Request for Ideas: Improving KNC utility

Currently, KNC (Kyber Network Crystal) can be staked to vote on KyberDAO proposals to earn a portion of KyberSwap trading fees. The team would like to kickstart a discussion on new KNC utility ideas for KyberSwap.

KNC minting and incentives have mainly been used to bootstrap KyberSwap.com adoption, especially on key chains Ethereum, Polygon, Arbitrum, and Optimism. We have achieved substantial progress in recent months, even outsized trading volume in relation to TVL, and we expect this growth to continue.

Total Value Locked (TVL)

TVL (1 Jul) TVL (29 Nov) Growth
$66,051,527 $88,225,455 1.34x

7D Trading Volume

Volume (3-9 Jul) Volume (20-26 Nov) Growth
$13,083,050 $102,364,605 7.82x

However, without additional safeguards, it is possible that over time this increase in incentives distributed (increasing supply) may restrict a rise in KNC value. A reduced KNC value has several adverse effects including negative community sentiment, lower governance participation, fundraising challenges, and heavily impaired DAO or company treasury to fund future activities. Conversely, improved KNC utility and higher KNC valuation with a suitable incentive structure aids KyberSwap in terms of adoption, marketing/awareness, and future fundraising efforts.

As KyberSwap starts gaining momentum, we need a new sustainable token model that mitigates major increases in KNC supply (which dilutes KNC value), while generating ‘real yield’ fees and incentivizing high-utility ecosystem participants to fuel greater adoption and governance participation. 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.

The team is considering more KNC utility ideas for KyberSwap, including:

  • KNC ‘cashback’ as gas compensation/refunds for traders
  • Bonus rewards for trading campaigns or liquidity provision
  • Rewards/Raffles/Airdrops/NFT drops
  • Time-based KNC staking rewards; the longer KNC is staked, certain milestones can be achieved, enabling exclusive rewards in the future
  • More diverse KNC pairs on KyberSwap

The above are not set in stone and we welcome more great ideas from the community to improve KNC token utility. Community ideas submitted here will guide the Kyber team in making further improvements to KNC utility on KyberSwap.

Note: This is an open call for ideas from the Kyber community with no fixed deadline. Although we will review submitted ideas seriously, we cannot guarantee that they will be used exactly as proposed and we may combine them to develop a more concrete proposal for KNC enhancements.

Idea Submission Template

In order to facilitate discussion and enable the team to efficiently review community ideas, please submit your idea/requests using the following template:

  1. Summary of your idea
  2. How does your idea improve KNC utility ON KyberSwap, in relation to one or more of the following:
  • Traders
  • Liquidity providers (LPs)
  • Dapp integrations
  • KNC stakers and voters
  • KNC staked
  • Trading volume
  • Total value locked (TVL) and liquidity
  1. Any backing research and data
  2. Example of a good/similar token model from other DeFi projects
  3. Difficulty level (Low/Medium/High) of this implementation in your opinion
  4. Check that your idea has fulfilled the criteria in our suggested tokenomics framework
  5. Your twitter and telegram handle (optional)

Suggested Tokenomics Framework

This framework acts as a guide for designing sustainable tokenomics. What are our key objectives for the KNC token model and utility?

  1. Long-term, healthy, and sustainable tokenomics and incentives that still drive adoption and revenue
  2. Incentive alignment between governance and product stakeholders; both want the best for KyberSwap and KNC
  3. Funnel incentives only to high-utility participants who create fundamental value in our ecosystem; align incentives with value creation
  4. Heavy utility and usage of the tokens within our own ecosystem; higher inelastic demand for KyberSwap features e.g. trading, LP, farming, truesight, portfolio management
  5. Harmonious token usage on KyberSwap that adds value to the entire ecosystem; positive net utility to KyberSwap
  6. Creation of a ‘Token sink’; incentivize staking and circulating supply reduction, and disincentivize withdrawals/transfers
  7. [Demand] > [Supply increase due to emissions over time]

Questions to consider

  • Who are KyberSwap users?
  • What are users doing on KyberSwap?
  • What motivates KyberSwap users?
  • What value are users/voters creating for KyberSwap? What actions create the most value?
  • Who should be rewarded and how?
  • Adoption flywheel - Are there synergies between KyberSwap stakeholders? Does benefiting one naturally benefit another/others
  • How can KNC be used efficiently to incentivize higher TVL → resulting in better liquidity/slippage, more volume, and more fee revenue (further increasing TVL)?
  • How do we mitigate inflation for our token/s? How do we ensure organic fees/real yield > emissions; demand > supply increase over time?
  • What are the technical requirements? How fast can changes be implemented?

Required steps

1. Governance forum: Submit your idea using the idea submission template in this forum topic (this page) and get community feedback.

2. KNC utility request: After you have submitted your idea on this forum topic, submit it as a KNC utility request on our new feature request page: Feature Request | KyberSwap. Get community members to vote for it as a temperature check.

Only ideas posted in those channels will be reviewed by the Kyber team. Well-structured, practical ideas may even be rewarded with some KNC. Go crazy!

Resources

Idea Improvement 1 {II1}

Adding a positive slippage fee like 1inch & Paraswap.

1) Summary of the idea:

In order to give more utility to KNC, I propose to add a positive slippage fee on Kyberswap Aggregator. This fee will become a revenue for KNC stakers, could also be used to buyback & burn KNC and fund the DAO. This positive slippage fee will be taken only for non KNC stakers.
The goal is to give utility to KNC holders, not to penalize them.

2) KNC utility and revenue for stakers would be increased.

KNC inflation would be reduced, deflation could occur if KNC stopped being inflationist.
DAO will receive a sustainable real yield revenue.
With this idea, traders will lose on positive slippage.
I will share another idea later to compensate traders and improve even more KNC staking. See {II2}

3) Research & Data:

1inch & Paraswap respectively takes 100% and 50% positive slippage fee.

According to Messari, 1inch generated $47B volume and $6.7M revenue through positive slippage fee in Q2 2022. Net margin is 0.000142% according to this data.

Must be noted that 42% of the protocol revenue in Q2 is tied to the UST collapse.

Paraswap generated $5.2B volume and $750k revenue in Q2 (with twice lower positive slippage fee). Net margin, according to this data is 0.000144%.

https://dashboard.paraswap.io/public/dashboard/0032c074-694b-44b6-b070-161893b1ab81
https://dashboard.paraswap.io/public/dashboard/dcc1ec4f-c84b-44a4-b3ce-8b794c3fed91
https://messari.io/report/state-of-1inch-q2-2022
According to Kyber Aggregator last 7 days volume of $40M, we can estimate it to be around $2.1B per year (with bear market, low volume condition and actual settings). If the positive slippage generates 0.000143% net revenue it would make around $300k per year for KNC stakers.

Source: Kyberswap Aggregator Analytics - Kyber Network (4.0)

Please note that this is ultra-preliminary analysis & more data is needed.

4) What others are doing:

Paraswap is going to distribute 80% of protocol revenue in native tokens to PSP stakers. 20% will go to the DAO.

I think this is a brilliant idea and Kyber should do something similar.
They are also implementing a boost system that is interesting.

GMX also has a similar tokenomics. Real activity of the platform that generates real yield, this is something I found quite sustainable and profitable for both the Dapp & the stakers.

Something like this could work well: 40% goes to KNC stakers as an additional income, 40% is used to buyback & burn KNC and 20% goes to the DAO.

5. Difficulty level:

I expect it to be low.

1 Like

Idea Improvement 2 {II2}

Adding a discount on Kyber LP fees when a swap goes through a KyberPool in KyberswapAggregator.

1) Summary of the idea:

Here the idea is to encourage users & arbitragers to use Kyberswap Aggregator to get the best possible rate among others aggregators by giving them a discount on Kyber LP swap fees. If kyber pools have the best rate at the time of swap, the aggregator of Kyber will propose an even better rate that 1inch because of this specific fee discount by using Kyber products.

Offering to 2 different fee discounts to non KNC stakers & KNC stakers could also make a difference in order to grow KNC utility.

2) KNC utility:

Staking KNC could give a better fee reduction on swaps.

If positive slippage is added {II1}, volume & revenue would grow exponentially & increase considerably KNC utility & revenue.

Winners: traders, KNC stakers, trading volume.

Losers: LPs. They would lose some yield. Something else could be created to compensate, like a KNC staked boost revenue for LPs that also stake KNC. A lot of things could be thought about it (gas refunds, KNC monthly airdrop, boost…) Creating synergies could be nice.

What discount should be applied?

A default discount should be added to every Kyber Aggregator user.

Which rate Kyber could offer? 5% to 10% fee discount could be enough.

The goal would be to incite big traders, arbitragers, MEV… to stake a certain amount of KNC in order to get a better discount. Market makers could stake a lot of KNC to get better rates.

How much discount for KNC stakers? 10% to 15% fee discount? Rates will need to be evaluated. I think it should offer at least x2 discount as the default one.

3) Research & Data:
image

In this example, the best routing is 100% Kyberswap Elastic.

1inch & Kyber Aggregator offer the same rate.

With 15% fee discount, Kyberswap user/arbitrager would have earned 9999.15 USDT. Which would be the better rate among all others aggregators.

Kyberswap has the chance to have both an aggregator and ultra-efficient liquidity pools. Again, I think synergies between these two features would bring a lot of value to the overall Kyber ecosystem.

With the positive slippage added, this revenue would be beneficial for KNC stakers, DAO and why not compensate the LPs for the loss of fees?

4)I do not think I have seen any similar ideas among other DEXes & Aggregators.

5)Difficulty level: I have no idea

If any idea gain traction I could dive deeper in it :blush:

3 Likes

Thanks for sharing your ideas! Regarding improvement idea 1, a positive slippage fee is indeed a possible revenue-generating option for KyberDAO. I personally like how you have incorporated KNC utility to benefit KNC stakers by excluding them from this fee.

We have discussed your idea and our internal data council will start to look into KyberSwap’s positive slippage statistics; how much positive slippage KyberSwap has been giving up to traders so far. With this information, we can have a better comparison with 1inch and Paraswap and determine how much positive slippage we can potentially charge. Regardless whether KyberSwap takes a positive slippage fee or not, it is imperative that we continue optimizing our aggregation algorithm so that traders always get the best swap rate available in the market, as that is the core value provided by our DEX aggregator.

3 Likes

For improvement idea 2, if I understood you correctly, you are suggesting that when a swap goes through a KyberSwap liquidity pool, there should be a customizable discount on LP fees applied for the taker via the KyberSwap UI or aggregator API, which would not be made available on other DEX aggregators.

This dynamic discount is not straightforward to implement, as DEX aggregators and Dapps that integrate a KyberSwap pool for liquidity are subject to its corresponding, fixed LP fee tier. If the best trade route is 100% through a KyberSwap pool, all DEX aggregators would technically have the same rate for the trade (assuming same gas cost), and any subsequent discounts/changes to the fee tier at a smart contract level would be available to all.

Moreover, KyberSwap pools already offer various options in terms of LP fee tiers, with the lowest at an extremely competitive 0.008%, along with 0.01%, 0.04%, 0.3% and 1%. As such, we (and other LPs) already have the ability to design new pools in a way that helps achieve good rates for traders and high volume for LPs.

Instead of an LP fee discount for traders, we are considering:

  1. Incentivizing traders (preferably those who are KNC stakers) with gas refunds / cashback in the form of KNC. In a scenario where KyberSwap and another DEX aggregator offer the same rate due to 100% of the trade route going through a KyberSwap pool, the bonus KNC rewards granted when using KyberSwap’s own UI or aggregator API would naturally attract traders to swap there instead.

  2. Zero-fee stable pools with KyberSwap as the sole LP and offering the best possible rates exclusively to our own KyberSwap aggregator and users. This will not increase the amount of fees collected (since these are zero-fee pools), but would greatly increase volume and overall attention for KyberSwap.

What do you think of the above? :slight_smile:

1 Like

Agree with most of it!

The idea was to incite swappers to use Kyber Aggregator by getting a small discount on fees comparing to other DEX aggregators. I think it could work well in order to bring volume to Kyber. If Kyber algorithm always find the best swap rate + this small discount; volume will move from 1inch to Kyber. Add on top of it a positive slippage fee and Kyber will generate more revenue than ever. Of course I’m not a dev, I don’t know how hard it can be to implement :confused:

Cashback for traders is a must have feature I agree, all competitors already offer something similar.

I absolutely love the idea of a Zero-fee stable swap! However, is it sustainable for Kyber ? You will suffer from IL. The loss could be covered with positive slippage fee or something else…

I persist to think that a fee discount could work very well in addition to all of the above :laughing:

3 Likes

This is another proposition that I will develop now, KNC staking only on Ethereum L1 is problematic. Kyber probably loses a lot of community members that can not stake conveniently on mainnet. As everyone knows, Ethereum can be quite expensive for smaller portfolios. I would not stake $50 or $100 and pay for high gas fees.

Kyber staking should be multichain, the best chains probably are : Ethereum, Arbitrum, Optimism and Polygon as of now. Keeping it close to Ethereum is important, L2s and sidechains are enough. Gnosis & Starknet (when live) could also be good bets.

Letting the community chose where they want to stake is really important so it can grow involved community members.

So, if a positive slippage fee is one day added, revenue should not be distributed in KNC but in native chain token. You stake on Optimism, you receive your yield in OP, you stake on Arbitrum you will receive ARBI (when live) or ETH in the meanwhile.
Revenue is swapped and distributed on your selected chain with its own native token.

What do you think of it?

3 Likes

Hi there!

I also filled this out via the Feature Request form. But going off of your ‘cashback’ I would like to build upon this with what I would summarize as a “Gas Rebate Pilot Program”.

  1. Summary: I propose a gas rebate program in which stakers of a certain amount are refunded a percentage of gas fees in the form of KNC token. This feature could be tested on Ethereum, and extended to all chains in a separate governance vote.

A sample breakdown of the incentive structure:

Staking of 100 KNC allows users to get a 25% gas refund;

Staking of 1,000 KNC allows users to get a 50% gas refund;

Staking of 10,000 1INCH allows users to get a 75% gas refund;

Staking of 100,000 1INCH allows users to get a 95% gas refund.

Other considerations:

-Only transactions made through the KyberSwap Dapp (web or mobile iOS/Android) are eligible for the rebate. Any use of automated swap tools would be prohibited.

-Rebates would easily be paid out bi-weekly, manually claimed through a button.

-The DAO is encouraged to weigh in more on potential modifications to (a) both the rebate breakdown suggested above; and (2) the frequency of rebate rewards.

-I would propose an initial pilot program not to exceed 180 days where the DAO can evaluate its effectiveness and vote for a further extension, modification, or termination.

-Gas Rebate program would begin on Ethereum, possibly to be extended to other chains based on future votes.

  1. Tokenomics/Benefits:

-Frequent traders on Ethereum will be incentivized to not only buy, but hold, KNC.

-KNC holders will have other benefits besides voting.

-Rewards our most loyal DAO members on a dynamic scale.

  1. Backing research and data is limited, but see 4.

  2. Other similar token model from other DeFi project 1Inch (now deprecated):
    The 1inch Foundation extends the gas refund program | by 1inch Network | 1inch Network

  3. Difficulty level would be low, based only off the fact that it is a feature similar to the one OP already alluded that the team was looking into and that other protocols have implimented.

You can to my post on the KNC utility request page for more info, and kindly ‘up-vote’: Gas Rebate Pilot Program | Voters | KyberSwap

Please feel free to contact me on Discord (Tommi#9145) or follow me on Twitter (@CameronErickson). Thank you!

2 Likes

Hi @Tommi Thanks for your suggestion and also adding it to our feature request page! A gas refund mechanism is exactly what we’ve been researching and preparing for the next KNC staking utility. It is definitely a staple for aggregators in DeFi and provides much needed incentives/rebates for our most active and loyal KyberSwap users. We’ll try our best to innovate upon what other projects have done and your suggestions here will go a long way to making it a success.

What our data team is working on now is gathering data on historical gas consumption from our users (traders/LPs/voters) so that we can determine a suitable gas rebate tier structure for staking KNC. It is imperative that we design this utility to be sustainable for the long term and not merely a short campaign. Once we have that gas data, we will begin preparation to launch our gas refund mechanism. If you have references to such data from other projects e.g. 1inch - ETH - Gas Refund do send them to us!

On a side note, now that we have migrated our KyberDAO UI to the new url (read all about it on our blog), we will soon restart our regular KIP proposal voting and distribution of KNC rewards (that comes from a portion of KyberSwap trading fees). We have also updated our KyberDAO FAQ page with more details related to staking and voting.

Thank you so much once again for your suggestions! :pray:

1 Like

Hi @ShaneKyber
Another example: ParaSwap

What is the Gas Refund Program?
https://help.paraswap.io/en/articles/6554757-what-is-the-gas-refund-program