28 May, 2024

What is KyberSwap?

KyberSwap is a decentralised exchange (DEX) and automated market maker (AMM). It provides many different functions but mainly serves as a token swap platform and DEX aggregator.

KyberSwap is part of the Kyber Network, which is a liquidity protocol that aggregates liquidity from a wide range of sources to provide the best rates for users. It is DeFi’s first dynamic market maker, providing the best token rates for traders and maximising returns for liquidity providers in one decentralised platform.

KyberSwap serves to make trading digital assets straightforward, as well as providing security and transparency for digital assets.

In this article, we cover what Kyberswap is and how it works.

How Does KyberSwap Work?

KyberSwap works as an automated market maker (AMM) which means that it uses smart contracts to create liquidity pools and execute trades.

Users can trade cryptocurrencies directly from these pools, so there is no need for an order book, increasing the speed and security of crypto trading.

As with all DEXs, users are incentivised to stake their money in crypto liquidity pools. These pools are used to facilitate trades on the platform and users who contribute to the pools are rewarded with Kyber Network Crystal (KNC), the utility token of KyberSwap.

For each trade on the platform, users are charged a small fee, which is then used for liquidity provider rewards and the KyberDAO.

What is Kyber Network Crystal (KNC)?

The Kyber Network Crystal (KNC) is the native utility token of the Kyber Network (the name derived from the Kyber crystals in Star Wars). 

KNC is used for various purposes in KyberSwap, such as staking, governance, and paying transaction fees on the network. 

KNC provides an incentive for investors too, as by staking liquidity, users can earn KNC for their stake. These liquidity tokens can be held to vote on governance proposals and traded for other cryptos and fiat currencies.

What is KyberDAO?

A DAO is a decentralised autonomous organisation, which many DEXs and blockchain protocols have. KyberDAO is the DAO of the Kyber Network, and allows KNC token holders to vote – all in the spirit of being decentralised.

This decentralised governance model ensures that the Kyber Network evolves according to the interests of the community and that the wealth is kept decentralised and transparent.

Key Features of KyberSwap

KyberSwap has been designed similarly to platforms such as Sushi, PancakeSwap and Uniswap in that it has prioritised user-friendliness. Often cryptocurrency and liquidity pools can be hard to approach for beginners, so these platforms provide a bridge for newcomers into DEXs.

KyberSwap operates completely on-chain to ensure that trades are transparent and verifiable within the network. KyberSwap is based on Ethereum and supports a range of ERC-20 tokens. 

The extensive token support is achieved via the Kyber Network’s integration with multiple liquidity sources.

Liquidity aggregation & DMM

KyberSwap’s unique feature is liquidity aggregation, which combines liquidity from multiple decentralised exchanges including Uniswap, Sushi, Curve, and Balancer, as well as Kyber Network’s own crypto liquidity pools.

Using smart routing algorithms, KyberSwap finds the most efficient trading routes across different liquidity sources.

This means that the algorithm will:

• Split the trade across multiple exchanges (if it results in a better price)
• Reduce slippage by choosing the optimal trade path
• Compare rates from various sources in real-time

This novel concept is known as dynamic market making (DMM) and will adjust the parameters of liquidity pools based on the market.

KyberSwap will adjust the fees dynamically, depending on where the liquidity is being sourced from and the complexity of the trade. Using DMM is also a method of reducing gas fees, as the routing algorithm to find the liquidity will always be the most efficient.

The algorithm can also split orders across multiple liquidity sources to ensure users get the best possible price with minimal slippage.

Is KyberSwap safe?

Like any financial asset, your capital is at risk, and cryptocurrency markets are particularly volatile which you should always take into account. 

However, KyberSwap, like any DEX, offers some notable safety advantages due to its decentralised nature. Plus, as all transactions are executed on-chain, it means that they are transparent and secure, as they are almost impossible to manipulate.

Therefore, KyberSwap is a very safe and trusted platform with a TVL (total value locked) of $3.85m.

Non-custodial nature

There is no centralised account in a DEX – all users retain ownership over their own assets. Not only does this contribute to the decentralised philosophy of the platform but it also massively decreases the risk of assets being manipulated or stolen in large amounts. 

Through the KyberDAO, KNC holders can also participate in governance decisions, so they can steer the platform in a direction that they deem to be the most secure.

In summary, KyberSwap, like all DEXs, is one of the safest and most effective ways to trade cryptocurrencies.

What is the difference between KyberSwap Elastic and Classic?

Providing liquidity can be done in different ways in a DEX. Before, when DEXs were relatively new, liquidity was supplied in a classic format. You stake your funds into the pool and receive a reward for doing so, and your liquidity is spread out wherever it is needed.

However, almost all of the liquidity for swaps is used within a specific range. After all, it’s unlikely that people are going to be buying or selling at the top end of the range. It has been shown that in some cases, across the entire curve, almost 99% of the funds go unused, as traders are generally concentrated between two prices.

DEXs such as KyberSwap have come out with liquidity pools that allow users to concentrate liquidity into a specific price range – as Uniswap v3 has done with its concentrated liquidity pools.

KyberSwap Classic

KyberSwap Classic is the original form of liquidity and follows the traditional AMM model, where liquidity is provided across the entire price range. This can be compared to Uniswap v2 and most other AMMs.

It has a simple fee structure and is generally ideal for beginner traders.

KyberSwap Elastic

KyberSwap Elastic allows liquidity providers to concentrate their liquidity, or in simple terms, pick a specific trading range to offer their liquidity to, and is KyberSwap’s version of concentrated liquidity.

This provides potentially higher capital efficiency and reduced slippage, and will also allow liquidity providers to maximise their returns. KyberSwap Elastic offers dynamic fees and impermanent loss protection, making it suitable for more experienced traders looking for greater capital efficiency and flexibility.

The Future of KyberSwap

Like many DEXs, KyberSwap continues to push innovation in the cryptocurrency space and offer new ways for users to engage and earn. As well as liquidity efficiency and security, DEXs also have a priority of user experience to attract more novices to their platforms. 

KyberAI was released last year, which helps traders answer specific questions, and also makes cryptocurrency trading more accessible.

Conclusion

KyberSwap is a key player in the DEX community and is making its own strides in innovation, such as with the unique DMM model, KyberSwap Elastic and KyberSwapAI.

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Author

Caleb is a financial copywriter with a specialisation in fintech and forex. Former copywriter at Barclays and Paysafe. Contributing writer for LiquidityFinder. You can message Caleb here.