Discuss: New KyberDAO Fee Liquidation System

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.

Fee Tokens

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.

Reward Tokens

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.

Proposed Flow

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.

Community Discussion: Reward Token for 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.

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I am in favor of the new KyberDAO Fee System and believe it will have a positive impact on KNC.

I am in favor of the proposal for converting protocol fees to KNC as reward distribution to KNC stakers. Key points worth re-emphasizing are:

1- converting fee tokens to KNC provides continuous buying demand of KNC by the KyberDAO and thus price support for the KNC token

2- by purchasing KNC through DMM exchange, this provides self-sustaining market activity for the exchange and specifically for KNC pools in a virtuous cycle.

For supporters and believers in the growth of the Kyber Network ecosystem, these benefits outweigh the perceived store of value or liquidity advantage of converting to and paying out rewards in ETH, which has as mentioned by several KyberDAO members in recent months. There are other protocols and ecosystems where ETH accrual is prioritized. For KNC investors interested in Kyber Network’s continued evolution and growth, converting to KNC provides the better path forward.

Staking Rewards w/o Voting Requirement
A major point that I’d like to propose in addition to the listed proposal, which has been mentioned numerous times in earlier KIP discussions, is that KyberDAO KNC stakers should receive governance/protocol rewards without the requirement to vote. By holding the token and not selling, these KNC stakers are also providing an element of support in the KyberNetwork ecosystem by staking and reducing supply of the open market. Voting can be an entirely voluntary action if a KNC holder is interested. For many small scale KNC holders, it is cost prohibitive to vote on governance proposals. This voluntary voting path could significantly expand the scope of stakers by welcoming smaller scale KNC holders to engage in governance and participate in protocol rewards.

As this may not be appealing to larger KNC token holders, a hybrid compromise option would be to distribute a percentage, say 5% to all stakers, and then the additional 5% allocation to those stakers who also vote. This provides a two tier incentive for governance participation.

It would be great to see this Upgraded Staking System put forth for community discussion in a separate proposal.

This seems fine to me exept that I would’t choose KNC as the rewards token as long as KNCv2 is mainly traded on CEX. Till more volume moves to defi and besides Kyber DMM also substantial amounts are available at uniswap, balancer and others I would prefer either ETH or DAI.

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I wholly agree with this new system of collecting fees and rewarding voters. But I suggest we use a different token and not KNC…maybe ETH

I agree with the proposal as well. The market activity and KNC circulation through redeeming into KNC is positive. Excited to see this next phase of growth.

Hey! I understand the theoretical approach of rewarding users KNC, but i don’t like that it would make it a yield bearing asset, I would much rather like to see a less conventional approach,
how about an AMP1 DMM LP holding KNC/ETH, that way users have more control about their rewards and all benefits described would still be in place. Or just keep it as eth, i think a bit more control about rewards is a good thing.

rewarding in KNC makes sense to me, anything that increases the use and circulation of KNC is positive.

why not keep a portion of all fees in kyber dao as a floating reserve, this gives some space to spend reserves, rather than inflation for new developments.

Definitely for the new fee and distribution system. I am interested in having polygon KNC being directly staked to the DAO. Currently, those of in the polygon side of the rainmaker pools will have to move polygonKNC to EthKNC to stake in the DAO. This is overall cost prohibitive due to fees and is likely the exact same reason more people aren’t voting on governance.

Therefore, my additional proposal would be to allow DAO staking on polygon using polygon KNC. This may also incentivize EthKNC holders to vote in governance by exchanging EthKNC to polygon KNC.

Ditto I like it alot

I really like the idea. Maybe not necessary with DMM?

I feel that this proposal has merit. Based on the new protocols I would definitely much prefer to receive my share of the fees in 1 standard token type rather than multiple. We don’t even know what these tokens would be so it’s quite likely we would have to swap tokens every time we claim rewards. I’d rather not go through that hassle.

As to whether or not it should be in ETH or KNC………hmmm.

Either token would have its pros and cons. If the value of the rewards remain the same, then there wouldn’t be much difference between the two. ETH may be more convenient cos it can be used for gas fees and it’s recognized by all platforms on Ethereum. Don’t forget that the price of ETH is still volatile so I wouldn’t consider it “safer”.

It seems logical to have the rewards from a Kyber protocol be distributed in the Kyber native token. The motivations for doing so listed in the proposal (Eg: Easy to stake, versatility as added liquidity or collateral, etc) are sound and will generate constant KNC activity, which in turn will raise the awareness and profile of Kyber. Most major exchanges have already completed the KNC migration so we can also utilize the tokens there. I personally feel that Kyber is undervalued in the market so I think this will be great for Kyber’s growth.

Basically if you care about Kyber’s growth and potential, vote KNC.
If you care more about personal gain, vote ETH.

So I’d say KNC for me pls.

If it’s only going to be 1 token, I’m down with it being KNC. If it can be an LP instead, I say we make it KNC-ETH LP once we also have the ability to stake KNCETHLP for governance like Shane discussed in the call yesterday.

I think having rewards in KNC would be a great idea. It ensures a healthy KNC circulation and saves the trouble of having to convert ETH to KNC for staking.