Loi Luu has been involved in the blockchain technology ecosystem since the early days, and is very active in developing open sourced tools that the community can use to audit executable distributed code contracts (EDCCs), also referred to as smart contracts. He previously developed Oyente, a security analyzing tool designed for EDCCs, and is the co-founder of SmartPool, a decentralized mining pool project. His latest endeavor is to generate a decentralized exchange called the KyberNetwork
ETHNews had an opportunity to speak to Luu about his latest project KyberNetwork, which he describes as a decentralized trustless version of Shapeshift. He said:
"We run everything on smart contracts, so you don't have to trust us, and you don't have to deposit your coin or your token to our account. Secondly, we allow anyone who has enough liquidity to register with KyberNetwork to be one of the liquidity providers."
The network is designed to present a level of interoperability between a recipient who wants a specific token as a payment and a paying party that does not possess that type of token. By introducing a layer of EDCCs which interface with wallets, KyberNetwork can facilitate payments across blockchains without forcing the code to be modified. This is made possible by leveraging KyberNetwork’s own reserve, commingled with private parties that also stake a share into reserves against the swapping of tokens governed by EDCCs. Reserve managers feed exchange rates to KyberNetwork’s EDCCs that dictate token swaps through listed token pairs, allowing a user to send any kind of token to the network and have their target recipient get the desired token for the equivalent exchange rate (minus network fees).
In a recent blog post, KyberNetwork revealed how liquidity weighted price (LWP) will be used to assess token values. “LWP will average the current prices from all exchanges based on the available liquidity or depth. This mechanism is the same across all the reserve managers, but they have a way to adjust spread.”
KyberNetwork’s reserve contributors will be allowed to provide their portfolio as a means of leveraging liquidity to the reserve. KyberNetwork will provide transactional statistics to assist contributors in making educated decisions regarding which tokens will be desired by market participants.
In KyberNetwork's white paper, which was co-authored by Luu, points are made regarding the risks associated with centralization, a lack of instant exchanges, vulnerabilities in existing exchanges relative to external manipulation, and an increasing number of digital assets for which ease of exchange for other digital tokens can sometimes be burdensome or simply unavailable.
The KyberNetwork synergizes five components:
- Users that send and receive tokens that interact with an EDCC.
- A reserve entity that provides liquidity.
- Reserve contributors who supply capital to the reserve and take a share of profit in the form of derivatives (KyberNetwork Crystals, or KNC).
- A manager for the reserves who determines exchange rates and fees.
- A KyberNetwork operator who adds and removes reserve entities, and lists or delists token pairs.
With these five parts working together, KyberNetwork offers an on-chain solution to the problems Luu helped identify, which is not only decentralized but governed with EDCCs to be mostly autonomous. Interoperability takes center stage with KyberNetwork; it offers a novel approach to giving a wider range of access to various tokens in wallet contracts, which could before only accept a limited series of tokens. KyberNetwork does so by introducing a new standard wallet contract. Utilizing that protocol, any token that KyberNetwork recognizes can be integrated into any transaction with any wallet – with KyberNetwork acting as an instant exchange between parties.
Luu developed a test-case for the EDCC relays called PeaceRelay (recently featured at the IC3-Ethereum Crypto Bootcamp) that KyberNetwork will utilize for swapping tokens across chains. He says this is "a protocol that allows you to communicate between Ethereum Classic and Ethereum ... You can move your ETC (Ethereum Classic) from Ethereum Classic to Ethereum without trusting anyone." It works by locking the ETC into an EDCC as collateral, for which the reserve manager gauges the market to establish an exchange rate. The EDCC uses the exchange rate to create an ERC20 token of equivalent value, which is compatible with the Ethereum blockchain. To retrieve tokens that have been locked in this contract, simply send an amount to the contract with the collateral. This system can be applied to other tokens beyond the PeaceRelay concept, for which compatibility will be built into the KyberNetwork. Below, see an example of the PeaceRelay system at work:
A diagram of modified relay at use in the KyberNetwork, in this case, to show how a trade of GNT to ETH would be handled, can be seen below. EDCCs manage the interaction between reserves and the user. When the user requests GNT in exchange for ETH, the EDCC searches for the best conversion rate among reserves. Once the request for ETH to GNT conversion is received, the contract verifies that the proper amount of ETH has been credited and sends the correct amount of GNT to the address specified by the sender. The amount of ETH, minus fees, is then credited to the reserve that provided the GNT.
Luu told ETHNews he was attracted to Ethereum because of the friendly community. "It's a good place to be in [and] it's a good platform to execute our solution." He identifies liquidity as a major problem for the issuance of new tokens, and KyberNetwork will solve this issue with the interoperability it offers.
KyberNetwork’s roadmap has the system scheduled to go live sometime in 2018 when it will deploy to the mainnet. It should be capable of supporting cross-chain trading in an instant exchange by Q4 2018 or early 2019, according to the white paper.
ETHNews will continue to cover developments with KyberNetwork as they surface.