The Kyber Network has led the DEX pack in 2020, boasting the most liquid and efficient trading platform at press time. But with token-based governance proposals on the horizon, the network faces a few centralization concerns.
Key Takeaways
- Kyber Network has witnessed blockbuster growth in DEX usage and activity during Q1 2020.
- Accumulation of KNC is underway as staking nears and price outperforms BTC by over 150%.
- Concentration of KNC amongst whales is a cause for concern as the token will be used in the governance process on KyberDAO.
- Competition is brewing and Kyber needs to keep its eye on the prize to continue to dominate the DEX niche.
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Decentralized exchanges (DEXes) grew exponentially in 2019, and Kyber Network has continued that growth into 2020 as protocol adoption snowballs.
Kyber’s Stellar Growth in 2020
In the first few months of 2020, Kyber Network has cemented its place as a top-tier DEX with liquidity and optimal prices.
KNC, the DEX’s native token, continues to the crypto community’s attention as the network inches closer to the KyberDAO and Katalyst upgrade, which will introduce staking.
Addresses interacting with the network have increased by 438% since January 2020. Broader DEX usage posted record trading volumes in March, which likely accounted for the surge in Kyber’s usage.
Ethereum addresses holding KNC have increased 11% over the year. Despite being down 42% from its peak in March, the price of KNC is still up 154% YTD against BTC.
As the price compounds, more KNC investors will emerge, albeit only a portion of them will go on to become stakers.
When staking goes live, Kyber’s token economics are expected to improve as each token can be given an intrinsic value. This value is based on the amount of fees each staked token will accrue.
However, there is one aspect of significant concern for the network and its stakeholders.
KNC Centralization and Governance
Kyber, like many crypto-based networks, risks concentrating KNC tokens in the hands of a few holders.
Exemplary of this is the 18 unique addresses which hold more than half of all outstanding KNC.
This is far more concerning for Kyber as the protocol has plans to use the token for network governance. MakerDAO has already proven that this setup to be problematic.
Voting on MakerDAO executive proposals is often skewed because of the existence of large whales that hold a significant amount of MKR, the protocol’s governance token.
A single whale captured 96% of total votes, but only because total participation was from 1.58% of tokens, via MakerDAO.
Centralization is a risk going forward that must be kept in mind while designing Kyber’s governance framework. It can be easily mitigated, however, by encouraging many smaller accounts to vote.
DEX Competition Ahead
KNC price has benefited from Kyber’s increase in market share during late 2019. But in recent months, 0x has transformed itself from a fringe player to a major competitor.
As more competitors emerge, Kyber will have to continue growing in terms of liquidity and efficiency, or they will be relegated from the top-tier.
So far, the network has navigated this competition gracefully via key integrations, which have supported Kyber’s liquidity chops. More integrations with dApps such as Set Protocol and Nuo will continue to improve order book depth by drawing liquidity from various corners of DeFi to serve its end users.
Staking and the KyberDAO will give the network a new life by improving liquidity and putting governance in the hands of the community.
The growth in addresses using Kyber and holding KNC should continue to see momentum if Kyber continues to grow its volumes.
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