, if DMM is going to be used as well by our competitors, why we have to be the ones to provide the subsidy? While they enjoy the liquidity source without having to sacrifice their own token holders with inflation subsidies.

Is not fair loiluu, this is Altruism, why are they not required to subsidize DMM liquidity pools with inflation based subsidies as well? Why we have to be the only ones who finance it?

The liquidity providers should receive a basket of different tokens from all the different protocols that are using DMM as their liquidity source, not only KNC.

We are basically subsidizing the same liquidity pools from which other protocols will extract the liquidity from, for them, with the sacrifice of our own token holders. The fair thing is that all the protocols contribute financing the subsidies of LP’s with their tokens too, not only us.

I understand that we don’t charge fees for now for bootstrapping purposes, I understand that you want to subsidize liquidity providers with our tokens, but I’m completely against subsidizing if other competitors will not provide subsidies as well for DMM LP’s, but they do will enjoy the liquidity source. It is completely unfair, and is altruistic.

So we will be sacrificing ourselves in two fronts:

  1. Not charging the fee that should go to kyberDAO, for bootstrapping purposes (I understand this)

  2. By providing subsidies while our competitors enjoy the liquidity source without providing inflation subsidies

Why this need of self-sacrifice for others benefit? Businesses are not run by altruistic self-destructive actions, we don’t help our competitors without anything in return. We can’t be the ones who sacrifice ourselves by financing the subsidies while our competitors enjoy the DMM liquidity source without providing subsidies!

1 Like

These pools which will be incentivized with KNC subsidies, others swap protocols will be able to extract liquidity from these same pools yes or not? Please respond?

The way i see it, incentives for LP are necessary. DMM is an innovation in the DeFi field that needs to be driven by more incentives. As the holder, I fully support this proposal, which will bring more fresh energy to Kyber in the long run.

20% of the total supply is reasonable, waiting for more detailed rules to be introduced!

2 Likes

Everything in the proposal looks good. Few improvements I’d suggest here are-

  1. Add more pairs for liquidity mining

  2. Maybe instead of 90% of 42M, make it 70%, put 20% for ecosystem grants and development and then the balance 10% as to be seen.

2 Likes

But why we have to be the ones who print tokens to give it as incentives and not the other protocols that will also extract liquidity from those pools? Why we have to be the only ones who sacrifice the token holders through inflation? This is altruism no? Self-sacrifice.

Nobody dare to respond me that? @loiluu or @ShaneKyber ?

If other protocols want to extract liquidity from DMM, then they also need to provide fees + subsidies. Not only fees.

If not, then let’s make it in a way, that they only can extract liquidity proportional to the amount of subsidies and fees they provide. We can’t be the only ones who provide subsidies for all eternity.

1 Like

Care to answer @tezoswakenbake ? He is asking legit questions that also concerns me!

I agree with this, the different protocols should be able to extract liquidity from DMM whenever they want and as much as they want but only if they also contributed with equal monetary emission and fees as incentives to liquidity providers.

1 Like

First of all kudos to the kyber team for being transparent and getting feedback from the community before a vote as always!

My quick thoughts is that this proposal looks ok and i support it. I like that improving dmm liquidity is the big focus here. That is the only way I see how kyber can leapfrog the competition. After launch dmm hasn’t been picking up enough supply since other dex platforms have liquidity mining which give them an unfair advantage that is unrelated to the tech itself. Without liquidity mining incentive news it’s next to impossible to compete.

just looking at it adding 20% more KNC seems quite a lot! but it’s good that most knc tokens will be locked up when they are not being used. Excellent idea also to have everything unused burnt in the end. I feel early lps within the first couple of weeks should get more rewards for taking on greater risks. The market seems to be ok with the proposal. this is a great time, we should launch a liquidity mining asap!

I have qns below that I hope the kyber team can provide more info on. i think most people support this proposal but if we have these answers thats more reassuring.

  1. What is the standard inflation compared to other coins? Aave or snx for example?
  2. What is the expected yield for being an lp?
  3. Will the knc pool yield outmatch dao staking yield by a great deal?
  4. Can knc lps also vote for dao proposals then? Why prevent knc lps from voting when they’re an important part of the ecosystem? And on the other side penalize knc stakers on the dao for not providing liquidity? can’t we do both at the same time?
  5. Will there be rewards for those who add liquidity now?
  6. dmm should charge fees to give to the dao later. What is the the timeframe and tvl cutoff for the dmm to start charging fees to reward the dao and knc holders? For example 10% of uniswap tvl good enough since dmm is very capital efficient?
2 Likes

Now we are going to be the ones who finance the LP’s with our inflation at the service of our competitors, now they no longer will need to print tokens, we are going to do it for them. We print, while they enjoy DMM liquidity.

it is not at the service of competitors. these competitors are also providing their tokens to their liquidity providers at their own expense. anyone is free to go there to enjoy their liquidity instead of coming to the dmm. it is a battle and competitors have the right weapons (liquidity incentives) but the dmm doesn’t. so liquidity mining is a must.

Liquidity mining is a must, I’m not denying that. I’m not saying, that we must not subsidize DMM Liquidity pools, if everyone does it, we should do it too.

What I’m saying is that we should charge fees (that goes to KyberDAO) to protocols like 1inch that want to extract liquidity from the pools that we are subsidizing, to compensate what we are losing through monetary emission, just enough to break even. Not to generate profit, but also not to generate loses. To kick-start or drive adoption.

The team says KyberDAO will start subsidizing with monetary emission the DMM pools, and the KyberDAO will have NO CONTROL at the beginning of any fee that could compensate what we are losing through monetary emission, this is crazy, we will be at continuous loss for an indefinite amount of time… I understand, they want to drive adoption, not by profiting, but please, neither by losing, just by breaking even. That’s all I’m asking. The break even fee should start from the very beginning. What they are doing is immoral, they are asking KNC token holders to accept loss at the start for an indefinite amount of time, not break even for some time.

They either charge a break even fee to 1inch for extracting the Kyber subsidized liquidity from DMM OR they tell 1inch to provide the same amount of subsidies as well as us.

Adoption can be driven with a break even status, not at a loss.

Kyber Network is a liquidity protocol,
For the protocol to achieve success I strongly suggest that kyber DAO should be run by KNC/ETH and KNC/USDT Pool (liquidity providers).

Not just KNC holders.

We are not Prove of Stake protocol

Majority of Rewards should go to liquidity providers, Market makers and takers…

No more rewards to Knc holders…

Knc bag holders should provide liquidity in Knc/Eth and Knc/Usdt pool to receive rewards…

Kyber DAO should be restructure to allow only knc pool tokens be able to vote and run the DAO…

Other protocol should extract liquidity from Kyber Dmm pool as long as they pay trading and swapping fees to kyber DMM LPs

You are crazy. Part of the rewards should go to KNC investors, not to force KNC investors to be liquidity providers and expose them to risks like impermanent loss just to get the rewards.

Other protocol should extract liquidity from Kyber Dmm pool as long as they pay trading and swapping fees to kyber DMM LPs

And as long as they pay to us what KNC token holders are losing with monetary emission, at least to break even.

Kyber Network is a liquidity protocol…

Liquidity providers should Run the kyber Dao with there liquidity pool tokens…

There should be no room for bags holders of Knc who do nothing but wait for hard working LPs to generate fees to be shared with lazy knc holders…

Mind you that liquidity providers are the biggest investors here

Liquidity providers are NOT investors, WE are, we invested in the ICO, not them. Stop trying to spread the idea of expropriate us from our rewards, you are a communist.

On the other hand, some of us do not agree with altruist practices of financing/subsidizing the liquidity pools from which our competitor will extract liquidity from with KNC token inflation printing.

Not even with the excuse of “bootstrapping adoption”, that’s another expropriation to token holders done via inflation, there should be an extra compensation fee on top on DMM, AT LEAST, for not losing, to break even with what we are going to lose with all this inflation dilution. And this fee should be charged from the very beginning managed by KyberDAO, if not managed by KyberDAO at least managed by the team.

Adoption can be bootstrapped from a break even position from which token holders are not profiting, neither are losing for an indefinite amount of time, like this altruistic proposal is suggesting.

1 Like

Time passes, Every project in crypto space started with raising funds through ICO…

You can’t kill a project because you are investors from ICO. Time to move on.

Kyber Network should make LPs the front Runner of the Network because the success of Kyber depends on LPs not KNC Holders.