Blockchain at Berkeley To Assist ​Kyber Network’s Exchange

Kyber Network is honoured to announce the collaboration with a world-class academic institution to enhance our exchange implementation and business model.

Kyber Network and Blockchain at Berkeley announced a strategic partnership aimed at shaping the robustness and efficiency of decentralized exchanges. Bringing together education, the blockchain technology, research and innovation, the research efforts will explore topics including trading diversity, trading strategies, and trading sustainability in the context of the Kyber Network model.

The partnership between Kyber Network and Blockchain at Berkeley comes as we seek innovative reserve management and trading strategies that could benefit all involved parties of our ecosystem. With better expectation of plausible outcomes in and out of the network, the partnership could enable us to offer better services to our users, especially after we have pledged to offer our token conversion service to platforms such as WAX and OPSkins, Aptoide, Gifto, and many other platforms with millions of users. Further, the partnership also gives us more confidence to onboard reserve operators from different organizations to improve the liquidity in Kyber Network.

The research partnership between Kyber Network and Blockchain at Berkeley would take approximately 3 months to facilitate, and divided into 4 phases, starting with pre-analysis and problem statement, then designing potential solutions to the observed challenges, followed by developing concrete analysis of the proposed solutions, and lastly delivery of final report.

Research scopes

Conventional exchanges provide a platform for market takers and market makers to interact and to perform trades. Due to the utilization of orderbook, these exchanges are not exposed to any trading risks. In the case of Kyber Network however, users are only market takers while reserve contributors take on the role of market makers. By design, the exclusion of orderbook in Kyber Network’s model means that the calculated price of these tokens have to be very precise in order for the exchange to stay competitive while keeping the risk of reserve depletion low. In particular, reserve contributors should mitigate the following risks:

Depletion risk: first and foremost, the reserve should guarantee sufficient amount of tokens for sale at any time. Inventory risk: as reserve has to physically hold the tokens it offers for sale, it is exposed to volatility in inventory value. Price discovery and front running risk: a delay in price update or inaccurate price discovery could result in arbitrage profits and losses for the reserve. On the other hand, high prices would inevitably reduce the volume, and subsequently the revenue of the reserve.

It is important to note that a remedy to one issue might lead to a greater exposure for another risk. For example, the first risk could be easily mitigated by holding very large reserve for every token. However, this will expose the reserve to substantial inventory risk. Similarly, by setting high prices during inventory shortage, the token inventory is less exposed to depletion risk due to the deviation of set price from market prices. Finally, by allowing inventory depletion on rare occasions, front running losses is minimized, as the amount of possible arbitrage is capped.

In anticipation of these potential challenges, here are the parameters that will be taken into account as part of the research:

The time parameter, T, to rebalance the reserve portfolio of all tokens back to a targeted ratio after every T increment in time. There can be a base minimum T in which update of the reserve always occurs and only becomes more frequent when the price and supply volatilities of a token increases. A small value of T can mitigate inventory and depletion risks, however could increase the cost of the rebalance. The cap parameter, C, for every token in which users can buy or sell within a single transaction (or block). This cap mitigates both front running and depletion risk. C can be calculated based on the supply of the specific token in the reserve as well as the trading volume and liquidity in centralized exchanges. The price parameter, P, will be calculated for token prices offered on Kyber Network platform to remain competitive with prices on centralized exchanges. A premium on the price is essential to reward the contribution of reserve operators, but it cannot be excessive as it could turn users away from trading on Kyber Network. The lock-up parameter, L, should be integrated using a vesting framework. Longer lock-up times from reserve contributors would result in higher share of the profits made from transactions.

Kyber Network and Blockchain at Berkeley Collaboration

The comprehensive research partnership between Kyber Network and Blockchain at Berkeley connects students, faculty, employees, researchers, engineers and thought leaders to develop and exchange ideas, undertake joint inquiries and research, inspire people to act on key findings and transform concepts into reality in measurable ways.

The passion for and participation in a breakthrough technology bring people with strong interest in blockchain together.

Kyber Network CEO, Loi Luu said. “Kyber Network and Blockchain and Berkeley have come together because we have a common commitment to a positive impact on the ecosystem and we see the power of DEX to influence adoption of the technology by mainstream users. Berkeley students, energetically focused on innovation and creative problem-solving, are an excellent group to help extend Kyber Network’s ideas and creative energy.”

“With this partnership in place, Berkeley’s blockchain researchers can reach out to and propose new findings to developers at Kyber Network very quickly.” Max Fang, president of Blockchain at Berkeley, said in a statement. “This collaboration with Kyber Network recognizes the capability of Berkeley as a leading institution as well as a leader in the blockchain sector.”

“We at CrypyoParency and [email protected] are proud to be partnering with Kyber Network to improve and revolutionize the DEX sector of blockchain,” said Steven Chen, managing partner at CryptoParency and advisor to Blockchain at Berkeley.