Katalyst Approaches: KNC Surges Ahead of KyberDAO Launch Date
Examining the change in KNC's tokenomics as a result of the upcoming Katalyst upgrade on July 7th.
|Coopahtroopa||Jun 30|| 1|
This time next week, Kyber will implement a suite of protocol changes set to fundamentally rework the way KNC fuels the third-largest DEX by trading volume.
For those who missed it, we covered Kyber on Token Tuesdays back in April. Since then, KNC has seen strong growth - surging from $0.45 at the time of publishing to $1.20 today.
While many would be quick to suggest they missed the train - we’re here to tell you we’ve only just gotten started.
You’re reading a free glimpse of a paid Token Pick. We’re winding down the free pieces to once per month, so be sure to subscribe to stay in the loop!
The launch of Katalyst will mark the inaugural summoning of KyberDAO - a distributed framework giving tokenholders the ability to vote on major decisions like protocol fees, supported assets, and new feature prioritization.
Most importantly, users will be able to stake their KNC within KyberDAO to participate in governance. Those who are most active stand to earn a pro-rata share of Staking Rewards denominated in ETH.
These incentives were solidified last week as a part of the Pre-DAO Poll in which existing community members voted on how to allocate Kyber’s 0.2% protocol fees - estimated to amount to ~$3.4M in annualized earnings according to Token Terminal.
With the launch of Katalyst, ETH protocol fees will be split as follows:
65% to Staking Rewards
30% to Liquidity Provider Rebates
5% to KNC token burns
Following in line with the hottest trend of DeFi governance, Kyber has set a strong foundation for participation through the introduction of Pool Masters, or KNC Delegates.
Best exemplified by DeFi Dude’s newly announced Kyber Community Pool, users with small amounts of KNC will be able to delegate their voting weight to the Community Pool, ensuring that their stake is used to vote on every proposal and collect the maximum amount of ETH rewards.
This precedent of putting your holdings to work to earn ETH is one of the first we’ve seen in action, and serves as an added value proposition for those who are paying attention.
The decision to allocate the majority of protocol fees to Staking Rewards also goes to show that those who are active stand to benefit the most - a notion which we’ve talked about ad nauseam here on Token Tuesdays.
Based on current estimates, the 65% of Staking Rewards is estimated to collect roughly $2M in ETH rewards this year, and this is all before taking into account the changes Kyber’s DEX will undergo with Katalyst.
Optimizing Kyber Network
Underpinning the migration to KNC as a governance token is a suite of underlying protocol changes set to increase usage of Kyber Network at large.
In the past, Liquidity Providers in the Kyber ecosystem - called Reserve Managers - needed to maintain a KNC balance, which in turn was collected regularly and burnt as network fees.
With Katalyst, the need to hold KNC is removed, meaning far more applications and liquidity providers can tap into Kyber at little to no entry cost.
Similarly, Katalyst introduces Reserve Routing, giving traders the ability to pull liquidity from all different Reserves to seed the best token price possible.
Supplemented by Rebates, those routing the most volume through Kyber also stand to earn a pro-rata share of 30% of Kyber’s 0.2% protocol fees. This notion of getting ETH-back to use a DEX’s liquidity serves as a strong reason to integrate and encourage usage over competitors with higher rates.
Last but not least, partners can now choose their own spread - removing the previous fee-sharing program in which 30% of the 0.25% fee was kicked back to the provider. This means an application could choose what fee to set depending on their usage. This incentive to determine the spread gives applications the ability to build deeper business models, further propelling the growth of Kyber’s liquidity at large.
Here’s an awesome recap on all this.
Instantiating Positive Feedback Loops
Perhaps the most exciting aspect of Kyber is the positive loop that is governed by KNC tokenholders. Rather than receiving rewards in KNC which need to be liquidated to secure profits, ETH rewards further encourage demand for KNC - especially with the notion that staking more of your KNC equates to a higher amount of Staking Rewards.
Given that Kyber has long since had one of the strongest communities to date, we expect there to be no shortage of KNC shilling upon the release of Katalyst.
Despite this fact, the notion of being able to stake KNC for ETH rewards will take some catching on to. If you’re reading this post, you could very well be one of the first to capture Staking Rewards before it breaks wind to retail audiences.
Most importantly, that 65% allocation to Staking Rewards is malleable. If for some reason the community decides to start incentivizing liquidity more, decentralized governance is able to make that decision in real-time, rather than waiting on the core team to make that decision for them.
If nothing else, the launch of Katalyst is yet another signal that the DeFi token bull run is alive and well - and we expect this trend to gradually propel KNC back to it’s 2018 prices over the coming year.
If you enjoyed this recap, be sure to become a paid subscriber. This is a teaser into what our paid Token Picks articles look like, and we’ve got plenty more projects in mind.
Until then, we’ll see you in the Kyber governance channels!
Disclaimer: Fitzner Blockchain is long KNC. As always, we recommend doing your own research and investing at your own risk. Never invest more than you are willing to lose and recognize that as with any passive income opportunity, there may be unforeseen risks.