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KNC Reimbursement for KyberDAO Voters

Currently, for every trade facilitated through our KyberSwap liquidity pools, liquidity providers (LPs) earn a certain % fee which differs in each pool. KNC holders can stake tokens and vote on KyberDAO to receive a portion of these fees from trading activity on KyberSwap. As more trades are executed on KyberSwap, more rewards are generated for KNC voters.

The current configuration is for 10% of liquidity provider (LP) fees to be sent to the KyberDAO’s multisig 0x91c9D4373B077eF8082F468C7c97f2c499e36F5b. Fees are subsequently converted to KNC and distributed to KyberDAO voters. Remaining 90% goes to liquidity providers in the relevant pool, as described in the docs.

However, we realized that in the past, for some stable pools in our KyberSwap Classic protocol (previously called KyberDMM), which had high amplification factors (AMP), the LP fees collected for KyberDAO had been less than 10%. On the other hand, LPs for those pools had been earning more than 90% of fees. As a result, LPs earned higher APR, incentivizing more users and deposits, but KyberDAO voters ended up getting an amount of KNC rewards that was less than intended.

This was the case for a few months after the launch of KyberSwap Classic protocol in April 2021 until around early July 2022. KyberSwap Elastic protocol and pools are NOT affected.

We have fixed this issue and will now reimburse eligible KyberDAO voters with KNC rewards owed, equivalent to $329,061.30, as well as an additional $10,000 bonus in KNC! Below we explain how we derived these numbers.

Assuming no major changes, distribution has been planned for the following dates in 2023:

  • February 28, March 23, April 28, May 15

Which KNC voters are eligible?

Only previous KNC voters affected by the missing DAO fees between April 2021-early July 2022 will receive this reimbursement. Subsequent KNC stakers and voters after that period are not eligible.

Identifying the Issue

Upon review, we identified that the minting fees for KyberDAO are small for certain amplified pools due to the high amplification factor. This resulted in less fees sent to KyberDAO and hence less KNC rewards for voters. Let’s take a deeper look:

mintFee function

It calculates the new K (rootK) and then calculates the minting liquidity for KyberDAO based on the changes between rootKLast and rootK.

  • rootK = sqrt(vReserve0 * vReserve1) in case of an amplified pool.

The logic is good, however, the difference between rootK & rootKLast is very small, thus, making the amount of liquidity that we should mint for DAO is small.

swap function – real issue

Let’s take a look at the swap function and how we update vReserve0 & vReserve1.

As we see at the last few lines:

  • newData.vReserve0 = data.vReserve0 + newData.reserve0 – data.reserve0;
  • newData.vReserve1 = data.vReserve1 + newData.reserve1 – data.reserve1;

In short, we apply the change of reserve into vReserve. In cases where the AMP factor is high, delta reserve will be relatively small compared to vReserve. It makes the changes in rootK very small → which means the fee minted for KyberDAO (and rewards for voters) is very small.

  • reserve0 = 1M, reserve1 = 1M, amp = 400
    • vReserve0 = 400M, vReserve1 = 400M
    • rootKLast = 400M (sqrt(vReserve0*vReserve1))
    • totalLiquidity = 1M LP tokens (assume we mint only this amount)
  • swap 500k tokens, fee 0.02%, thus, we expect to receive 100 tokens as fee for LP (and assume 10 tokens as fee for DAO)
    • amountIn = 500k, amountOu 0p==-reserve0 = 1.5M, reserve1 = 500,724
    • vReserve0 = 400.5M; vReserve1 = (400M – 499,276)
    • rootK = 400M + 49
    • mintFee = totalLiquidity * 2 * 49 / (2 * 400M + 49) * fee_percent = 0.01224999925 LP.
    • Note that 1M LP is equivalent to ~ 2M tokens worth when adding liquidity → mintFee is only worth a few cent.

Next Steps

We have already fixed this issue on KyberSwap Classic pools. This issue is not present on the new KyberSwap Elastic pools. We now plan to reimburse KyberDAO voters with additional KNC rewards that are commensurate with the fees owed.

KNC Reimbursement for affected Voters

To compensate KNC voters affected by the technical issue, we will be adding KNC rewards for eligible voters during the next distribution.

We have calculated that roughly $329,061.30 in fees are owed to voters from the affected period April 2021-early July 2022.

Fees owed: $329,061.30378423724 (using historical prices at June 03)

  • Phase 1: $89,472.6784070599
  • Phase 2: $68,294.20378532904
  • Phase 3: $38,646.93914044114
  • Phase 4: $132,647.48245140677

How the $329,061.30 in missing fees to the KyberDAO is calculated

The total fee for each pool is calculated as follows:

This formula is calculated based on the fact that we only sent 1/amp of needed LPTokens to DAO so we should compensate DAO by 1-1/amp amount of Lp tokens. For more details, the fee that we should compensate for each pool is calculated in the following file: KNC reimbursement for voters.

Bonus $10,000 in KNC for affected Voters

As a gesture of goodwill to our long-term supporters and voters and to cover some gas costs, we will add another bonus of $10,000 in KNC (distributed evenly among all eligible voters), amounting to a total of $10,000 + $329,061.30 = $339,061.30.

This will be added to your KNC rewards owed after KIP-20. This KNC comes from the allocation of ecosystem funds for activities related to KyberDAO, as approved in KIP-20.

In general, we will be distributing this $339,061.30 (converted to KNC) as compensation to eligible KyberDAO KNC voters over 4 months.

Note: The following schedule and payout assumes KNC price remains at $0.72 or more at the time of distribution; subject to minor adjustments.

Planned Distribution Schedule:
  • February 28: $89,472.6784070599 + $2,500 = $91,972.68
  • March 23: $68,294.20378532904 + $2,500 = $70,794.20
  • April 28: $38,646.93914044114 + $2,500 = $41,146.94
  • May 15: $132,647.48245140677 + $2,500 = $135,147.48

Claiming your KNC rewards on KyberSwap

We are currently making preparations to distribute rewards.

Reminder: Only previous KNC voters affected by the missing DAO fees between April 2021-early July 2022 will receive this reimbursement. Subsequent KNC stakers and voters after that period are not eligible.

If you are eligible, you should be able to Claim your rewards on https://kyberswap.com/kyberdao/vote, starting with the first distribution on February 28.

KNC holders play a valuable and central role in the KyberSwap ecosystem, and we hope to have your continued support as we work towards making KyberSwap the No.1 venue in DeFi for swapping and earning at the best rates!

If you have any questions, please reach out on Telegram or Discord. Stay updated by following https://twitter.com/KyberDAO/.

Upcoming KIP-21

On a separate topic, regular KIP (Kyber Improvement Proposal) voting will begin again with KIP-21, at the start of the next epoch on February 28. Start staking your KNC now BEFORE February 28 in order to vote and earn more rewards. Read about the upcoming proposal here and how to stake and vote here.

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About Kyber Network

Kyber Network is building a world where any token is usable anywhere. KyberSwap.com, our flagship Decentralized Exchange (DEX) aggregator and liquidity platform, provides the best rates for traders in DeFi and maximizes returns for liquidity providers.

KyberSwap powers 100+ integrated projects and has facilitated over US$15 billion worth of transactions for thousands of users since its inception. Currently deployed across 14 chains including Ethereum, BNB Chain, Polygon, Avalanche, Fantom, Cronos, Arbitrum, Velas, Aurora, Oasis, BitTorrent, Optimism and Solana.

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