Deniz Omer Kyber Show Notes

Deniz Omer Kyber Show Notes

  • Kyber is one of the few Ethereum ICOs who have actually succeeded and done something with the money they raised.  The projects that have tokens and have actually survived until now, there are very few.  This validates the design of Ethereum ecosystem has been moving toward decentralised applications, exchanges and providing use cases that exist outside of the centralised systems/exchanges and allow for ecosystem growth.
  • I really enjoy your podcasts.  The way you describe us is very accurate.  We started with a small idea, and then we fill up the space and these new narratives.  When we first launched in February 2017, there were not many Dapps. We were one of the first DEXs.  Here is our token swapping service. There were not so many users. We put it out there and watched it grow. Ethereum is an open platform. Let’s start integrating with other DApps, like wallets etc. throughout 2018 there was not any DeFi apps to integrate with.  As the Ethereum space has grown and DeFi has really exploded. It is a great space, but it needed liquidity at its heart. When you think of liquidity, it is really transferring value from one form to another. And what we see ourselves, Kyber, as is the oil in the engine that gets that value from one side of the ecosystem to the other. That’s where we have ended up today.
  • We used to be just a DEX, and now we are a whole ecosystem. It is a completely different landscape. To take a step back, DApp is a decentralised app and a DEX is a decentralised exchange.  DeFi is decentralised finance to just define these terms for our listeners.    At the first Ethereum was just a way to raise money and just run away.  The projects that remain add real value to the ecosystem.
  • How Kyber works on a technical level and why these different projects would want to integrate this into their DApps? At a very high level, we are set of smart contracts that allow you to swap on one ERC-20 token for another or to Ethereum (ETH). It may sound very simple, but the architecture of it is that taker and makers… takers are the end-user who wants to trade one token for another token, or it’s a DApp that wants to set up some kind of workflow… as a DApp you have your own native token and for users to be able to use your token they first have to acquire it. That token may provide some kind of service, for example, storage space or processing, it represents some kind of utility, but you have set this up in such a way that the token is required as credit to use it. Because it is all interchangeable, let’s have a set of smart contracts where you can throw in any token you want and specify what you want it to spit out on the other end.
  • Instead of me having to go buy coins first, I can send any token I have in my hot wallet to the Kyber Smart Contracts, and it gets converted into the utility token required by that DApp. We have reduced a whole layer of friction in one single transaction using that DApp you have also integrated swap functionality there and what happens is that this is on the taker side. On the other side of that trade, we have a whole group of market makers; this might include token teams themselves. These market makers are providing the reserves and provide liquidity at this price point.  Let me simplify this, let’s say the user wants to swap their utility token for ETH, if you make a request, the smart contract looks at every reserve manager to see who quotes the best price for that end-user, that is the reserve manager that will provide the liquidity for that user. So you have a system of market makers providing reserves on one side and on the other side, you have DApps and their end-users who want to swamp one token to another.  But it’s more than that. This is any type of token. It has to be ERC 20 or ETH for the time being as that is how the liquidity is provided.  On a smart contract level, you could trade any token you want but on a user interface level, we don’t list security tokens. We are connected to DApps who provide NFT.
  • Kyber works like a large pool.  Kyber looks for the best price. This would be good for a shop; you want to convert your ETH into DAI. You can automatically do this by routing things through the Kyber Network. You could set up much more complex transaction flows because it is all automatic, combine different services and this is what is happening in DeFi.  You might have fulcrum network to build margin positions or go short, then in turn fulcrum is integrated into Kyber Network to build those positions on-chain.  It’s basically using Kyber to swap to Eth to DAI, to borrow more ETH, to buy more DAI, all bundling it up into one transaction executed atomically.  It all happens or it doesn’t happen at all.
  • What are some of the differences between yourselves and other liquidity providers like UniSwap and Oasis and other projects that are aggregating value and distributing value or greasing the wheels of DeFi and everything else that happens in swaps? Some of technical difference, some of have architectural differences. When it comes to UniSwap, UniSwap uses a basic curve to determine what the next price is going to be. It is basically a very automated market maker and a very hands-off approach based on last price and last trade. But on Kyber it is much more broad-based on makers who are free to pick their own pricing methods, such as curves similar to UniSwap, they could do more manual via arbitrage trades on Binance, or they could use any system.  Ours is much more open. You could compare Kyber to ZeroX, Kyber is more on-chain; 100% on-chain settlement/pricing etc. On other DEXs, there are other components as well that are happening off-chain and have attack vectors. It is not as pure as Kyber; there is no way to tell if that price has been manipulated or not.
  • Where has the growth been in Kyber since you launched? It’s been through three different channels. DeFi has exploded, and Kyber volumes have grown incredibly with that. And that we can see that as a percentage of our volume now. 30 to 40 per cent is from general DApp integrations; more than half of that is from DeFi. We have teams like Fulcrum and InstaDApp.  Then we have wallets. We have seen our percentages increase in this area too.  It is incredibly convenient to swap within your wallet. We have also seen growth from our Kyber DEX interface; this is where traders can go and we’ve introduced limit orders which hadn’t really been done in DEXs before. This means these have grown in tandem with the DeFi space.
  • Just to be clear about how the wallet interface works.  With Kyber, there is just one smart contract transaction that deals with all of this. You send your tokens there and then you get your tokens back in return. At an interface level, it does not even feel like you are sending it.  You just push a button. There are two interfaces in wallet: native where you don’t even know that you are using Kyber (it all happens behind the scene) and there are other wallets that have a swap wallet where you go to access Kyber Swaps.
  • Has DeFi been the most interesting development for you on Kyber? Yes definitely. It is only because it is the most interesting thing to watch people build these complex margin trading position, going 3x long and how they use Kyber in that, is super fascinating. To be able to see this composability where you….do you want to play around with the yield, do you want to make it super programmable, there are so many options like DAI derivatives. Do you want to integrate Kyber and automate that with another borrowing platform that does something else, here you go?  Just put Kyber in the middle to swap any token for any other token required for those financial instruments that are being built on top of it.  Every day I see a new mixture of DeFi products that get put together to create something new.
  • He calls DeFi – Lego blocks you can put together to build whatever you want with it. Kyber is integral to this. Token sets are using it for other functionality within Tokens. It is cool to see all these projects that can integrate with each other.
  • Are you meeting with these teams and asking how they can use your product or do they come to you asking for functionality? Both happen.  We encourage people to use Kyber widget rather than reinvent the wheel.  We are very well connected with the Ethereum community, not just the DeFi network. I have always been a bigger support of Ethereum mainly because of the community. It is very special and a great place. There is a reason the ecosystem has the most developers working on it and building things on the network.
  • I can’t imagine there being a more vibrant and passionate community.  Ethereum is unmatched in actual people working on it; there is a definitive advantage with Ethereum.  There are some very interesting projects on Kyber’s website.
  • We are going to take the next step in usage of our token. We had a burning model.  I think as a space, it is a good way to capture value but not the only way to capture value.  An example of this, Stellar burn was not a one to one reflection of value. KNC holders can participate in the governance of the Kyber network, between burning and rewards for staking participants and for reserve makers.
  • Is KNC in the list for integrating into DAI? We are working into getting into the DAI collateral queue. I think KNC is a cornerstone within the Ethereum DeFi Space.
  • How have you changed the way you speak about Kyber? How has your narrative changed over time? It has been maturing with the space and evolving as the space was evolving.  We originally saw ourselves as a liquidity provider, as the space as grown, we are now talking about liquidity in terms of more complex instruments being built on it. ETH does show characteristics of money, but it is not quite there yet. Blockchain is a whole new paradigm. ETH is money but it is so much more than this and it will develop new characteristics as the space grows in innovation.
  • I have seen assets go up and down in price. What’s special about ETH is that you can use this asset to create dollars through lending and you can put it into the maker contract and get DAI or multi-collateral DAI which means you can use this stable coin in everyday  purposes.  People want a dollar today to be a dollar tomorrow.
  • If we agree $10k is going to be the same about when I transfer it to you it is still going to be worth $10k plus fees.  The price movement around Bitcoin & ETH makes your asset unstable in terms of its value.  The potential volatility risk is too big to make it a stable unit of account at this point in time. It is the ability to create dollars that people value.
  • If you think about it, it is not just dollars that we can now artificially create, but it is systems pegged to dollars for exactly your needs. There will be token sets that can perform as per your specifications.  I think there is an insane amount of risk that come with DAI which people don’t understand. You are using a derivative product that is subject to margin calls.  Most people are 50 or 60 per cent invested before they leverage up into DAI.  There will many new applications in the future.  Right now the DAI lending rate is 4%; when US Treasuries are trading at around 2%.  But I don’t think the market is pricing risk correctly in DeFi.  There are hedging tools now in Ethereum. I assume people who are creating DAI and lending it out are long term ETH holders. This allows them to dollarize their investment. If they were smart, they would hedge their investments, but that is a separate issue.  People love dollars – in unserviced communities, where they are affected by monetary problems. They want dollars first maybe bitcoin second.
  • If you look at our data from Kyber Network, the top traded token is DAI, SAI, USDC, WBTC… there is a lot of demand for these stable coins in different flavours. Are the volumes comparable between DAI and USDC?  DAI is much more dominant than any other.  I am interested to see how these regulated stable coins develop in the next year and does DAI keep up with their use. Tether has been so persistent in sticking around through all the auditing. If I was a US regulator, I would love to shut down Tether. I think sometimes regulatory action takes longer if companies are using shell companies and technologies to get up to speed on how they will enforce. There is demand for Tether, so it says something about it.  They do seem to have more time to sort it all out.
  • As someone who is working and seeing these other DeFi products, do you have any favourites? I think there are categories of projects: borrowing and lending stuff we have seen which we really like, and they are used for speculatory purposes…. Margin trading/leveraged products, seeing new products using saving rates/automating the process giving them to third party sources, we have seen subscription payments by locking up DAI, we had a DeFi hackathon out of which about 10 unique user case products, gaming projects.
  • My Masters program in Digital Currency, in general, gave you an amazing foundation in everything you come across in Crypto.  It took me a year and a half. Now I can think about different aspects. I loved that programme. The first course is an open course online. I would highly recommend it.

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