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Binance Trust Wallet integrates Kyber Network multi-DEX support

Posted: 25 July 2019 3:43 pm
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Here's what that actually means, plus a handy decentralised exchange primer.

The official Binance cryptocurrency wallet, Trust Wallet, has integrated Kyber Network's on-chain aggregate liquidity protocol for multi-DEX support.

Let's unpack that in plain English.

Who?

  • Binance is the world's largest cryptocurrency exchange by volume, according to most measurements.
  • Trust Wallet is a cryptocurrency wallet, which was acquired by Binance and is now the official Binance wallet.
  • Kyber Network is a blockchain project and a cryptocurrency.

What?

Trust Wallet is introducing a system designed to let people seamlessly swap tokens for other tokens from inside the wallet, starting with Ethereum-based ERC20 tokens, and then moving on to more.

How?

One of the main things Kyber Network does is facilitate direct token swaps between different tokens. For example, it can let you directly convert Ethereum (ETH) to Dai (DAI), rather than needing to deposit your ETH onto an exchange and then buy DAI with it.

This is the same principle which underpins decentralised exchanges (DEXs) and atomic swaps.

DEXs and atomic swaps can be thought of as digital noticeboards. You post a notice saying "I want to trade ETH for DAI" and then get matched up with someone else who posts a notice saying "I want to trade DAI for ETH".

Because this notice board is powered by magic blockchain smart contract pixie dust, that entire matching process is fully automated, which helps reduce the need for trading fees, and means there's no way for traders to cheat each other.

Compared to the usual system of just going to a cryptocurrency exchange, this brings some advantages:

  • No third parties required. The funds go directly between the end users' wallets without passing through any exchange wallets. The system is decentralised and directly peer to peer.
  • Theoretically lower fees. DEX developers might take a cut of trading fees for services rendered, but because it's all automated, you theoretically only need to pay the network fees for swaps across decentralised exchanges.

But it also brings some downsides, the most notable of which is low liquidity. Centralised exchanges have market makers and liquidity providers. But decentralised exchanges rely on people putting notices on that digital noticeboard. You can only swap ETH for DAI if someone else is wanting to swap DAI for ETH.

Decentralised exchanges are also slow compared to centralised exchanges because they can only move at the speed of a blockchain transaction, and are prone to bloated fees in times of network congestion.

The way Kyber Network aims to solve this problem is by creating an entry point for market makers to profitably and automatically sell cryptocurrency into that ephemeral noticeboard system, so anyone who posts a notice can get their trade completed by these market makers rather than needing to wait for a counterpart.

Basically, someone with a whole bunch of crypto money can be a market maker on the Kyber Network by putting all that money into a pool and specifying:

  • How it should be balanced, and which cryptocurrencies make up what percentage of the total.
  • How aggressively they want to rebalance it when it drifts away from the desired balance in the fulfilling of their market maker duties.
  • How they want to price their cryptocurrency.

Once it's set up, the system will then put all those pools of money into the large aggregate liquidity pool. The desired end result is an almost fully automated system where:

  • Market makers can maintain their desired cryptocurrency investment portfolio balance, while also gradually earning money from it, theoretically.
  • People who want to swap tokens can do so seamlessly and without waiting for the right match on that noticeboard.

The same aggregated liquidity pool can then be made available to decentralised exchanges for people who want to do the whole trading thing, with limit orders, stop losses and other bells and whistles, as well as people who just want to swap one token for another at the best possible market exchange rates.

That's what's going on here. Trust Wallet is tapping into that Kyber Network liquidity pool, and the multiple DEXs which use it, to let people perform instant swaps directly from their wallet at standing exchange rates and without needing to worry about an active exchange experience.

This is what it means to say "Trust Wallet has integrated Kyber Network's on-chain aggregate liquidity protocol for multi-DEX support".

The idea is that from within your wallet you can simply convert one token to another, without fees but with a minor spread, as easily as simply thinking about it.

Why?

The entire system is set up with smart contracts, which is what gives it that fully-automated goodness. And with sufficient fluidity, it can be used for a lot of different things.

For example, Stellar is typically considered a money transfer cryptocurrency and a Ripple competitor. But the way it works is with a similar kind of decentralised exchange system on the back end. Stellar is building one giant global noticeboard for all kinds of digital assets (the Stellar DEX) with a range of attractive related services, using its own highly-scalable blockchain protocol to ensure that the system remains snappy.

The point of Stellar is to crank the liquidity and speed of this system up far enough that you can get a cheap, fast and largely automated system for exchanging and transferring value of all kinds, which includes money transfers.

Just like using a cryptocurrency exchange, if you want to send money from Australia to the United States, you need to go to a centralised exchange service who will convert your AUD to USD, and then deposit it in the recipient's account, while taking hefty fees for the service.

But with a suitably liquid and fast decentralised exchange system, you can theoretically get a fully automated system for converting your AUD to USD at zero or near-zero cost, and then automatically deliver it to the specified recipient. One of the main caveats here, of course, is that the AUD and USD need to be purely digital, otherwise you still have banks in the mix, forcing customers to subsidise their own inefficiencies.

Still, this system of decentralised, peer to peer exchanges of value, a la Kyber Network aggregate liquidity pools, atomic swaps, Stellar DEX or whatever other system, makes up the backbone of the emerging decentralised finance (DeFi) field.

The same systems and principles are at play in a system that lets you automate the exchanging of one token for another, and a system that lets you automatically lend out money and earn interest on it. For example, you could lock your money in a smart contract where it's used as a loan for non-custodial margin traders.

Robotic DeFi

These same principles can also underlay how machines may one day perform commerce with each other.

For example, if you have the oddly specific life goal of creating a fully automated delivery supply chain of AI machines adaptively working together to deliver a package from A to B, it's useful to have a system by which machines can pay each other for their efforts without the need for human intervention.

Say you have a drone that's tasked with delivering a package, but it doesn't have enough fuel battery power to make the entire trip. It can hand over the package to another available drone partway through, and then split the payment for the job based on where the hand-over occurs.

This exchange comes down to the bare principle of trustless, decentralised transfer and exchange of value, which are currently under development.

There's an incredible amount of potential in DeFi, and with the basic system of non-custodial conversion and transfer of value being at its heart, any developments in the decentralised exchange and token swap space are potentially very impactful.

So, what's the catch?

Unfortunately, decentralised finance is easier said than done, especially when you abbreviate it to "DeFi".

One of the main problems is that even with liquidity aggregation systems, Kyber Network (and most other DEXs and related systems) aren't especially liquid. In fact, Kyber Network's biggest day ever saw the exchange of less than US$5 million of value, and it will often do less than $1 million per day.

Kyber Network trade volume

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Source

By contrast, the world's larger centralised exchanges frequently top $1 billion per day.

Similarly, those aforementioned market maker liquidity pools, helpfully aggregated by Kyber Network, are small and few. There are only about a dozen liquidity pools holding more than $1,000, and only 4 with more than $100,000. The largest, with $368,000 at the time of writing, belongs to Kyber network itself.

That digital noticeboard still doesn't have many people posting notices. That said, it's heartening to see the gradual upwards trend of volumes on Kyber Network, and integrations such as the one with Trust Wallet may help bolster traffic a bit.

Part of the problem is that the ease of swapping between different cryptocurrencies in this non-custodial decentralised manner will vary widely depending on the cryptos being swapped.

It's relatively easy to set up smart contracts to automatically facilitate swaps between Ethereum tokens because they all share the same standards (ERC20). But facilitating conversions between entirely different blockchains, such as converting Bitcoin to Ethereum, is, technically speaking, super tricky.

This is why so many decentralised exchanges are solely focused on ERC20s, or the Stellar ecosystem, or similarly specialised. Kyber Network has tried to introduce some of that sweet Bitcoin liquidity via efforts such as Wrapped BTC; a BTC-pegged ERC20 system, but once again the demand and liquidity just aren't there yet.

A lack of demand is a tough problem to solve, especially because non-custodial exchanges and decentralisation are not, in and of themselves, highly desirable features. Rather, it's the resulting cost, efficiency and security benefits of decentralisation that wins over users.

These benefits aren't quite there yet, but give it time.



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Disclosure: The author holds BNB, BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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