Are Low Staking Rewards on Kyber Network Discouraging Investors?Lincoln Murr
Kyber Network recently released their long-awaited decentralized autonomous organization, DAO, and staking rewards program. However, the staking rewards are less than anticipated, and some would argue not worth the effort. Has this caused investors to lose interest in the budding DeFi token?
The Kyber Network platform is a liquidity protocol built on the Ethereum blockchain that allows hundreds of ERC20 tokens to be swapped cheaply and in a decentralized manner. Through their network, users of different dApps and wallets can easily swap their cryptocurrencies without the need for a centralized exchange like Binance. Some of their notable partnerships include Coinbase, Trust Wallet, and Aave. Since the protocol’s launch in 2018, they have facilitated over one billion dollars in trading volume and have completed over one million transactions. Popular Kyber Network exchanges where the token is listed include Binance, Uniswap, and Coinbase.
On July 7, 2020, the Kyber Network released KyberDAO, a decentralized autonomous organization that allows holders of the Kyber Network token, Kyber Crystals (KNC), to vote on the platform and earn staking rewards. The wagering returns come from taking a small trading fee (0.2%) from every transaction on the platform.
Leading up to the release of staking, there was lots of hype in the community, and the price of the token exploded from $0.75 to $1.87 in the month leading up to the release, a 16x gain from the all-time low of $0.11 in February 2019. Kyber Network price predictions were floating around YouTube and gaining hype, with some bold claims being made that one Kyber Crystal could be worth upwards of one hundred dollars.
However, this momentum did not last long. Around the time of the release, the website kyberstake.xyz was created and allowed for token holders to calculate their staking rewards for the first time. Immediately after the release of staking, users could expect to earn $.002 of ETH monthly per 1 KNC, which is a yearly return on investment of 1.2%.
With high gas prices on the Ethereum blockchain, transaction fees to claim this Ethereum far outweighed the reward for investors who held less than thousands of tokens.
This seemed to discourage a lot of users, as the price of one Kyber Crystal dropped from $1.87 to around $1.60 after the launch. Even though this seems like a steep drop, this was far less severe than other instances of “buy the rumor, sell the news” in crypto, such as Matic Network’s Plasma Mainnet launch in early May, where the price fell by 20%. Another instance is when Zclassic announced a fork in 2018 to see the price rise by thousands of percentage points only to drop by 95% shortly after the fork.
Kyber’s relatively stable price action indicates the majority of token holders still believe in the long-term potential of the project.
Though this initial staking calculation is discouraging, there is still a lot of hope in the Kyber community about the Kyber Network price prediction. One of the benefits of a DAO model is that any token holders can help to govern the network. Since the network’s launch, token holders have overwhelmingly voted to increase staking rewards, which will help the ROI of the token in both the long and short-term timeframes. To combat the high gas fees, staking and delegation pools have opened for Kyber Network, allowing participants to use a “set-it-and-forget-it” model for governing the network. These pools also allow investors to redeem their staking rewards whenever they want instead of biweekly, reducing the Ether wasted on transaction fees. Additionally, assuming the Kyber Network gains volume as DeFi and Ethereum continue to grow, Kyber’s monthly volume of $100 million could grow exponentially, leading to a direct growth in trading fees and staking rewards for token holders. Moreover, since these rewards are paid out in ETH, holders bullish on the long-term potential of Ethereum anticipate their staking rewards growth over time as well.
Though Kyber Network seems to have cemented itself in the DeFi landscape among top 5 decentralized exchanges, there are still plenty of concerns moving forward. One of the biggest concerns is the high gas prices compared to other decentralized exchanges, like Uniswap. On average, using Kyber Network can cost five to ten times more than Uniswap, which is a massive barrier to entry for the majority of users.
In response, Kyber Network co-founder and CEO Loi Luu opined that their team is looking into layer 2 solutions and new contract designs, and more details will come in the upcoming months.
These solutions will allow for Kyber’s gas fees to rival other decentralized exchanges, and give the network a potential to skyrocket in volume.
Even though staking on Kyber Network now seems worthless, the potential for Ethereum price appreciation and Kyber Network volume increases mean that the future gains could be lucrative. With the current price per token, a Kyber Crystal holder could see a 1.7% annual return on investment. Believers in Ethereum and the DeFi space could be optimistic about an increase in volume and price of ETH, potentially making a buy today give a 10% annual ROI in the coming years. As the team continues to improve the protocol, investors can rest assured that their investment is in good hands and that the Kyber Network will continue to be a staple in the DeFi industry.
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