Kyber Network is an Ethereum based protocol focused on aggregating liquidity and facilitating swaps for ERC-20 tokens. The team raised money through an ICO in September, 2017 and launched the mainnet in February, 2018.
Kyber functions by aggregating liquidity from reserves which are operated by reserve managers. These managers are responsible for maintaining liquidity in the trading pairs offered and updating bid and ask spreads. For their services, managers are compensated through the spread in each transaction. Further, anyone with additional capital can contribute to reserve pools and receive a return.
There are currently three types of reserve managers: Fed Price Reserve utilizes off-chain price feeds and calculates conversation rates, Automated Price Reserve uses an algorithm to automatically determine prices based on relative liquidity, and Orderbook Reserve which is the only trustless method that uses a fully on-chain orderbook.
Services such as wallets, vendors, or decentralized applications can build on top of Kyber to access the pools of capital consisting of the aggregate of all reserves. Users of these services can swap tokens with their order being executed at the best price available. This incentivizes reserve managers to ensure they keep their prices competitive and to make markets in lower liquidity tokens where they can take larger spreads.
The network relies on the core Kyber Network smart contract that accepts user tokens for exchange and sends corresponding tokens directly to the user from a reserve account. Users on the network are expected to be individuals, other decentralized applications, and merchants that want to accept a variety of payment options while receiving only a single type. When users send a token for conversion they receive the corresponding token within the same transaction removing the need for deposits or an order book.
In order to function properly, there must be enough liquidity in various token pairs. Reserve managers attempt to provide this by holding various tokens for exchange and rebalancing their holdings if the balance of a specific token becomes too low. Reserve managers decide on and provide continuously updated exchange rates to the core smart contract. Third-party contributors are expected to provide capital to reserve pools in exchange for a share of the fees, which is the bid/ask spread collected on transactions. Reserve managers will be able to decide if they wish to operate as a private entity or allow third-party contributors.
Tools to track prices and volumes across the network have been created to help manage reserve portfolios. Initial governance, including listing token pairs and permissioned reserve managers, will be handled directly by the project.