KyberDAO recently underwent a migration as part of the Kyber 3.0 upgrade, and we now need to come together as a community to discuss and determine a new fee liquidation and reward distribution system for voters.
With Kyber 3.0, any new protocol (e.g. Kyber DMM) can be added to Kyber Network’s liquidity hub once it is proposed and approved by the KyberDAO community via a voting campaign. Each protocol will subsequently send a portion of its collected fees from trading activities to the KyberDAO’s Treasury smart contract, in accordance with what was approved by KyberDAO. For example, based on KIP-8, 10% of Kyber DMM’s protocol fees will be sent to KyberDAO’s Treasury.
These fees are given to KyberDAO as compensation for providing ecosystem support for the new protocol, as well as additional incentives to bootstrap liquidity and growth. KyberDAO will distribute the fees as rewards to KNC holders who stake and vote on Kyber Improvement Proposals (KIP). Rewards are proportional to the amount of KNC staked.
As more popular protocols are created and added to Kyber’s liquidity hub, more value will flow to KyberDAO.
Previously, all protocol fees were collected in ETH. However, with Kyber’s new liquidity hub architecture, some advanced protocols such as Kyber DMM need to collect fees in different types of tokens (e.g. different liquidity provider tokens) to achieve the highest efficiency.
Challenge: As a result, it is possible for the KyberDAO Treasury contract to end up holding multiple types of ‘Fee’ tokens. This adds a layer of complexity and inconvenience for voters if they were to receive 100+ different tokens for their voting rewards.
Thus, the Kyber team is proposing this solution: All Fee tokens will go through an automated liquidation process to be converted into one standard ‘Reward’ token type (e.g. KNC or ETH) before being distributed to voters.
Receiving Rewards in KNC
Based on the team’s past research and discussions with other top DeFi projects, Kyber’s native KNC token is currently being proposed as the reward token. If this is approved, fee tokens collected by KyberDAO will be automatically converted to KNC reward tokens for voters.
Proposed Fee System:
- By receiving rewards in KNC, voters can easily stake them on KyberDAO again for more voting power and rewards, without the hassle of making another swap.
- Kyber DMM liquidity mining programs such as Rainmaker will have a KNC pool. KNC rewards received can be used to add liquidity to the pool to generate even more rewards.
- KNC rewards can be used as collateral for loans or margin trading on lending and asset management platforms such as Aave, Fulcrum, and Maker.
- Automatically converting fees to KNC results in constant buying pressure and healthy market activity for KNC, while ensuring constant trading activity through Kyber Network (more fees for liquidity providers in KNC pools).
- KNC plays a critical role in governing Kyber Network and captures value created by new innovations and protocols in its liquidity hub. Distributing voting rewards in KNC will encourage more overall usage of the token.
KNC is one of the most widely-held tokens with excellent liquidity. In the event that users need to swap KNC for ETH or another token, they can easily do so on the many exchanges where KNC is supported, including Kyber DMM.
Given the various ways to utilize KNC as shown above, we expect most KNC rewards to be effectively used and locked by DeFi participants.
1. Collecting Fees: Fee Tokens are collected from all the protocols in Kyber’s liquidity hub and kept in the KyberDAO’s Treasury smart contract.
2. Liquidation: A Liquidation Strategy will take Fee Tokens from KyberDAO’s Treasury and convert them to Reward Tokens which will be kept in the KyberDAO’s Reward smart contract. It is proposed that KNC is used as the Reward Token.
3. Distributing Rewards: Once Fee tokens have been converted into KNC rewards, they are distributed to voters.
The Kyber team would like to kick-start discussion around this new KyberDAO fee liquidation system prior to drafting the KIP-10 voting campaign. In particular, we would like the community to share their thoughts on which token fees should be converted to (e.g. KNC or ETH) before being distributed to voters as reward tokens.
Note: Currently, fees collected from past epochs are being accumulated. They will be distributed as rewards to voters after the new KyberDAO fee system has been decided by the community.