Decentralized exchange and market aggregator Kyber Network is gearing up to complete the final stage of its system overhaul. In a recent blog post, the network confirmed that it was going ahead with its Kyber 3.0 upgrade – a process that will transition the platform into a network of specialized liquidity pools.
Full Transformation Ready
According to the blog post, Kyber’s developers have many plans for the network’s overhaul. Most prominent is the upgrade’s ability to allow high amplification factors for pairs between wrappers on the same sheet. Simultaneously, less stable pairs like Bitcoin and Ether will be able to benefit from a five to tenfold enhancement in capital efficiency.
As the developers explained, they are looking to achieve this optimization by implementing dynamic market makers (DMMs). With this iteration of the original concept, they will be able to adjust several critical parameters of a liquidity pool. For instance, the developers will be able to customize the pool’s relative weights for each asset and set custom amplification factors to reduce slippage chances.
The upgrade will bring modifications to trading fees. Fees will be higher during periods of high volume, and they will go lower when trading volumes reduce. As the developers explained, the mechanism will help to mitigate issues with impermanent loss. Since most impermanent loss happens in periods of high-volume moves, a higher fee structure will help the protocol to maintain some upside.
The developers also highlighted the upgrade’s ability to optimize gas. Previous iterations of Kyber have consumed a considerable amount of block space and, thus, were more expensive. Kyber’s developers have admitted that this was due to the protocol using a single access point to interact with its reserves and routing paths. With the upgrade, the protocol aims for additional flexibility, allowing users to take liquidity straight from their desired source.
Kyber will also add support for cross-chain and layer-two scaling solutions, which many experts believe will be the future of the decentralized finance (DeFi) space.
Capitalizing on the DeFi Rally
Kyber has made significant moves towards DeFi in the past year. Last July, it announced a protocol update, which it published on its mainnet. Per a blog post, the Katalyst Protocol Upgrade provided Kyber’s primary DeFi solution, KyberDAO.
As the blog post explained, the upgrade will help with KyberDAO and improving its liquidity. The developers explained at the time:
“In addition, the KyberDAO will empower the Kyber and DeFi community with an actual stake in Kyber’s future, and allow them to contribute directly to our development. We have revamped the Kyber Network website to better communicate the various protocol changes and our new Kyber Network Crystal (KNC) token model.”
The upgrade also made the Kyber Network a full on-chain liquidity protocol that would aggregate liquidity from different sources and allow for decentralized token swaps in any application.