What is Kyber Network?
Kyber Network is a decentralized exchange that provides on-chain liquidity by using “liquidity pools.” These pools are reserves of cryptocurrencies provided by investors, known as liquidity providers. When a user trades on Kyber Network, the network searches for the most competitive rate. This also removes the need for a centralized order book—which presents an added security risk—as the exchange rates are already determined by the reserves on the Network.
Kyber Network, and its decentralized exchange KyberSwap, is able to integrate with and provide liquidity to a few different potential users, including crypto wallets (exchange between cryptocurrencies), decentralized applications can leverage Kyber’s liquidity and transaction protocol, and vendors can use KyberSwap to accept more currencies while settling in their preferred currency.
Kyber Network launched during the 2017 ICO boom, raising $60 million in the process. Today, the protocol has a market cap in excess of $400 million.
What is the Kyber Network Crystal (KNC) token?
The Kyber Network has its own native token, called the Kyber Network Crystal (KNC). KNC is an ERC-20 token that exists on the Ethereum blockchain. As of May 2021, there are 138 million KNC tokens in circulation. When KNC is used for network fees, it is then taken out of the token supply (called burning) which creates a deflationary economic model over time.
KNC’s primary function is to decentralize decision-making power by conveying voting rights to KNC holders. The Kyber Network community can propose improvements and changes to the protocol, which are then reviewed and voted on by the KyberDAO — decentralized autonomous organization — via weighted KNC staking. Stakers also earn rewards for their participation in this governance process because the protocol is designed to distribute a portion of network fees to KNC stakers (in ETH.)
In addition to voting rights, KNC can also serve as a means of payment through Kyber Network partnerships (in participating jurisdictions, the Monolith VISA card enables spending of KNC), or KNC can be deposited on lending platforms like Aave for holders to earn yield on their assets.
How does Kyber Network compare to Bitcoin?
Kyber Network greatly differs from Bitcoin in terms of its market size, risk profile, and purpose.
First, Kyber Network (and its token, KNC), runs on the Ethereum blockchain. Bitcoin runs on its own, entirely separate blockchain: the Bitcoin blockchain. On the Bitcoin blockchain, you can earn Bitcoin through Bitcoin mining, which involves setting up a very powerful computer to run special software that solves complicated math puzzles. Since the Ethereum blockchain processes KNC transactions, you could mine Ether but not Kyber Network Crystals.
Second, the Bitcoin blockchain only serves to process transactions. KNC, however, is just one of the many ways developers can use the Ethereum blockchain to create new types of products and applications. Kyber Network is, as mentioned, a decentralized exchange protocol; other protocols include lending and derivatives.
Third, Bitcoin’s market cap is a lot bigger than Kyber Network’s. As of May 2021, Bitcoin’s market cap of $1.2 trillion dwarfs Kyber Network’s $420 million. Bitcoin is by far the most dominant coin on the market.
Fourth, the value of Kyber Network and Bitcoin are dependent on different things—although the relationship is complicated. KNC is dependent on the strength of the protocol it powers and network participation. If the Kyber Network protocol breaks or is prone to a hack, then this could crash the price of KNC. In addition, although Kyber Network is just a few years old and DeFi protocols are still a novelty, Bitcoin has been around for over a decade now and is much more battle-tested.
However, it should be noted that, although Kyber Network is different from Bitcoin, it is far from independent from it.
Bitcoin, the coin with a larger market (by a long shot), greatly influences the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that Kyber Network will feel the burn too. And if Ethereum, the coin that powers the blockchain that supports Kyber Network, crashes, then KNC’s price could be impacted. In addition, as a lending platform that takes various crypto assets as collateral, the Kyber Network protocol and thus potentially the KNC token’s value would react to any dramatic fluctuation in a prominent crypto asset’s value. However, if KNC crashes, Bitcoin may be less likely to get hurt by virtue of its size.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Kyber Network, including an opinion that KNC is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of KNC prior to making it available on Wealthsimple Crypto and has concluded that KNC is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated Kyber Network based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Kyber Network, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Kyber Network;
- The supply, demand, maturity, utility and liquidity of Kyber Network;
- Material technical risks associated with Kyber Network, including any code defects, security breaches and other threats concerning Kyber Network and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with Kyber Network, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of KNC.
Like all other crypto assets, there are some general risks to investing in KNC. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. In addition to these general risks, we note that as with any DeFi protocol, Kyber Network presents a slightly elevated short history risk relative to more established cryptocurrencies like Bitcoin. Further, the Kyber Network community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of KNC have no recourse to Kyber Network or Wealthsimple if KNC declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading KNC. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 26, 2021
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