KNC Token Migration & Upgrade Discussion

KyberSwap Feature Requests & Research KNC & KyberDAO
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Hey all! Great overview post @loiluu! Long response incoming:

While I’m in support of the migration/upgrade, I figured I’d lay out some of the reasons why as well as address (some) of the concerns I saw from some other community members so far.

As @cristian asked about tokens not being migrated and what will happen them: it seems the migration will be able to stay open so we can migrate right away or any of us who forget or don’t realize right away could come back in 3, 5, or however many months to migrate once we realize. So there I don’t see any worry there.

Another concern is about the ability to create (and remove) token supply, and probably the biggest concern that I see. I think one thought is that inflation for KNC could be bad from an investor’s perspective, however, the difference with the KyberDAO being in control is that the inflation isn’t just being minted to the Kyber team to be spent on whatever they want which I would be against of course. This is proposed minting by the DAO for matters that will benefit the Kyber ecosystem as a whole which we all are apart of.

This is also similar to Aave’s migration which has been a success, in that the token supply was increased specifically to further support the protocol and incentivize participation - plus with Kyber working closely with Aave for the migration I think it’s in good hands all around personally.

As for the support it will provide the protocol, it’s not measurable of course, but there are many examples where using additional funding to increase network adoption can lead to far more benefit to the network/protocol as a whole with little (or in these cases zero) downside by the increased supply (Aave again being a good example).

All of us voting in KyberDAO are holders of KNC as well, so to vote on something that would greatly inflate KNC with little or negative benefit would also be silly and not a good decision regardless. The end-goal has always been to be fully DAO governed and this is an important step. We need to be able to trust KyberDAO (which is all of us and many more) to govern the protocol wisely, including any token inflation.

Another point to add overall I think is that because KNC has been around for over 3 years now, and because crypto is easily lost and goes missing for various reasons, the amount of KNC to migrate over will likely be less than what already is circulating.

And as you (@tezoswakenbake) mentioned about how those getting these tokens will ‘dump on us’ or stake in KNC leading to lower ETH rewards for ICO holders, if the DAO were to use minted tokens for liquidity rewards, those tokens are bringing liquidity to the protocol as a whole which will benefit Kyber hugely in the long run, and in a sense those being incentivized with additional tokens for providing liquidity (as suggested in the example) now have a financial interest in Kyber’s success (as an LP). Plus, I don’t think we can just assume everyone will want to dump their KNC - we need to think about the future for the platform as a whole.

As for the second point about leading to lower ETH rewards for ICO holders: the true goal for a decentralized network is not to prevent people from participating in a DAO so you get more rewards. It’s vital for the network as a whole to get as many people from all different walks of life to participate in the DAO, this is what keeps it decentralized. ICO investors should not receive any special reward or more than any other KNC holder for any reason. Anyone staking is participating in Kyber’s success.

If inflation was minted by the team or any centralized individual without transparency, and the funds weren’t guaranteed to benefit the protocol, I would be 100% against this of course. But that’s not that case.

+ Support from me!

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Regarding inflation vs deflation, these are completely valid concerns but if we look at real life examples of projects within DeFi and what has happened when they have transitioned from a deflationary to an inflationary model, we see that if done correctly this greatly increases the value of the token. Look at examples from Aave and Synthetix. Aave is worth $6Bn after moving from a deflationary to an inflationary model and we will be adapting their governance framework.

This means that large amounts of KNC won’t be minted ‘just to dump on holders’. After a rigorous governance process a limited amount of KNC will be distributed to initiatives that can make the case that the value they can provide to the Kyber ecosystem is more than the value of the KNC being minted to them.

Regarding your comment about not having money from the ICO, this couldn’t be further from the truth and I hope discussions in this forum can be based on factual, sincere, and objective reasoning.

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I understand the need to fund future development to add value; but introducing dilution goes against what investors are looking for - token scarcity. One good option would be to vote on how much of the fees get allocated (awarded) for project development. That’s like reinvesting earnings back into the DAO. I am OK with using all the fees generated towards good projects at this early stage because it could lead to much bigger dividends or token burns later on.

For example, an itemized project budget could be up for vote; then token holders can decide on the continued reinvestment of fees towards the project based on progress. I like how Kyber is able to reward voters with funds generated from fees, but it is too early for that. That’s like a startup offering shareholders dividends as soon as they make a tiny profit - bad for growth in the beginning but good later on.

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"but introducing dilution goes against what investors are looking for - token scarcity. " - I assumed this early on before Aave’s migration as well but there is a very good argument against burning tokens.

Not all of these points apply, but this is a good post IMO for why there are definitely other models than burning that can be more beneficial to investors and the ecosystem:

Burning doesn’t create new value, it only redistributes current value among those already holding. Instead the funds being burnt could be put towards overall network adoption which could lead to more success in the long run.

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I agree, what we can do right now is to vote on BRRs to reduce burning to 0 :slight_smile:

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Let get this straight ahead, inflation wouldn’t dilute our earnings if distributed evenly to ALL token holders, but this is not the case, certain individuals will get those tokens and will effectively dilute earning in the form of price or in the form of ETH dividends, we can’t escape from the reality of the fact that there will be dilution after this controversial update .

I’m TOTALLY OKEY to use ETH fees to fund development instead OR to buy KNC to pay LP’s to “integrate them” into the ecosystem.

Plus, I don’t think we can just assume everyone will want to dump their KNC

No, we can safely assume that if they are not dumping they will be staking ETH rewards, few will be doing nothing.

Burning does not create value

ETH is literally used to buy KNC in the market and burn it to make it scarce, is basically a transfer of value from ETH to KNC. Is the same kind of value that it would give if ETH was used to buy KNC in the market and instead of burning, distributed staked based to all token holders, just not as much as gas efficient ,or if it was static model it would be also FINE, burning is just literally taking KNC out of circulation. Economically speaking, paying in ETH instead of burning is more desirable, because ETH is liquid and KNC remains ILIQUID after burning it. This economic benefit of ETH being liquid is HARD to ignore.

In fact, i’m against burning it for the fact that i explained above, that it is just much better to pay 100% liquid ETH to KNC holders to increase the underlying asset value. If KNC was a static model, it would still be scarce, there would only be a limited amount of KNC in the world and they all be paying full liquid ETH rewards.

ETH is THE ONLY THING that will ACTUALLY CREATE value to KNC token holders long term. An asset that pays dividends in a higher liquidity asset, like CASH, it would directly create value to the underlying asset, this is an interconnected effect.

As for the liquidity providers being paid with KNC from inflation to “integrate them” into the ecosystem because is “beneficial”, just use the ETH of the fees instead, to buy KNC to pay them 50% in ETH and 50% in KNC, boom they are integrated into the ecosystem!

The inflation based system will be abused, developer in order to earn money will be injecting proposals and proposals all the time, people will always vote yes to everything. Token holders will take the hit of the dilution.

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Hi all, my first post here :slight_smile:

Sorry to say but I don’t like the idea to introduce inflation at all !!! I am small investor and I am sorry to say that so far I have BIG negative ROI when it comes to KNC…

KNC price, compared to BTC, has dropped over 60% since I bought KNC… I don’t care about price in USD…

I wasted over 0.25 ETH so far on fees… Wasted ETH to get my KNC staked in DAO, wasted ETH to vote in 7 or 8 epochs so far, in the end I wasted more ETH to delagate (after seeing it is not possisble to make any returns with these fcking voting fees) :frowning: I spent more ETH on fees then I received from Voting rewards !!! This is just BAD !!! And is not soemthing that can attract new investors/stakers - that is why price is going down for months… There’s no point in investing into Kyber when all You can get as small investor are LOSES…

And now, seeing that KNC might introduce inflation is like a spitting in my face… I am sorry but if this is accepted I’m affraid MANY will leave this project forever… I will be the first one and I know several others who will do the same (I am 100% sure because I know the way they think and what they expect from this procjet)… Inflation is NOT one of the things we expect, or have expected when we invested our Bitcoins in this…

Don’t make me regret decision to be part of this project… I am already sad that I did not invest BTC into UNI and other successful DeFi projects instead of into Kyber… Once again - plase don’t force me, and others, to leave this project forever :frowning:

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Hello,

basically all AMM today use the same model to incentivise usage => they issue an inflationary “governance” token and reward LP’s with that token. While this approach obviously works it does not incentivize people to actually USE the protocoll / liquidity pool (= to trade token A against token B).

I made up my mind and thought how can KNC incentivize not only the LP’s but also the normal user who trades AND keep inflation of KNC at bay at the same time?

This is my idea:

1.) X % of all rewards are issued to KNC “holders”
2.) X % of all rewards are burned
3.) A yearly inflation of X % is defined via DAO votes. This yearly inflation of KNC is issued to both “liquidity providers” AND “traders”. The exact split (e.g. 70% to LP’s and 30% to traders) is to be determined by a DAO vote.

Both “liquidity providers” and “traders” can claim their rewards in form of KNC as defined in point 3.) every two weeks - basically the same routine as normal KNC holders. They go to the DAO portal and “claim” their KNC.

This would be a setup which would incentivise all stakeholders (KNC holders, LP’s and traders) and which would allow the DAO to change and adapt the parameters very easily to keep the economy balanced (in respect to inflation). Under ideal circumstances the increased usage of the protocol (due to incentivised trading) will offset the inflation completely.

What do you think about this?

One more thing - I really appreciate the possibility to share my opinion here in this forum - thx to the KNC team @loiluu!

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The whole thing about LPs being included into the ecosystem is a BIG mental jerk. They want liquid ETH, not an illiquid asset. Same as us, KNC hodlers. Let’s be objective. OR let them decide if they want 100% or 50/50 , don’t force them, and certainly not from inflation.

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All of your rationales and logic make sense. However I want to add a bit on the part I quoted, sticking KNC value to ETH value does have its own downside, which is the correlation between KNC and ETH while KNC can be an independent economic.

Look at what Kyber is doing right now, everything has to contribute ETH as the fee, it means all trades (or in general, all service transactions) have to be evaluated in ETH, which is very hard and inefficient on-chain, the only way to make it possible is doing the calculation offchain just like Binance evaluates their trade with BNB value.

One point I think you are missing:
With burning model, we remove supply and distribute value to all of the holders, fair and square, people will have to look at it in a very longterm perspective to see the effect (like 10 years). With inflation model, there will be many more ways for people to access/make the tokens (preferably, by making use cases for Kyber) and if someone will just hold it for a bet in its value in the future, they apparently keep value for those new minted token, people can see its effect in a very short term perspective (like weeks). Being able to see short term outcome creates excitement and momentum for things to happen.

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This is a big mental jerk, people are fooled that’s why they think they are getting free money from inflation. People want big gains in short time, this will only create a bubble. How you guys know all those protocols are not just bubbling right now? Is just inflation based inclusion. And inflation based funding, nothing else.

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We don’t know if it is a bubble or not until it happens. What we know for sure is the amount of users bootstrapped with the ecosystem is big and they are real, they even join the community and build up ideas as well.

On the other hands, as in the protocol design wise, I think the team is trying to make more things to be possible so the DAO has more options to evolve itself. It doesnt have to limit the possibility. If you don’t agree with minting more tokens, just vote NO, and if the whole DAO follows, never mint any tokens IS ACTUALLY A POSSIBLE OUTCOME.

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Team should just focus in ETH second layer solutions to be actually competitive, be the first one using second layer solutions, to be ahead of competition, and get that nice volume, and nice liquid ETH. instead of looking into bubble based inflation inclusion excitement.

Like how much KNC they need to print to actually achieve a second layer solution kyber DEX? To attract all those DEX costumers, just print it right now, one time only event, and let’s get over with it. People just want to trade cheaply. Is not rocket science, people is attracted to the cheapest sources. And if possible include KyberDAO in the second layer solution, so not only big guys can vote and receive rewards.

ALSO inflation based governance model will be abused, how it will work? they will set a governance 5-10% year supply inflation and gather all that KNC in a pool and pay that to developers proposals, or KNC will be printed just when is need it, for the amount if requested by a certain proposal? I do not agree with either of the two, but the second is better.

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I agree the team should focus on/do a lot of things but I agree to them that creating a whole new range of possibilities is the necessary foundation to grow and react to market changes. In the past year, Kyber fell off from competitiveness is because everything was very conservative and strict.

It all depends on the DAO decisions. With the DAO, we have to assume that KNC distribution is fair enough (and minting more tokens is a very important possibility to make it fair) for the DAO to make wise choices.

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If buyers were looking for token scarcity then ETH or BTC or AAVE or SNX should never go up in value because these are all inflationary assets. How each unit of token can capture value is far more important than whether there is a 1% or 2% or x% inflation. If 1% inflation brings 10% value appreciation per token, then the buyer is better off so for me this argument of ‘inflation is bad’ does not hold.

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Thanks for the support. Much appreciated.

I think you missed the main point of the proposal we brought up. That is, the new minted KNCs wont be for the team, but for the ecosystem. That means we as the team wont necessarily be, and unlikely be, the recipient of the additional KNCs. We wanted to make sure that the new KNCs issued are meant to be translated to much more growth of the Kyber ecosystem in general, and thus bring much more value to existing Kyber stakeholders, including KNC holders.

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This is a great idea, i think we could definitely bring it up to the DAO.

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While im really impressed by your enthusiasm, and I am thankful to have you around joining the discussion on this important topic, I have to be frank and let you know that im not sure if you get things right. Please try to provide concrete examples to support your argument, or make it clear that you only speak for yourself, not all LPs.

We have seen enough examples from Compound, Aave, Uniswap, Sushi, etc on the importance of incentive to attract LPs and draws more liquidity to the network/ platform. None of them give ETH as return to LPs, yet still billions of USD worth have been contributed.

Nevertheless, the whole idea is to let KNC holders to vote on the proposal later on via KyberDAO. Its the decision by the whole Kyber community.

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This sounds very good :+1:

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I would have absolutely no problem if they distribute the new KNC to the KGT holders. :innocent:

By the way, are there any benefits for KGT holders currently?

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