Summary
In 2021, 42,050,588 KNC (Kyber Network Crystal) tokens were minted after KIP-8 and managed by KyberDAO as an Ecosystem Growth Fund, for the purpose of increasing KyberSwap’s liquidity and adoption through various activities that cover liquidity mining, marketing, and ecosystem collaborations. KyberDAO also approved the KyberSwap team to exercise discretion for dynamic KNC allocation based on a set of guiding criteria stipulated in KIP-20.
There are approximately 17,790,322 KNC remaining (~$11.5M at $0.65 per KNC) in the fund on May 8, 2023.
Funds used have so far enabled the KyberSwap DEX aggregator and liquidity protocols to be successfully deployed on 13 chains including Ethereum, Polygon, Avalanche, Arbitrum, Optimism, BNB chain, and Fantom, with more in the pipeline. KyberSwap has also generated over $19B in trading volume and over $13M in fees for liquidity providers.
In this KIP, we propose a new allocation structure for the remaining KNC in the fund, allowing it to be repurposed for upcoming growth activities on KyberSwap.
Proposed Allocation % for Remaining KNC Funds
- Trading and Liquidity Growth: ~57.6%
- Marketing Activities: ~17.4%
- Gas refunds: ~4%
- Security Fund: ~13%
- KyberDAO-related operations: ~8%
Motivation
KNC utilization from the ecosystem fund has helped generate over $19B in trading volume and over $13M in trading fees for thousands of liquidity providers. The value of KNC staked on KyberDAO is now worth over $28M.
Other milestones include:
- 50+ DeFi/GameFi Dapp integrations
- 500K+ web visits (Average last 3 months - similarweb)
- 242K+ Twitter followers
- 7,000+ average DAU
- 15,000+ average daily transactions
- KNC supported as a collateral asset on QiDAO and Fringe Finance
- Among the Top 5 24H DEX volume on various chains in recent months
To sustain and further boost this positive momentum, the continued utilization of KNC from the ecosystem growth fund is necessary. After evaluating the team’s resource needs for upcoming activities, we would like to propose a revised usage allocation for the remaining KNC in the fund, as outlined below.
Proposed Allocation for Remaining KNC in the Fund
Total KNC remaining in the fund: 17,790,322 KNC
Note that KNC in our ecosystem growth fund is managed by KyberDAO and is separate from the KyberSwap team’s treasury.
1. For Trading and Liquidity Growth
- KNC amount: 10,242,322 (~57.6%)
The bulk of the remaining KNC will continue to be used for activities related to trading and liquidity growth. This includes liquidity mining incentives, seeding initial pools, bridging KNC into different chains (supporting KNC on cross-chain bridges), and other ad hoc activities related to KyberSwap liquidity protocols. This proposed allocation is 10,242,322 KNC.
In addition, KyberSwap will apply for chain/project foundation grants where applicable. KyberSwap has successfully applied for 250,000 OP tokens in grants from the Optimism Foundation and received 1,158,932 ARB from the Arbitrum Foundation. These funds would be used to complement our KNC liquidity mining activities for the benefit of KyberSwap users.
We have also rebalanced the KNC allocation for specific chains; to increase focus towards Ethereum, Polygon, Arbitrum, Optimism, Avalanche, BNB Chain, and Fantom.
The proposed allocation below is based on a few factors including on-chain volume, liquidity, and Dapp activity, and the amount of incentives already allocated before this phase. Allocation % might change given the dynamic nature of each chain, subject to community feedback.
| Chain | Approximate % Allocation of Trading & Liquidity Growth funds |
|---|---|
| Ethereum | 10% |
| Arbitrum | 16% |
| Optimism | 16% |
| Polygon | 10% |
| BNB | 6.5% |
| Avalanche | 6% |
| Fantom | 3% |
| Future liquidity mining on other chains and ad hoc activities | 32.5% |
2. For Marketing Activities
- KNC amount: 3,100,000 (~17.4%)
Based on our estimations, we propose an allocation of 3,100,000 KNC for various marketing activities, aiming to bring tens of thousands of users to KyberSwap, including:
- Educational content with partners
- Community rewards e.g. for AMAs, top supporters, ambassador/KOL (Key Opinion Leader) programs
- Trading contests and other user adoption campaigns
- Crypto event sponsorships
3. For Trader Gas Refunds on KyberSwap
- KNC amount: 713,000 (~4%)
KyberSwap traders (who contribute volume and fees) pay gas on every transaction. As such, gas spent is a direct measure of trader activity on KyberSwap. Based on our research, partial gas refunds could be an attractive incentive and catalyst for many more traders to use KyberSwap, especially on chains like Ethereum that incur high gas costs. We propose an allocation of 713,000 KNC for partial gas refunds for KyberSwap traders who also stake KNC, mitigating their trading costs, while further aligning incentives between KyberSwap traders and KNC holders.
4. For a new Security Fund
- KNC amount: 2,310,000 (~13%)
As the KyberSwap aggregator and liquidity protocols are optimized and deployed on more chains, along with more DEX integrations, the complexity of our platform will become increasingly higher.
KyberSwap has always been committed towards user security. To further safeguard users, we propose that 2,310,000 KNC be allocated for a new security fund to cover expenses related to smart contract/frontend audits, bug bounties, insurance coverage, and risk monitoring tools.
For example, a vulnerability was recently discovered in the KyberSwap Elastic protocol. Although it has since been mitigated and no funds were impacted, new audits are required for the upgraded version of Elastic and to help pay out the bug bounty.
The remaining KNC in the security fund would act as a backup reserve for user compensation or bug bounties in an unlikely security event. We would also grow this backup reserve over time by utilizing the KNC to earn fees from KyberSwap liquidity pools.
5. For KyberDAO-related operations
- KNC amount: 1,425,000 (~8%)
1,425,000 KNC to be allocated for KyberDAO-related operations, which includes staking and voting activities, payment for Chainlink price oracle feeds, KNC CEX/Dapp listings, and ensuring updated and accurate KyberDAO and KNC information on external data analytics sites. KNC may also be used to reward KyberDAO KNC voters for their active support and contribution to KyberSwap’s development.
Important Considerations
Structured Flexibility: Although we have proposed a high-level allocation and structure for the KNC funds to be used, KyberSwap has to adapt to changing DeFi trends. As such, specific percentages, KNC amounts, and details for each category may change slightly. For example, certain chains or token pairs may become substantially more popular at a later stage, and thus require more resources devoted to them.
Improving KNC Utility: It is imperative that the intrinsic utility and value of KNC continues to be enhanced on top of the current governance and liquidity mining use cases. Upcoming KNC utilities on KyberSwap include staking for partial gas refunds and bonus points for trading campaigns (more details to be shared in the coming weeks). We have also started improving KNC liquidity and pair diversity; prioritizing token pairs and chains voted by the community. These are not set in stone and we welcome more ideas from the community to improve KNC token utility.
Time-based KNC Conversion Caps: KNC would be utilized as direct payment for marketing activities or liquidity pool seeding as much as possible. However, if KNC is required to be converted to stablecoins as payment to external parties, there would be a suitable limit or emission rate imposed by the team for KNC in order to ensure token stability i.e. there will be a maximum amount of KNC that can be converted within a time period (e.g. a week or a month).
Conclusion
From our recent milestones, we have seen how effective and efficient KNC utilization can result in more users, volume, and fees for LPs and KyberDAO voters. We aim to continue maximizing the potential of the remaining KNC in the ecosystem fund to drive adoption for KyberSwap and the KNC token, as we’ve been doing for the past few years. Any major utilization of KNC will be made as transparent as possible.
This proposed revision of the KNC allocation would go a long way in achieving our objectives and we hope the community will continue to support our team’s strategy.