KIP-30: Allocating remaining KNC in the Ecosystem Fund to the KyberSwap team for growth initiatives [APPROVED]

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 adoption through various activities that cover trading, liquidity mining, marketing, and ecosystem collaborations.

After KIP-20 and KIP-23, KyberDAO approved a revised allocation of KNC in the Ecosystem Fund, while giving the KyberSwap team partial discretion on how the KNC is used for growth activities based on a stipulated set of criteria.

Approximately 11,829,402 KNC remain (~$8.28M at $0.7 per KNC) in the fund on 25 December, 2023.

With the funds used so far, KyberSwap DEX aggregator and liquidity protocols achieved considerable progress, generating over $21B in trading volume and over $30M in fees for liquidity providers and KyberDAO.

Unfortunately, on 22 November 2023, 10:54:09 PM UTC, despite smart contract audits from ChainSecurity and Sherlock, the KyberSwap Elastic protocol suffered from a critical exploit where approximately $48.8M worth of assets were siphoned from the liquidity pools.

As a form of goodwill and appreciation to the community for their faith in the product over the years, the KyberSwap team expressed their commitment to help affected users by providing financial aid through the KyberSwap Treasury Grant Program for affected KyberSwap users.

Given the heavy financial burden the KyberSwap team has to bear for the next year, it is proposed that KyberDAO allocate the remaining KNC in the Ecosystem Fund to the team to support upcoming DEX aggregator operations and initiatives.

KyberDAO would discuss and review the details of this proposal and vote YES/NO.

Motivation

  • Enabling USD stablecoins (instead of KNC) to be used as grants for affected users: To help affected users, the KyberSwap team would be distributing USD stablecoins from the team treasury, instead of KNC. This approach is ideal as USD stablecoins would be much more liquid and also reduces the likelihood of a KNC sell-off in the market post distribution. In return for contributing a large amount of USD stablecoins from their treasury, the KyberSwap team is requesting full discretion on how to utilize the remaining KNC in the KyberDAO Ecosystem Fund in order to sustain operations and spur the next stage of growth.
  • Solidarity as one community: Considering the close incentive alignment between both parties, an attack on KyberSwap users is essentially an attack on KyberDAO, and it is imperative that we as one united community do right by our fellow users. Since the KyberSwap team is providing substantial financial aid to affected users, they would appreciate KyberDAO’s support during this challenging period. Allowing the team to fully manage the remaining KNC in the Ecosystem Fund is a clear sign of trust and support, and KyberDAO would be able to strengthen the current relationship; with more KyberSwap users becoming KNC holders through the process. Overall, this would attract and retain users who respect and value a project that fights alongside its community.
  • Enhancing operational speed and flexibility: In the current setup for the Ecosystem Fund (see KIP-23), a specific allocation of KNC is directed toward each individual growth category and any major reallocation of KNC in the fund requires a new KIP (Kyber Improvement Proposal) vote. However, with limited resources after the treasury grant and an urgent need to restore user confidence, KyberSwap’s speed and flexibility in adapting to market changes should now be prioritized. If the team is given the ability to utilize, in a transparent manner, the remaining KNC resources whenever and wherever required without going through multiple KIPs, they would be able to execute on a wide range of strategic growth initiatives for KyberSwap at a much faster pace than previously possible.

Proposed Plan

Remaining KNC in the Ecosystem Fund (25 Dec 2023) to be fully managed by KyberSwap team for growth initiatives

LM+Seeding Marketing Gas Refunds Security Fund DAO Operations Total
KIP-23 allocation (May) 10,242,322 3,100,000 713,000 2,310,000 1,425,000 17,790,322
May-Dec outflows 3,235,905 277,000 50,000 1,908,821 489,194 5,960,920
Remaining 7,006,417 2,823,000 663,000 401,179 935,806 11,829,402

The KyberSwap team proposes that KyberDAO transfers control over 100% of the remaining 11,829,402 KNC in the fund to the team, in order to sustain operations and fund upcoming growth initiatives.

Notes:

  • The KNC reflected above only accounts for the part of the Ecosystem Fund managed by KyberDAO. The KyberSwap team has a separate treasury with a different set of asset holdings.
  • Past KNC outflows from the DAO multisig meant for farming rewards that were transferred back to the DAO multisig for safekeeping after the exploit are excluded from the above calculations.

Ecosystem Fund Use Cases

KyberSwap use cases for the remaining KNC in the Ecosystem Fund would likely include, but are not limited to, the following initiatives:

  • DEX aggregator growth
  • KNC liquidity seeding
  • Marketing and educational activities
  • Security audits, insurance, and monitoring tools
  • Future product initiatives

The community is highly encouraged to share more ideas to the team on the governance forum.

Important Considerations

  • Elastic, Classic, and other liquidity protocol development are temporarily on hold. Instead, KyberSwap will focus on optimizing our DEX aggregator and being the best place to trade in DeFi.
  • As a start, there will be a % of KyberSwap revenue given to KNC holders who stake and vote, and this % may increase in the future, subject to a KIP and KyberDAO vote.
  • KyberDAO holds approximately 1,020,095 ARB and 120,688 OP remaining from grants awarded by the Arbitrum Foundation and Optimism Collective respectively. These ARB and OP are not included as part of the financial aid to affected LPs, and are still managed by KyberDAO.
  • KyberSwap team has a strong and proven track record
    • KyberSwap DEX aggregator and liquidity protocols were successfully deployed on 14+ chains including Ethereum, Polygon, Avalanche, Arbitrum, Optimism, BNB chain, Fantom, Linea, Base, Scroll, Polygon zkEVM, zkSync Era, BitTorrent, Cronos, and Aurora.
    • KyberSwap generated over $21B in trading volume and over $30M in fees for liquidity providers and KyberDAO.
    • Over 60 DeFi projects were convinced to integrate KyberSwap.
    • The KyberSwap community has grown to over 330K members.
    • Over 56M KNC have been staked with over 530 KNC stakers.

Conclusion

Regardless of the challenges ahead, KyberSwap has always strived to be an ethical and respected team that abides by their core values, including transparency, commitment to security, and care for users.

The hope is that KyberDAO would approve this KIP to support the team in uplifting affected users of the Elastic protocol exploit, while granting KyberSwap the speed and flexibility to get back on track on the march towards becoming the best place to trade in DeFi.

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