Kyber is a fully on-chain liquidity protocol that powers instant and secure token exchange in any decentralized application, and one of the top liquidity providers in the decentralized finance (DeFi) space. This can be largely attributed to our flexible reserve system which has the ability to aggregate a wide range of on-chain liquidity sources (reserves) and allow providers to contribute liquidity in many different ways.
For instance, many token teams and individuals set up an Automated Price Reserve (APR) for capital efficient, low slippage market making directly on Kyber, while professionals are able to utilise KyberPRO’s Fed Price Reserve (FPR) for greater control over pricing, inventory, and risk.
Kyber can also bring liquidity from other external on-chain sources, such as Uniswap, Oasis, and Bancor (more are being added over time) into our network by creating new specialized ‘bridge reserves’. The main motivation for allowing the creation of any type of reserve and bridging liquidity from multiple external providers into Kyber is to enable Kyber to be the single on-chain liquidity endpoint for takers and makers.
Ultimately, when a user requests a trade, the protocol will scan the entire network to find the reserve with the best price and take liquidity from that particular reserve. With Kyber, they can receive the best possible price (quote) for each trade most of the time, without having to go through the trouble and costs of integrating multiple systems.
We are always looking to enhance overall liquidity on Kyber while delivering a sustainable liquidity infrastructure for DeFi, and part of the process is optimizing our existing bridge reserves and creating new reserve types based on prevailing market needs. We made several updates to the bridge reserves, which we expect will help bring more liquidity and volume to Kyber.
1. Curve Finance Bridge
Kyber’s ETH-stablecoin liquidity has now been enhanced thanks to our new Curve Finance bridge, which integrated some of Curve Finance’s liquidity pools. This enables better rates and bigger trades for the DAI, RENBTC, SUSD, USDC, USDT tokens!
2. Hybrid Bridge Reserve that splits the trade optimally between Uniswap, Sushiswap, and Curve
As Uniswap and Sushiswap have the same mechanism to calculate the conversion rate, we have applied mathematics to develop the optimal split algorithm between these 2 liquidity sources, ensuring the best on-chain rates possible, with minimal gas consumption. In addition, we combined the new Uniswap, Sushiswap, and Curve bridges into a single hybrid bridge reserve — another good example of the versatility of Kyber’s reserve system. Together, they support the DAI, RENBTC, SUSD, USDC, USDT tokens.
3. Balancer Bridge Reserve
We also integrated Balancer pools and created a Balancer bridge reserve, sourcing liquidity for the MKR and WBTC tokens. Due to the creation of these new reserves, DApps that are using Kyber are recommended to use a gas limit of 650K for ETH-MKR and 750K for ETH-WBTC token pairs. For more details on gas limits, please refer to our developer portal.
4. Advanced Reserve Routing to save gas
We developed a new Reserve Routing system to reduce gas fees, allowing users to enjoy up to 60% in gas savings! During a token swap, Kyber Network’s smart contracts can be routed to use specific reserve(s), instead of always searching through multiple reserves for the best rates. As such, DApps now have the option to reduce gas consumption by pre-determining the best reserves to use before the final transaction. For example, KyberSwap.com is already using reserve routing to optimize gas and is a good reference for other DApps.
These new bridge reserves once again highlight that Kyber Network’s flexible reserve system can be utilised by developers to build any kind of customized reserve to meet their unique liquidity needs. New bridge reserves can in turn be supported by KyberSwap and any DApp/platform that has integrated our on-chain liquidity protocol.
A key goal for Kyber is to deliver a sustainable liquidity infrastructure for DeFi that is built upon real network growth (with rewards determined by actual network fees collected) and can weather all seasons. This requires Kyber to charge fees from bridge reserves, yet still ensure that our overall liquidity and competitiveness aren’t compromised.
Previously, volume from external bridge reserves contributed 0 fee to the network and their fee_flag was set to False, even though Kyber’s APR and FPR reserves are charged network fees whenever trades are performed.
With KIP-4, we have changed the bridge reserves fee_flag to True and now allow bridge reserves to be charged the same network fee as APRs and FPRs. This levels the playing field for token teams (using APR), professional market makers (using KyberPRO’s FPR), and bridge reserves, as well as addressing some of the issues caused by bridge reserves earlier. Moreover, this provides additional incentive for the Kyber community (the KyberDAO) to drive more innovation as well as create more bridge reserves.
KIP-4 is bolstered by the approval of KIP-3, which reduced the Kyber Network fee parameter from 0.2% (20bps) to 0.1% (10bps), immediately boosting overall liquidity.
We expect the aforementioned bridge reserve upgrades to induce healthier competition among all reserves, improve overall token swap rates for integrated DApps and end users, and increase rewards and token burns for KNC holders. Kyber will constantly review new, popular on-chain liquidity sources and determine their potential for further optimisation of our reserve system.
These upgrades will complement our new KyberPRO framework for professional market makers and our upcoming generalised reserve system for DeFi developers, greatly enhancing liquidity on Kyber. In addition, we are in the midst of researching and developing a new permissionless system for liquidity contribution.
Through these various efforts, Kyber will provide takers and makers with a single on-chain endpoint for all their on-chain liquidity needs, while creating a well-balanced and sustainable liquidity infrastructure for DeFi.
Onward, Kyber Network!