The future of cryptocurrency exchanges: Kyber Network v. 0x — should you invest?

Kyber Network and 0x may one day rule cryptocurrency decentralized exchanges. Which one has the brightest future?

Noam Levenson
9 min readNov 20, 2017

Kyber is an emerging decentralized exchange. The platform ultimately has several unique aspects that separates it from both centralized and other decentralized exchanges. Vitalik Buterin is an official advisor for the project. In contrast, 0x is a platform, not an exchange. 0x allows any user or application to set up a decentralized trading application. It is already being utilized by a number of DApps including Ethfinex, District0x, Augur, and Melonport. As such, Kyber and 0x aren’t truly direct competitors as their methods are different; however they are effectively both trying to capitalize on the decentralized exchange market.



Kyber details:

  1. Today, decentralized exchanges face a problem. The issue is how to connect buyers with sellers. Some solve this via order books kept on chain. The issue here is that then there is a fee for every order placed (even if it’s later canceled). Some attempt to solve this by instead conducting the matchmaking off chain via an intermediate party — only moving on chain for the actual trade — this is how 0x solves the problem. The issue with this is that is then trust needs to be placed in the hands of an intermediary. Kyber solves this with reserves (read more later).
  2. Instant exchange which creates a faster and safer transaction
  3. No modification of code to adopt new coins — this prevents bugs and errors from corrupting the network. Smart contract already allows for seamless coin integration.
  4. API allows for merchants to accept any currency but still get paid in ether.
  5. Wallet and API allows for a user to pay for goods in one cryptocurrency and convert it to the necessary currency, seamlessly and in one process. Imagine that an ICO only accepts ether. You can send NEO to the address, Kyber converts it to ETH, and the ICO accepts it — all the merchant sees is that you sent ether.
  6. No fees besides the associated gas
  7. Future advances trading abilities such as forwards and options. These will allow people to hedge against Ether’s price. As an example, imagine you want to participate in an ICO in three weeks. You can buy your ether now and risk the price of ether dropping, or you can wait to buy your ether and risk it rising. With Kyber, you can utilize a forward to agree to the future purchase at today’s price.
  8. Future cross chain trading — think atomic swaps
  9. Exchange rates are readable by smart contracts — thus, imagine a network where an exchange request is broadcasted, and all relevant rates are compared across all relevant exchanges, and the best one is selected.

0x details:

  1. Unlike Kyber, which exists entirely on chain, utilizing reserves for conversion and exchange, 0x has a hybrid method. Matchmaking is done off chain and only brought on chain for the transaction. Anyone can act as a matchmaker by maintaining an order book of open orders. The programmable smart contract allows the market maker to set a fee for service for managing the transaction. A seller submits a sell order. This is accepted by the matchmaker and posted in the order books. A buyer comes along, accepts the sell order and the transaction is moved on chain and executed by the smart contract. While ultimately, no trust is required in the matchmaker in the actual transaction, one must still trust them to accept all relevant orders.
  2. Sellers can submit two kinds of sell orders, private and public ones. Public orders are exactly what is explained above — a generic order that can be filled by any buyer address. Private orders are specifically for one buyer address. Private orders can be completed over any network (Facebook, WhatsApp, SMS, etc.).

Additional Relevant Kyber Information:

Kyber utilizes reserves for their network. Reserves are how they provide liquidity for the network. There will always be a singular reserve that is managed by Kyber that provides an appropriate amount of crypto tokens for transactions. However, there are also additional reserves, both public and private. Private reserves are simply private coin holders who wish to act as a source of tokens for exchanges. Reserve managers can set their own rates. They also get access to far greater exposure by using Kyber. Public reserves are similar except that they can receive contributions from the public who then share in the profits. This allows longterm holders to capitalize on some of their assets now and make a profit. Kyber’s platform also offers tools for reserves that assist them in managing and rebalancing their portfolio. All reserve transactions are managed by the smart contracts so no trust of reserve managers is necessary.

In a practical example, imagine that you want to convert Golem to Ark. You send Golem to Kyber. Kyber examines all the possible exchange rates from all the possible reserves on Kyber and chooses the best rate. The reserve then receives Golem and the smart contract sends Ark in return.

Reserves also provide liquidity for lower market cap coins since it is impossible for Kyber to list all the tokens, but there is likely someone who wishes to create a reserve with that coin.

Reserves also provide a kind of free market competition for low exchange rates.

Unique Token Valuation

  • Kyber Supply: A maximum amount of coins minted will be 226 million tokens. Currently there are 134,132,697 in circulation.
  • 0x Supply: Capped at 1 billion tokens. Currently there are 500 million in circulation
  • Kyber (KNC) Value: fees paid by reserves to the network are in the form of KNC. Thus, reserves need to stockpile tokens as they are a vital component to the eco system.
  • 0x (ZRX) Value: As with Kyber, fees are paid by buyers and sellers to the matchmaker. In addition, holders of ZRX are entitled to participate in the decentralized governance of 0x — voting on upgrades and changes to the system.
  • Kyber Inflationary/Deflationary Factors : All tokens paid in fees by the reserves are burnt after paying for operation expenses. Fees are a percentage of the coins in circulation so the supply will never by exhausted. Ultimately this creates an upward price movement as more users adopt Kyber.
  • 0x Inflationary/Deflationary Factors: Over the next four years, the token supply will double. Unlike, with Kyber, there is no burning of tokens. Tokens used for fees are simply recycled in the ecosystem.
  • Kyber Allocation: the token was allocated via an ICO. 19.5% of tokens are held by the company. 19.5% are held by founders, advisors and seed investors. 61% is held by the public.
  • 0x Allocation: 50% of tokens were sold to the public during the ICO. The additional allocation breakdown is such: 15% held by 0x, 15% held in a developer fund for the purpose of developing projects, 10% held by the founding team, 10% held by early investors and advisers

— Conclusion —

Why I like Kyber:

I really like the prospects of this platform. I think it solves many of the issues facing decentralized exchanges at the moment. Its role in facilitating the adoption of crypto could be huge and within crypto, it will be critical in supporting cryptocurrency which will have an ever increasing amount of tokens. It’s API and wallet offer user friendly systems for the platform. I like how there is an intrinsic worth to the KNC token and that it’s demand is proportional to the amount of people who use Kyber. The burning of tokens is a solid deflationary method. I think Kyber is a solid short term investment, especially considering its recent drop to just 2X its ICO price. Longterm, it is a risky yet potentially highly profitable investment.

Concerns for Kyber

  1. Much of the project is undeveloped. Whether it can achieve what it aims to achieve requires a lot of supporting technology as well — some of which is still in its early stage. Examples of technology that Kyber will rely upon includes: Melonport, Polkadot, and Cosmos. If this tech doesn’t come to fruition, or takes longer than expected, Kyber will suffer.
  2. I can see a bit of a “chicken and egg” scenario developing. Much of Kyber’s potential lies in its ability to create a robust reserve network — ultimately keeping rates low and supporting liquidity for a wide selection of tokens. People will only begin using Kyber when this occurs. Reserves will only come when it is profitable — profitability depends on a larger user base. Thus the potential issue.
  3. Limited to ER20 — this problem isn’t unique to Kyber, but their growth potential is limited until cross-chain conversions are possible.
  4. Autocorrect changing Kyber to Cyber every single time I type it — just kidding, kind of…

Why I like 0x:

0x is far less ambitious than Kyber. This means that right now, it’s simple, functional, easy to use model is the go to platform for decentralized exchanges. The fact that already, DApps are using them gives them a big advantage over Kyber. Over the next couple of years, I think 0x could own the decentralized market making them a great investment. Longterm, I think they are overtaken by more advanced trading platforms.

Concerns for 0x:

  1. Unclear about how governance will work — as of now, there is very little information on how the actual voting model will work. Within the token code, there is nothing relating to governance. This will come, but we saw with the DAO hack the risk of design flaws in regards to this.
  2. The potential for buyers and sellers to cut out the middleman — there exists the potential for fee avoidance by buyers finding sellers on the order books, contacting them directly, and performing the transaction privately. This would eliminate a huge value for the ZRX token.
  3. Risk of arbitrage — because 0x isn’t instant, users are vulnerable to savvy traders who can take quick advantage of stagnant orders on the book during rising or falling prices. The same can be said for limit orders on centralized exchanges — however with say Bittrex, the option for putting a market order is always available.

—Ultimately, the decentralized market needs a Kyber like platform — with its guaranteed liquidity, instant conversions, advanced financial tools like forwards and options, and cross chain trading. 0x is winning now because Kyber can currently do none of this. 0x will likely always have functional use but I think that they are vulnerable to competition from more advanced platforms long term. Whether Kyber is the one that accomplishes this remains to be seen.

— On a side note —

We should all understand the dangers and potentials for front running with regards to decentralized exchanges. This applies to both 0x and Kyber. I don’t know if you all know what front running is (I didn’t) so I’ll explain it. The term comes from old stock exchanges where orders were literally submitted by hand. Brokers would literally walk across the room with their trade order. A broker could thus quickly write their own trade order and run in front of the other traders to benefit from the transaction themselves.

In blockchain, miners can do this. Because the miner can see the buy and sell orders coming in and ultimately control the order in which the transactions are confirmed, he or she could write a new order for themselves, submit it before the original buy order, and profit. Even more maliciously, because buying bumps the price slightly, the miner could receive the original buy order (A); then he would write his own buy order (B). Immediately after B executed, he would sell his newly acquired tokens at a slightly higher price to the original A order. Nice, quick profit.

This doesn’t happen with bitcoin because every transaction is one to one. It happens with Ethereum because there are multiple users vying for the same resource. Neither 0x or Kyber solves this.

Disclaimer: This is not a recommendation to buy or sell cryptocurrencies or tokens. Do your own research and make your own investment decisions. I am not invested into either of these projects. If you appreciate this content, hold down the clap button for me!