KyberDAO considerations, KNC staking, voting, and claiming KNC rewards
UPDATE: KNC has been upgraded. Please read about KNC’s new utility and tokenomics here.
A very big welcome to the many new members that have joined our community over the past few weeks! This is a follow up on the previous Katalyst post, where we elaborated on our plans to upgrade the protocol to further drive our objective of becoming the single liquidity endpoint for DeFi.
In this post, we will do a quick progress update, then jump right into understanding some of the key design principles and mechanisms of the KyberDAO, including details on how staking, voting, and delegation works.
Quick Progress Update
Our ongoing work to grow decentralized liquidity over the last few months is documented here in a comprehensive ecosystem report.
More recently, during the period of extremely volatile market conditions in both the macro and DeFi spaces, Kyber managed to maintain strong liquidity throughout (due to our robust system and diversity of liquidity providers), while setting record volumes ($33.7M in 24H, ~$200M in a month, in March) despite the overall market downturn. We view our role as the liquidity endpoint for DeFi seriously, and while we are happy that we passed this test, we will continue to strengthen our tech robustness, liquidity depth, and diversity of liquidity providers.
On the Katalyst front, we have started a new channel for governance and community discussions on our official Discord server and created a KyberDAO twitter account for governance-related updates. We have also successfully deployed Katalyst on the testnet and all critical functions are working as intended in this test environment.
Security is our utmost priority, and we are currently undergoing a series of comprehensive smart contract audits for both the KyberDAO as well as a set of crucial new features, including liquidity pool routing, which allows takers to spread their trade across pools (even from other DEXes) via a fully on-chain mechanism. More details will be shared in an upcoming Technical Update in April. We are on track for a launch towards the end of Q2.
As highlighted in our Katalyst announcement post, Katalyst puts KNC holders right at the heart of Kyber. The token and its holders will now play a critical role in determining the incentive system, building a wide base of stakeholders, and facilitating economic flow in the network.
The main mechanism for achieving this will be the KyberDAO, a conduit for a set of on-chain and off-chain governance processes to align incentives and streamline collaboration between the Kyber team, KNC family, and market participants.
There are 3 key areas of consideration for the KyberDAO:
- Broad representation, transparent governance and network stability
- Strong incentives for KNC holders to maintain their stake and be highly involved in governance
- Maximizing participation with a wide range of options for voting delegation
1. KyberDAO Overview
The KyberDAO (https://kyber.org/ → Bookmark this!) and governance process was designed to empower our KNC community with fair representation on topics that are meaningful to them, ensure maximum viable transparency on voting and post-vote execution, while ensuring the security and stability of Kyber Network.
Broad And Meaningful Representation
Please note that KNC has been upgraded. Please read about KNC’s new utility and tokenomics here.
Given that KNC holders and KyberSwap users are the main beneficiary of increased activity and growth, they should be the ones who determine the key parameters of the network.
KNC holders will vote on deciding the network fee (a % of KyberSwap trading activity), how the network fees will be allocated to maximize growth, as well as value creation options. As a quick recap, some topics KNC holders will vote on include:
- Voting Rewards (in KNC): Immediate value creation. Holders who stake and participate in the KyberDAO get their share of the fees designated for rewards. They can vote on changes to the % of the KyberSwap fees that goes to voters.
- Liquidity Incentives: Value creation via network growth. By rewarding Kyber liquidity providers through liquidity mining, it helps to drive greater volume, value, and network fees over time.
- Changes to Kyber Network and KyberDAO: Major changes to the Kyber Network or DAO system needs to be decided by the KNC community.
Every single KNC holder will share responsibility in the critical task of determining the appropriate set of parameters for various scenarios that will best drive long term protocol growth and sustainability.
For example, setting a high fee, and having network fees all going to KNC holders will increase staking rewards but reduce competitiveness. Conversely, having no fees and rewards will lead to lower demand for KNC and a lack of incentives for takers and makers. These are decisions that we will now make together as one KNC community.
Transparency and Stability
The KyberDAO is designed for maximum viable transparency, network stability and quick recovery in cases of emergencies. The Kyber team will serve as the current maintainer of the KyberDAO. We believe it is important to build the system to be as verifiable as possible while being transparent and clear about our role in the DAO.
All processes and data will be stored and processed on-chain where feasible. For example, once the voting for network fees and allocation ratio is concluded, it will be executed on-chain and no one will be able to change that. Where it is not practical, there will be a set of robust off-chain community and governance processes to ensure that DAO decisions are followed through.
Given that Kyber is an important part of the decentralized infrastructure, network stability is crucial for the hundreds of traders, DApps and liquidity providers that depend on us. To reduce spamming and abuse, the Kyber team will take on certain key roles, including putting up proposals for voting, protecting against malicious activities, and ensuring KNC emissions and liquidation is done at a suitable rate.
It is important to note that changes can be monitored by the community since these operations will be done fully on-chain where feasible. The full set of technical details on what the Kyber team will manage is listed here.
As the current DAO maintainer, we take the role of facilitating discussions, driving open and transparent decision making, and executing (and following through) the formal DAO processes very seriously.
If we perform this balance well, our legitimacy will continue to grow, participation will increase, and the community’s understanding of the key operations will be sufficient to allow us to gradually move more operations towards DAO votes, including network features, technical upgrades or protocol upgrade decisions.
We believe that this progressive decentralization achieves the main goals ofbroad representation, transparency, resilience, and network stability — and we would love to work with the community to continuously improve both the on-chain and off-chain processes as we continue to evolve.
2. Staking, Voting, And Reward
In this section, we describe the key concepts and mechanisms behind staking and voting, as well as provide an example of how these work together. Staking, voting, and claiming of KNC rewards all require gas.
Staking and voting are done in epochs, which just means fixed periods of voting time, denominated in Ethereum block times. One KyberDAO epoch period will last about 2 weeks before the next one begins.
The benefits of this short epoch period are faster reward distribution and DAO conclusion (hence faster decision-making). The cons are that there needs to be at least one voting campaign every 2 weeks, resulting in more work for the Kyber team, as well as more frequent participation required from KNC stakers.
In every epoch, there will be one or more campaigns, and each campaign will have several options. It is important that voters vote for all the campaigns since they only receive rewards for campaigns that they voted in.
We expect busy stakers to delegate their voting power to 3rd party “pools” to vote on their behalf, with these pools being able to dictate their fees and independent voting decisions. Since they are expected to share in the rewards. and their voting decisions will be fully transparent on-chain, they are expected to both be proactive in voting as well as communicating on the rationale of their decisions. Centralized exchanges such as Binance can also allow their users to stake on their exchange and vote, claim, and distribute rewards on users’ behalf.
This is an important part of the KyberDAO setup, and we expect to have a range of options for KNC stakeholders, both in terms of their preferred method of delegation as well as types of staking partners.
Reward Distribution For Individual KNC Holders
The reward distribution is designed to incentivize stakers to vote in all the campaigns.
After every epoch, there will be fees set aside for voting rewards from KyberSwapand other protocols in the network. The total amount of rewards is decided by a few main factors: trade volume, network fees decided in the previous epoch, and proportion of fees allocated for voting rewards. The network fee percentage and fee allocation ratio are decided by the KyberDAO.
As an individual KNC staker, your share of the rewards received after the epoch will be determined by your voting points (the amount of KNC you have staked during the epoch x the number of campaigns you voted on), in proportion to the total voting points of all KNC stakers.
Assuming you (and all the other stakers) voted for all the campaigns in that epoch, your share will be proportionate to your KNC staked vs. the total amount of KNC staked by all. If you as a KNC staker did not vote, you would not receive any rewards. If you only voted for one but not all the campaigns in that epoch, you would receive less than what you actually could have.
Assuming 65% of network fees go to Staking Rewards, and $1M worth of fees are collected, $650k will go to KNC holders who stake AND voted.
Let’s use Tom as an example. Tom is an individual KNC holder who staked 100k KNC. His share of the rewards received after the epoch will be determined by his voting points (the amount of KNC he staked during the epoch multiplied by the number of campaigns he voted on), in proportion to the total voting points of all KNC stakers.
- Available rewards in a month: $650k
- Total no. of KNC staked and used to vote: 100M
- Total no. of campaigns: 1
- Tom staked and voted with: 100k KNC
- Tom’s voting points: 100k KNC x 1
- Tom’s share: 100k KNC / 100M KNC = 0.1%
- Tom’s expected reward: 0.1% of $650k = $650
For a very rough KNC reward estimate, you can try out these unofficial reward calculators made by the Kyber community:
If Tom does not vote, he will not receive any rewards. If he is busy, Tom can choose to delegate his vote to a 3rd party KyberDAO pool operator who will vote on his behalf and help distribute rewards to him for a small fee. Alternatively, if a centralized exchange offers this service, Tom can stake his KNC on that exchange, and they will vote on his behalf and transfer his rewards back to him.
A: Initial Staking and Voting
- Epoch 10: Tom stakes 10,000 KNC. He cannot vote with this stake in this epoch, only in the next.
- Epoch 11: He can now vote with his 10,000 KNC worth of voting power on all the campaigns
- Epoch 12: He will be able to claim his staking reward from participating in the last epoch. There is no need to re-stake, he can continue to vote with his 10,000 KNC. Any unclaimed rewards can be claimed at any moment in the future.
B: Staking More KNC
Assuming Tom loves Kyber and decides to play a bigger role in voting:
- Epoch 13: He buys 5,000 more KNC midway and stakes it as well. However, his voting power for this epoch will still be the initial amount staked at the beginning of the epoch, which is 10,000 KNC. He votes in the poll.
- Epoch 14: He can claim rewards for the 10,000 KNC voting power used to participate in voting in the previous epoch. Starting from this epoch (epoch 14), he will be voting with 15,000 KNC.
- Epoch 15: He can claim rewards for the 15,000 KNC that he voted with during the previous epoch.
C: Withdrawing KNC Stakes
Tom can withdraw his stake at any point during the epoch. His voting power (and hence rewards) for that epoch will be counted as the lowest amount he had after voting.
For example, in epoch 16, Tom voted while having 15K KNC, then midway through the epoch he withdrew 3K KNC. Although he voted while having 15K KNC, his voting power will only be counted as 12K KNC. So in Epoch 17, he will receive rewards only for 12K KNC.
D: Delegating KNC voting power
If Tom wants to delegate his staked KNC power to his friend Mary, Mary has to provide her Ethereum address that she will vote with. Once delegated, Mary possesses Tom’s KNC voting power for the NEXT Epoch. In the current Epoch, Tom still needs to vote on his own to be eligible for rewards. Mary can only vote on Tom’s behalf from the next Epoch onwards.
Tom always retains full control of his KNC staked, but since Mary is voting on behalf of him, she will receive his KNC rewards. Mary is responsible for sending Tom his share of the rewards.
No Minimums, Lockups, or Slashing
- No Minimum KNC: To maximize participation, there will be no minimum on the KNC required for staking.
- No Lockups: Users will always be able to withdraw the full original amount of KNC staked on the KyberDAO smart contracts at any time, even if they do not vote or claim rewards. There is also no custodian and no time limit for them to claim rewards on the KyberDAO. However, withdrawing your staked KNC might affect your voting power and rewards claimable for the current and subsequent epochs.
- No ‘slashing’: Unlike other staking mechanisms, where you need to run a node and your staked tokens could potentially be confiscated by the network during black swan ‘slashing’ events/an inability to fulfill validator duties, on the KyberDAO you can always withdraw the same amount of KNC you originally staked.
3. Staking And Delegation Options
One of the most important considerations is to make KyberDAO participation as easy as possible. We want to allow KNC stakers who are unable or have limited resources to participate in every KyberDAO vote to still receive rewards for staking, while providing the resources for others to vote on their behalf.
At launch, there will be several options for users to stake, vote or delegate, depending on their ability to participate and their preferences for the type of experience they prefer (for example between custodial and decentralized solutions).
Kyber.org: The Default DAO Interface
The default way to stake and vote KNC is through our main KyberDAO interface. The KyberDAO will be hosted on the domain Kyber.org and this will be the main staking and voting interface for the Kyber community to participate in governance. We plan to move this to KyberSwap.com in the future.
To stake KNC and vote on the KyberDAO, KNC holders will need to connect their Ethereum wallet and spend gas on all on-chain actions.
Common wallet connection options such as Metamask, Ledger, Trezor, Coinbase Link, and WalletConnect will be supported. All staking, voting, and claiming of rewards are done on-chain and require gas.
KyberDAO on Mobile
By default, the full Kyber.org will be accessible on all mobile wallets by using their DApp browser. We are also in talks with popular crypto wallets to provide an easy native interface for KNC staking and voting for users. Trust, Enjin, imToken, Coinbase Wallet, Status, and Alpha wallet are some of supported crypto wallets.
Delegating your KNC voting power to Staking Pools or someone else
KNC stakers who do not wish to vote, but still want a share of rewards, can delegate their KNC voting power to a 3rd party address/ “pool master” who will vote on their behalf. They will be able to do so on the official Kyber.org interface.
KNC holders retain full control of their KNC and will be able to be withdrawn or re-delegated anytime. They have to delegate their full stake (no partial stake) and can only delegate their stake to one pool at any time.
The KNC rewards will be given to the 3rd party pool master. The pool master will then need to calculate the reward allocated to each of their pool members and have a mechanism for them to claim their rewards after. Although KyberDAO does not track or manage the distribution of the rewards, rewards due to individual members are fully recorded on-chain. Those who wish to get a detailed understanding of the default delegation system may refer here.
Please do your research on the different staking pools available. Here are some options:
Discontinued staking pools
- StakeDAO by Stake Capital (discontinued)
- Kyber Community Pool by DeFi Dude, Sasha, and Wayne (discontinued)
- xToken by Michael Cohen (discontinued)
We hope to increase the range of both custodial and non-custodial staking options for KNC holders to suit different needs. Stay tuned!
Developing For KyberDAO
While the above will be provided and deployed by Kyber (Kyber.org), there are several critical initiatives that developers can work on to be part of the KyberDAO deployment.
- Other interfaces (e.g. websites, mobile crypto wallets) to help KNC holders stake, vote, delegate, and claim their rewards.
- Custodial platforms (e.g. exchanges, staking service providers) that accept KNC, vote on users’ behalf and distribute the rewards.
- Smart contract-based platforms that allow the users to delegate their vote and get their rewards in a trustless manner.
Developers who are interested in building for KyberDAO should run through the examples above in detail for an understanding of the exact flow, and review our beta documentation and staking API. Do note that this is still in beta, and subject to change after our ongoing audits.
We will be unveiling a network of partners in the coming months, and we are also looking to collaborate with more talented developers to provide a range of other options to make it easier for KNC holders to participate.
If you are one of those, reach out to us on the #developers channel on Discord, as we’d love to discuss how we can collaborate!
In the coming months, we will incrementally be releasing more updates, as we wrap up the final parts of Katalyst. This includes the coming technical update where we share more details about the progress on the key areas of the DAO.
In addition, we will also be working hard on ensuring KNC holders have a set of user friendly, yet highly trustworthy methods of staking, voting, and delegating. As mentioned, we expect to have a range of options available at launch, and more over the coming months.
Last but not least, there will be a set of governance processes that we will need the community to be involved with. Before Katalyst, there will be a “Pre-DAO” Poll conducted on Discord for the Kyber community to vote and decide the initial set of variables to start the new network with. We will be releasing updates on the Pre-DAO in our official Discord and Twitter channels.
After Katalyst, a formal KIP (Kyber Improvement Process) system will come online. We will also be putting up DAO proposals based on both the areas that the Kyber team believes are important, as well as the thoughtful suggestions from the community. That will require an extensive round of discussions, and we look forward to discussing with the community.
As with everything we do, we will be diligently updating the community over all the channels, particularly on Discord. Be sure to follow KyberDAO on Twitter, join our Discord, and participate in all our discussions.
We hope this post provided readers with a clear understanding of the design philosophy behind KyberDAO, and a clear understanding of how staking and voting works.
Along with empowering the community to take a large role in our governance and processes, Katalyst will formalize KNC as the only deflationary staking token with rewards coming from network fees. Katalyst will also come with a range of technical upgrades, including on-chain trade routing. All these further positions Kyber to become the primary liquidity endpoint that the DeFi ecosystem can rely on.
Liquidity is a critical aspect for the decentralized economy, and we cannot be more excited to work with KNC stakeholders, the DeFi ecosystem and the larger crypto world to drive the future of decentralization together.
Bookmark this url → https://kyber.org/
For those who wish to take a deeper dive into the technical details, they can refer to our Beta staking documentation (reach out to us for the latest information).
About Kyber Network
Kyber Network is delivering a sustainable liquidity infrastructure for DeFi. As a liquidity hub, Kyber connects liquidity from various protocols and sources to provide the best token rates to Dapps, aggregators, DeFi platforms, and traders.
Through Kyber, anyone can provide or access liquidity, and developers can build innovative applications, including token swap services, decentralized payments, and financial Dapps — helping to build a world where any token is usable anywhere. Kyber is powering more than 100 integrated projects and has facilitated over US$7 billion worth of transactions for thousands of users since its inception.
KyberSwap, the latest protocol in the liquidity hub, provides the best rates for traders and maximizes returns for liquidity providers.