What is the Kyber Network Crystal (KNC)? Will It Be In Demand? When?
Hello Friends!
Like many of you, I have been reading about an exciting new exchange/payment service launching soon called the Kyber Network that is having an ICO very soon. Many say it could be a game changer, especially if you are a merchant. If it is successful, imagine being able to accept payment in any cryptocurrency, any currency really, and getting paid in your preferred currency. However, there are several issues everyone needs to consider.
Most Crypto watchers care about coin prices not business profits, so this article will be about the Kyber Network Crystal (KNC), what it is, why it might be in demand, and why it might not be. This is not investment advice. This is economic analysis/information meant to inform traders, the lay person, and just those interested in crypto!
This isn’t about the Kyber Network as a whole. I am assuming the reader has already read a lot about the Kyber Network. I recommend everyone check out Kyber’s blog and whitepaper.
What is the Kyber Network Crystal (KNC) Anyways?
The Kyber Crystal is used by third parties in the KyberReserve system as the fee to participate in coin exchanges. The Kyber Reserve system is the storage of crypto coins by Kyber and third parties to guarantee liquidity in its exchange/payment system. The Kyber Crystal will only be in demand if the Kyber Reserve system is successful and full of competing Reserve Managers. This will only happen if the Kyber Reserve system is profitable. This only works if it Kyber has a very high use rate, and end users don’t care they aren’t getting the lowest coin exchange spreads available in the entire market. All of this is possible, but not easy to pull off. Sound confusing? Keep reading! I'll explain in much easier to understand terms.
You go to an exchange to trade one coin for another coin. If an exchange does not have the coin you want, it doesn’t have liquidity. The concept is a little more complicated than that, but not for our uses here (don’t blame me if you fail your Econ midterm). The important thing about exchange liquidity is being able to trade one coin for another. Liquidity is obviously super important for an exchange. If an exchange does not have the coin you want, or you are not able to buy it with the coins you have, you won’t use that exchange. Kyber’s liquidity solution is called Kyber Reserves.
Kyber Reserves are stores of coins by Kyber and third parties for use in its exchange. It is the only way its instantaneous, incorruptible exchange idea works. Kyber itself will initially be the main Reserve as it knows that Reserves only pop up if they are profitable to run. The basic set up is an entity called a Reserve Manager, most likely an arbitrage bot, decides that holding a coin might not be the best option. So it offers the coin on the KyberNetwork. It will do so at a rate that is profitable. In other words, the bot will look at many other exchanges and then set a conversation rate for its coin that is higher than the other exchanges but still low enough to attract interest. This means that Kyber will never have the lowest conversation rates on coins from third party reserves. It is just the reality of the set up. It also means that the less Reserve Managers, the higher the spreads, as competition drives down the spreads.
The bigger problem is incentivizing these bots to list coins on KyberNetwork. Kyber has a chicken or the egg problem which is why it is being the main Reserve initially. Reserve Managers will only show up when it is profitable to do so, which is only when Kyber is already in high use. Users will only use KyberNetwork if its conversation rates are reasonable, which will only happen if KyberNetwork has many competing Reserve Managers. Reserve Managers will only show up… You get the idea. The system theoretically would work at scale, but it’ll need help getting there, which is why Kyber will be the main Reserve agent for quite a while. KNC won’t be in-demand until there are many third party Reserves doing many transactions. You can also see this problem illustrated in Kyber's very slow and deliberate schedule. You won’t be able to exchange RDD for XMR for quite a while. I recommend you look at the development schedule.
Again, the KNC coin is used by these third party Reserves to pay Kyber for the privilege of being involved in transactions. This is what you are betting on when you buy the KNC token. You aren’t betting on KyberNetworks being a good business idea. You aren’t betting on KyberNetworks being a popular exchange. You are betting that third party Reserve Managers will need to buy the coin from you in order to pay Kyber.
There are a few more very important things to consider. The first is how many KNC there are. The second is how much KNC is needed to process these third party Reserve transactions. The third is what happens to KNC when it is used. I’ll give you the first—226,000,000, that is two hundred twenty-six million—and let Kyber explain the other two:
“As an example, for a trade volume of 10 ETH with a 0.01% fee, a corresponding 0.001 ETH worth of KNC will be paid by the chosen reserve to KyberNetwork as a fee for the use of the reserve dashboard and access to network users. Suppose the rate of KNC at the trading time is 1 KNC for 0.1 ETH, the reserve needs to pay 0.01 KNC to the Kyber platform. The wallet/ website that helped the user initiate the trade will get, supposedly, 5% of the fees, or 0.0005 KNC. The remaining 95% of the fees, or 0.0095 KNC will be burned forever.” (Kyber Whitepaper)
I hope you all found this informative! Again, I am not recommending you buy or don’t by KNC coins. That is a decision that changes as market conditions change. This is an information service.
Tip me 10% of What You Make or Save Using This Information (Whichever is Greater)!
LITECOIN (LTC): LRbGqwLfEnS352mJp3qPqhwUfyPdnZwP4N
MONERO (XMR): 48nXBajorzkZLeotCBw1XgYaUgENGuxS1hhK75hoGgUSQVHsoVa3EWj86EvqKjeorUY77SVu8fj8TPevfz3dnmX567djac2
Your friend,
RoosterRed
Monero:
Note: I usually have to correct grammar mistakes in my articles, so this will likely slightly change. It is usually little, inconsequential mistakes like “their” instead of “there”.