Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Loi Luu: KyberNetwork – Towards Truly Decentralized Crypto-Asset Exchanges

Episode Date: August 9, 2017

We’re joined by Loi Luu, Co-founder of KyberNetwork. This new decentralized exchange protocol, built on Ethereum, aims to match buyers with reserve operators, who create liquidity for crypto-asset pairs. Trades occur instantaneously and without the need for a trusted third party exchange operator. Topics covered in this episode: Loi’s background and involvement with various projects such as TrueBit, Smart Pool, and Oyente The desirable features of a decentralized exchange Other decentralized exchange projects and how they compare to KyberNetwork KyberNetwork’s unique design philosophy KyberNetwork’s user experience and how a trade occurs from start to finish The various actors in the network and their respective roles How KyberNetwork mitigates certain vulnerabilities, such as transaction front running How network actors are compensated KyberNetwork’s DAO governance model and development roadmap Episode links: KyberNetwork KyberNetwork Blog KyberNetwork White Paper This episode is hosted by Meher Roy and Sébastien Couture. Show notes and listening options: epicenter.tv/195

This is Epicenter, episode 196 with guest, Lloyd Liu. This episode of Epicenter is brought you by Shapeshift.io, the easiest, fastest, and most secure way to swap your digital assets. Don't run a risk of leaving your funds on a centralized exchange. Visit Shapeshift.io to get started. And by Jax. Jax is the user-friendly wallet that works across all your devices and handles both Bitcoin and Ether. Go to J-A-A-DoubleX.I.O and embrace the future of cryptocurrency. cryptocurrency wallets. Hi, welcome to Epicenter, the show which talks about the technologies, projects, and

startups driving decentralization and the global blockchain revolution. My name is Sebasti Nkujo. And I'm Meher Roy. Today we have as guest, Loy Lou, who is the co-founder of Kiber Network. Khyber Network aims to be a decentralized exchange protocol that has features which would approach, which would make decentralized exchange technology accessible to end users. we're going to take a survey of the decentralized exchange field talk about the challenges of building such exchanges and zoom in on

cyber network. We'll go we start. Loy, welcome to the show. Thanks for the introduction and thanks for having me. So, Lloyd, you've been a researcher at the National University of Singapore, right? Yes. Tell us how you got interested in the cryptocurrency space as a researcher. Right, so I first heard about Bitcoin and blockchain back in late 2013, but not until like mid-2014, I started working on it. So the idea of payment system that is just less and, you know, operates in an open network attract me, you know, as a good research topic. So since 2014, I have kept working on cryptocurrencies and blockchain during my PhD.

and I was one of a few, you know, PhD students working on the topic back then, including many well-known ones like Andrew Miller, Christian Dekker, and Arthur's advice. So to date, I have written and published several academic papers on, you know, top security conferences about cryptocurrency. To name a few, you might have heard about Oriente and about SmartPoo. These are, you know, two of my work in my PhD. Can you talk a bit about these two projects and how they led you to become involved in a hybrid network? Yeah, so ONT is their first open-source smart contract analyzers that allows you, like, to check whether your smart contract has any security vulnerability. So the idea is that, you know, you just need to, you know, send your contract to ONT, and Oente will just be just, you know, try to explore all the possible execution part of the program or the smart contract.

And then for every part, it will check whether, you know, the contract has any security as defined in the tool. And for SmartProol, it's a first decentralized and efficient pool mining protocol for cryptocurrencies using smart contract. So if you see in cryptocurrencies like Bitcoin and Ethereum, you have like several, like, two or three mining pools which account for more than 50% of the mining power in the network. And these, you know, two or three pools can just, you know, collude and, you know, do whatever to the network, right?

So the goal of smart pool is to, you know, to replace all the mining pools with a smart contract so that people don't have to trust the pool operator. And everyone can be, you know, can monitor, can monitor the, can monitor the, the, the mining pool. So there's no single point of trust anymore. And we have deployed and maintain smart pool in the main net. And so far we have mine more than 100, you know, blocks on Ethereum network. So you mentioned earlier that you worked, in your PhD, you worked on some of the early versions of Truebit. Can you talk about that and how that work led into the work that you're doing now with Khyber Network?

Back in 2015, I wrote the Verifier Dilemma paper with Jason, who is the co-founder of Shubbit now. So the high-level idea of verifier dilemma is that, you know, if you ask a cryptocurrency network to do a lot of computation on-chain, then there's a dilemma that, you know, the verifiers, they don't know whether they should verify the competition or not. because either way they do, they will be vulnerable to some attack, right? So that's why, you know, so that's why the true bit project exists to address the problem. So the idea is that you can still do a lot of, you know, computation, but, you know, only some of them will happen on chain and the rest of the competition will happen off chain, right?

I have been, you know, focusing on, on, you know, security and scalability of the decentralization. application and and you know from smart pool orientate and and through bit and verify a dilemma and still you know cryptocurrency like Bitcoin and and Ethereum advocate a just less and decentralized environment that changes the ways that people can't judge and manage their digital asset yes still you know exchanges the most critical critical part of the network are still heavily decentralized because if you you see currently, you know, more than 99% of the daily trading volume happens on central

exchanges. And, you know, big exchanges, they keep getting hacked. So either due to, you know, external hikers or due to internal fraud. And that, you know, put if those funds and personal information at breaks. So that's the main, you know, motivation to, to motivate us to work on cyber network. So just to recap with a, I think I remember the verifiers dilemma is this problem where if I have a proof and I want you to be able to verify it, I have to send. So I send you the proof and then you have to have the proof that this is a valid proof and then I have to have the proof that you received the valid proof. Can you sort of walk us through what is the right because my cryptography theory is a little, my proof of verify

theory is a little rusty right now. Right. So in the in the verify a dilemma, what happens is that you have some competition that you want the network to do, right? So what you do is you upload the competition to the cryptocurrency network, and later on, when you submit some input, the entire network has to do the computation and compute the output, right, and verify the output themselves, right? But, you know, so some people like, you know, get reward for doing that, like, you know, the miners, they, who, who, who, who, who, who, who, who, who, who, who, who, find the block. But some people do not get any reward when they verify the output, right? Because the generation fee is sent to the only minor, not to others. So that's why there's a dilemma there. So whether should I verify the output or should I just skip it and work on

the next block? So if I verify, I don't receive anything and I might be vulnerable to some attack because you know the miners can just the miners who find the block can just you know put a lot of competition there just to delay my the process of mining the next block from my miners right and if if I if I if I don't verify then maybe the block is invalid so who knows so I may you know have the rates of mining on top of invalid blocks and wasting my mining power so that's that's you know there's a dilemma there And how does that tie into the work that you're doing at a carbon network?

But perhaps let's use this to segue into decentralized exchanges. How does your research and your work with regards to the verifies dilemma play into this idea of a decentralized exchange? Right. So I guess it's not much related between, you know, verifier dilemma and cyber network. But there's the connection between smart pool and cyber network, right? So can we like you know focus on that? Okay, so so I have been you know focusing on on developing like decentralized protocol which is efficient and practical.

One of the example is smart pool that that you know allows miners, you know, from all over the world. They can just, you know, mine together via the smart contract instead of via some centralized servers. So I continue the theme of this work in Kibernetwork, but developing a decentralized exchange for cryptocurrencies, which is scalable and practical. I mean, decentralized exchanges, of course, have been this now quite old dream of the cryptocurrency space. Like even when you go through Bitcoin talk in 2012 or 2013, people were talking about an inventing decentalized exchange protocols and over the years like the designs have changed a lot

but decentralized exchange technology hasn't really broken into the crypto mainstream right it still remains this fringe thing that people do I think the big change has been that back three or four years back there was just theoretical protocols now there are actual implementations where there are low trading volumes exactly So, like, give us an overview of what makes this decentralized exchange problem hard. Why has it taken actually so much time to even build the first few implementations? Yeah, I would say making a secure, you know, decentralized exchange is easy, but making it usable is hard. Because, you know, if you look at like Bitcoin back in 2014, you know, not many people heard about cryptocurrency, right?

But once Ethereum started and making it easier for people to understand and to use cryptocurrency, more and more people understand about cryptocurrency and started using it. So it's more about usability than security in terms of adoption. So I think we can apply the same analogy to decentralized exchange. because now with Ethereum we can, you know, easily build, like, usable decentralized exchange, which is actually, like, easy for people to use and doesn't require them to, you know, set up or, you know, to understand the entire concept behind it. Yeah, so I guess it wasn't, like, you know, practical and feasible before.

So what are sort of the ideal features of a decentralized exchange? Let's assume like 10 years down the line, there'll be the perfect decentralized exchange. What features must that exchange have? Right. It would be usable. Right. So I guess there are a few features. So first of all, it must be secure and trustless, right?

Because otherwise we can just use some centralized chains. And secondly, it's going to be the user-friendlyness. Like, you know, it must be easy for people to use, even like, you know, non-techniness. users. The trading costs must be cheap because, you know, if it's expensive to use, then no one wants to use it. There must be like liquidity because, you know, because when you want to trade, there must be, you know, some, someone else to trade with you, right? So, I guess these are the few properties that, you know, any decentralized chains must have in order to get, you know, mass adoption.

So trustlessness here implying that when I'm doing an exchange, there is no point in the cycle of an exchange. So when I'm exchanging, say, Ethereum, like Ether for Ethereum Classic, it's for ETC with you, at no point in the cycle of this exchange is there a single party that can run away with our funds, right? that can choose not to honor our funds. Not only that, right? So there is also the risks of some party which doesn't match you with the best counter-party. So for now, you still have to trust the centralized exchange

to match you with the best counter-party. So somebody not being able to run away with the funds is security. Yeah. That is what security means here. And trustlessness here means that if there is like a matching algorithm or like there's an order book then when I enter

something in the order book I am assured that it will get there right and then when my order is matched with the requirements of another person I get the best price and it executes faithfully so those two those these things

like embody the notion of trustlessness and security exactly and then the exchange must have liquidity liquidity meaning a lot of people that are doing trades

concurrently. Unless we use a design like bank or which is a separate topic in itself. So there has to be liquidity and then there has to be low trading cost

right? So it should be easy to trade. And it should also be quick to trade. So I enter my transaction, it's quickly accepted and I get credited my, my, my, my, my, my, my, my, my, my, my, my, my, so it's like all of these features have been hard to put into one system until, until now at least. Exactly. Yeah. So if you look at, uh, other project, uh, like, you know,

EtherDilta or, or, or even SwapTek and Zero X. So EtherDilta has been around for like more than a year, I guess, but still. the volume is still high because they requires, you know, you know, technical understanding from the users. So, so not many people can use it, right? This episode is brought to you by ShapeShift, the world's leading trustless digital asset exchange, quickly swap between dozens of leading cryptocurrencies,

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So you can swap your digital assets directly within your wallet just as easily as putting on your slippers. Whenever you see that good looking fox, you know that's where Shapeshift is. So to get started, visit Shapeshift.io and start trading. And we'd like to thank Shapeshift for their supportive Epicenter. Let's like sort of walk through like all of these projects and the different approaches they are taking. So you said Ether Delta, SwapTech, ZeroX and Bankor. So Ether Delta, how it works is that it maintains the entire orderbook on chain. So every time you want to trip something you have to you know send the transaction with your order there and every time you want like to modify your your order you have

like to send another transaction so it's gonna cost you some transaction fees for for every modification right so it's gonna be first of all expensive because you know now you have to pay transaction fee for every modification and it's gonna be it's gonna be expensive for the entire network as well because now everyone has to store their orderbook on chain, so it's going to blow up the state of the entire blockchain. And SwapTex and ZeroX are doing something similar, except that they move the orderbook off-chain. So it's like, you know, they maintain the order book between the buyers and the seller of-chain. And there will be like some third party that match, that helped them to match.

and when the settlement happens, it happens on chain. So the problem with that is that, so first of all, now we have to trust the third party to match between the buyer and the seller side. And there's no guarantee on settlement because there's nothing on chain to guarantee that the settlement will be successful, right? And banker is innovative in their formula that decides to sell and buy price. But the problem with that formula is that it has not been tested. And there's no guarantee that it's going to work in practice.

and as you have seen there's a low adoption in in in bankers so far I'm not sure whether it's because of you know of the decentralized exchange in general or because of the approach that bankers use so with ether delta it's like you have the whole order book on chain so in in that case like who actually does the matching the smart contract will you know do the matching okay but somebody has to trigger this smart contract to match right so it's like you know every time you send the transaction right uh like you want to sell something uh that transaction will you know check you know on the on the buy side to to see you know if there is any match

okay so this must be super resources intense intensive right because like all of these orders have to stay on chain like if i put in an order and i cancel it exactly storage and transaction cost even though no trade really happened. Yeah. And you cannot do any like state pruning or anything to reduce the state size of the blockchain because, you know, you must, you know, keep all the orders. But Ether Delta, even though it has, even though the design might not be very scalable, Ether Delta does have users today.

So there's actually trades happening using Ether Delta. Exactly. So it is probably one of the first decentralized exchanges that, does have some volume. Right. Prior to this, probably all the other decentralized exchange ideas didn't work like theoretical concepts that didn't end up getting any volume at all.

Banko does get some for their, you know, Banko to Ether exchange. Banko to Ether exchange. Yeah. All right. So with Bangkok, the advantage is that there is no notion of an order book at all. Like their exchange technology doesn't have a notion of an order book.

But on the other side, The design of that exchange is new and experimental and it could have its own challenges that may not be apparent at first sight. Yeah, exactly. And swap tech and zero X, what they essentially do is they end up, it's like the orderbook is off chain, but the custodians, the smart contracts that are holding the funds are on chain. so they ensure security against loss of funds they assure security against loss of funds probably some kind of speed and liquidity as well but they are not able to assure the trustlessness

in the sense that you need to rely on a third party to do the matching. Exactly. And there there might be some in theory the third party could preferentially match and give you a bad deal and itself get a better D. So that security element is fine,

but the trustlessness element is not there. Yeah. Let's talk about the design of the, of Kiber Network as it compares perhaps to these other approaches that we've discussed so far. Okay, awesome. So in Kiber Network, what we do is, you know, we bring, so first of all,

we remove the audiobook entirely because we realize that it's expensive. to maintain the order book on chain. And secondly, what we do to guarantee the liquidity is that we bring, you know, some big market makers on chain by introducing the concept of reserve. So every time there's a trade comes in, right, we just go and ask the reserve, what is the rate for this, you know, for this pair? And then we just, you know, get the best rate and then, you know, process the trade and return the token. and return the tokens to the users. So there's no order book.

The liquidity is guaranteed by all the market makers. And we are going to be the first market maker of the first reserve in our system. In terms of trustless, everything happens on the contract, so we cannot decide on who we want to match. It's purely based on the rate of the reserve, provide. So the thing that I'm starting to imagine is that Kaibur network would be something like ShapeShift.

Right. So I don't know how many of our listeners have used Shapeshift, but in Shapeshift, like if you want to exchange like Bitcoin for Ether, you send Bitcoin for Shapeshift and Shapeshift the company sends Ether to you. Right. Right. So in a normal exchange, you're interacting with another person or an entity that is not the company, but like in this case, there's the shape shift, send money there, and you get what you want, right?

So what you're trying to build is like shape shift, but decentralized. Yeah, so what we're trying to build is shape shift, but it's decentralized and secure because, you know, user they do not need to deposit to our, you know, to our chains. What they need to do is they just need to send the ether or tokens to our contract and they will get back whatever they want to trade, right? And it is decentralized in terms of using smart contract and in terms of, you know, having multiple reserve to provide their liquidity. So now everyone can be, you know, part, like anyone can be a new, you know, shape, shift in our system, right? Because they can just register their reserve and, you know, process of the trade.

So, of course, with shape, shift, not to make too many comparisons with this particular product, but in the background, what happens is that, Shapeshift is actually connecting you to exchanges and making the trades on your behalf. So there is an order book there. There are order books in the back end that are with which your trades are being matched. And that's how they're able to provide the liquidity for the traits. When you say that you remove the order books, can you go a bit more into detail? Because it's not clear to me how you can have a trade without an order book. Are you just simply relying on liquidity?

provided by reserve providers that they'll take any amount for any type of trade? Right. So in terms of like, so first of all the order book on chain, right? And we rely on the reserve to do the, you know, liquidity providing. Right. And what the reserve needs to do in the backend is that they need to rebalance their portfolio by, you know, exchanging, by, you know, converting their coins and token in some other central exchanges, which they have, you know, connection. So that activity, we, you know, we do not, like, concern much because it's the reserve owner's responsibility to do.

So the reserve provider could be an exchange? Is this accurate to say that it could be an exchange in the back end? It could be an exchange. It could be individuals with a lot of coins and tokens. Okay, I see. So let's go deeper into the design here. We've talked about the reserve owners. Can you describe sort of the high-level overview of what the Khyber network looks like?

who are the different participants and how they interact with each other. Walk us through a trade. Like from the user's perspective, walk us through how he, you know, when he sends the coins to the network, what happens? You know, where is the liquidity coming from? Who interacts with a smart contract, et cetera? Okay. So it is pretty simple.

So if you are a user, you send your contract to our Khyber contract. Sorry, you send your tokens or Ether to our Khyber contract. And our contract with us, you know, find the best. that provide the best rate for you and we just send Ether or token to that reserve and you know get back the converted tokens and then you know forward the tokens to you everything happens in one transaction right so so here we have the users we have the Khyber contract which you know accept the the trading request and match to the corresponding reserve and we also have the reserve that provides the liquidity

and provide the rate for the token pairs, right? And so we also have the Khyber network operators that will do the listing of the tokens and do the listing of the reserve, because we need to guarantee that the reserve will provide enough liquidity for the system, and we also need to do some sort of like KYC check on the reserve before we have them in our platform.

And the reserve will be maintained by, you know, reserve operator. That reserve operator can be individual, can be a DAO, a smart contract, or can be a group of people. So basically we have like five parties in our system. The users, the Kiber contract, the Kiber network operator, the reserve, and the reserve operator. okay so for example if you were if you were to like sort of personify this user all of these people it could be that so let's say lawyer you're the you're the operator you're the cyber network operator yes i'm let's say a reserve provider right so so my job is i don't know i have let's say a million ether from somewhere and i'm like putting that million ether on a on a on a

contract and if somebody wants to buy let's say melon tokens sell melon tokens and get ether then the ether I have put on on one of these smart contracts will be used to fill that order right exactly so so that's the reserve and I'm the reserve operator law you can be the network operator and the other other party is sort of the smart contract right the the Kiber Network Smart Contract. And then Sebastian can be another reserve. So I'm one company providing a reserve. Sebastian is another company providing a reserve.

And the two of us are somehow competing in order to get as much volume through our reserves. Because I'm assuming we make some kind of transaction fees. Exactly. So how does the reserve quota price? So how am I... So let's say like, so Brian initiates a transaction. He has like, thousand million coins, he won't stand ether for those thousand million coins. And like he sends the transaction into the blockchain.

Now how does Sebastian and I, how do we indicate that we are willing to accept million coins and what price we will accept them at? Right. So what you need to do is you just need to send a transaction to a cyber contract to provide the rate as the trading rate between Melan token and Ether and you essentially you have ready to do that every like you know five or ten minutes depending on you know how frequent you want to update your rate yeah so based on the rate the Kiber contract will select the best you know rate for the users so if if I'm

furnishing reserves and my reserves are going to be used in let's say 10 different trading pairs like melon to ether I don't know DGD to Mellon I said this 10 pairs then I have to keep providing rates for all of these 10 pairs yeah so reserve management is a very active function right like yes but but you you can like provide you know the update for the 10 pairs in one single transaction so you don't have to send like 10 different transaction to update you know 10 different pairs So in this great grander schema, so the reserve operator and the reserve manager, are those two different parties?

They are the same. They are the same party. I'm just messing up with the word. Okay, okay, understood. And then we are also assuming that if I'm a reserve, so I sold my ether and got melon, but I might also interface as a reserve with another exchange in the background, get rid of the melon and get ether. and like replenish my, keep replenishing my, my reserves. Exactly. Yeah.

Right. And how do I make money as being a reserve? As being a reserve, you make money from, you know, all the trading spread, right? So you make that, so every time you make a, you process a trade, you earn some, you know, trading spread there. So that's how you make money by, you know, joining Kiber network as a reserve. So in some senses Like Kiber Network is not Exactly a trustless and secure exchange

It is like it is removing the risk of Trust from the user to the reserve provider Right So the reserve provider now needs to go to a centralize exchange And Needs to like do the opposite trade And like keep the reserves replenished So it's a reserve provider that is taking on that risk

And the user is not taking So it is normally with the user, the user goes to a centralized exchange and is taking the risk that the exchange will be hacked or something. But out here you say that the user doesn't need to take that risk, but there are these professionals, which are these reserve providers, they will take that kind of custodial risk on their behalf. So in some sense, you know, all the reserve players or the reserve manager or reserve operators, they have a lot of coins and they. tokens, right? And they are actively, you know, participating in centralized exchanges already. Because, you know, they make money from being market makers there as well. So we do not like increase, you know, any risk for them at all. Yeah, I just hope all of these reserve operators will have good security practices.

Because this, this could be a point of hack. Right. So in the future, we can think of some model like, you know, we allow everyone to contribute to the reserve and build up the reserve via some smart contract like the one that mainland port is building. So in that scenario, there's no trust on the reserve at all, right? And people can just, you know, every time they are running lower ETER, they can just add people to, you know, contribute more ETHER to the reserve and they, you know, they have some

incentive to incentivize people to do that. But it's not in the early stage of Kiber network. Tell us then how will this play out for the user? What do you envision in terms of applications or user interfaces for the user to be able to trade coins using the Kibernetwork? Do you have like a wallet or are there like third party applications that are meant to be built on top of APIs that you provide? That's a good question. So we are building our own wallet. That has all the features that we want to support in Kibernetwork.

network, but that's not enough because, you know, if those in cryptocurrencies, they are really loyal. It's hard to, like, you know, ask them to, you know, move away from their favorite wallet. So, so what we're trying to do is we're trying to bring, you know, cyber network to popular wallet, like, you know, status, myter wallet, and others. So, so if they can just, you know, they can just convert their tokens instantly when they are using their wallet. They don't I'd like to go to some centralized exchange or, you know, some other website to trade. And do you envision what kind of like business models do you think can be built on top of this? Because I presume that then as a as a DAP provider, you know, applications can be built on top of this.

And you're probably thinking of different types of business models that people can provide. Exactly. So we are thinking of, so first of all, um, we can support like, you know, proxy payments, right? So we can allow, like, people to pay to anyone in any token. Like, if you just, you know, receive, if you just want to receive ETER, and, you know, I have only, like, you know, MelonPot token, then I can, what I can do is I can send via Kiber Network,

and Kiber Network will just, you know, forward ETH to you, and they do the, you know, conversion from Melan token to ETH in the background. So, so, so that payment service is, one of our application. There's another one that is, you know, trading advanced financial instruments, something like derivatives and, you know, hedging, right?

So it's like, you know, when you invest in some Dow has fund and you are going to, like, receive your tokens in, like, three days. But you, but you see that the rate is, you know, at best today. And so what you can do is you can do the, you can do the, you can do the trading with. cyber network like today to receive the price, the best price, and three-day list the carbon network can, you know, just do the settlement with the Dow hedge fund to get your

token. Okay. So let's go through these different use cases. So in the first use case, you're what, what essentially it comes down to is as a merchant, let's say I accept ether and you have melon port tokens and you want to pay me. rather than trading those tokens on an exchange for Ether, in my payment platform, I might have an application or some sort of an API that would allow me to accept those Mill Import tokens and receive Ether right away, sort of like what people are doing now with Shapeshift.

Can you describe this second use case of hedging? Is the Khyber network? providing those features to allow for settlement to happen later after a trade was initiated, or is that something that you would be built on top as a third-party application? Right. So it's going to be a third-party application because we need to interact with the Dow contract as well. So we need to work with the counterparty to implement that feature. So it's not going to happen in the early stage of Kiber Network. Let's take a short break to talk about Jax. Jacks is your wallet, your complete user interface to cover all your blockchain needs.

I've been using it and I've been loving it. Now, Jack supports a lot of different cryptocurrencies. I suppose Bitcoin, Ether, Litecoin, Ethereum Classic, Zcash, Augurip, and they're adding many more keep responding to users' needs. Now with Jax, a nice thing is that you can manage all of those coins within a single wallet and you are in control of your own private keys. they're not on their server, and there's a single 12-word seed that you can use to backup your wallet, all your coins, and sync them across different devices. Talking about devices, they're on

pretty much any device that you can think of. You can get it on PC, Mac, Linux, you can get it on smartphones like Android and Apple and iPhone, you can get it on tablets, or even browser extensions for Chrome and Firefox. And on top of that, in Jax, you can actually exchange different cryptocurrencies for each other. because they've integrated a shape shift. And more partnerships and integrations are coming down the line in 2017 that are going to make Jax even better. So Jax is really making blockchain and cryptocurrency successful for the masses,

easy to use for the masses. Make sure to get your own Jax wallet at Jax.I.O. Or you can get it from any of the app stores you are using. We'd like to thank Jax for their supportive epicenter. So let's talk about the network operator. Can you talk a bit more about the role that the network operator plays in governance of the DAO and some other roles that they may play that we're not seeing here? So the only role of the network operator in cyber network is to guarantee that the platform happens correctly

and there's no, you know. So for example, the network operator has to list and de-list the token pairs. So, you know, if some token is not, you know, popular and like not many people are trading it, then we will just delist it, right? And if there's a new token, we need to list it to our platform. And we also need, like, to list and delist reserve. And in order to do that, we need, like, to do background check, to do KYC check, to guarantee that, you know, the reserve is, you know, providing.

enough liquidity, they hold enough portfolio to provide liquidity in our platform. There's another important role of the network operator that is to guarantee that there's no bad price for the users. So what we can do is we can provide some sort of guiding price. And if some reserve offers some really like bad price, we need to stop them from doing that and, you know, do the investigation in the big crowd. So you talked about listing and delisting. Can you explain or go into detail as to what is the process there? Like, is there a set of criteria?

Is it, are we talking about something here that also takes in crowd input or is it solely the responsibility of network operators? And my second question, my follow up question, would be like, who are the people, who are the custodians of the Khyber network there? Right. So in the early stage, so we, like as in Khyber network, people have to play that role.

So first of all, we need to do it manually because, you know, some tokens, they may have a different format. They may not be like E.C20 compatible. So adding them may, you know, create some failure to the network. So we have to do everything manually. So we have like no criteria in, you know, list or delist, you know, tokens as long as, you know, they are, they, they won't, you know, create trouble for the network and they are, you know, compatible to the network.

Who will be the curators of the network? Like, who will have the keys essentially that allows these, I guess, I guess there must be like a transaction that is sent to, to the Dow when you want to list or delist, like who, who holds? those keys initially. Right. So in the beginning, it's going to be like a few people from Kibernetwork, like, you know, our co-founders and the lead engineers. But later on, we, we can envision the future that, you know, the, you know, our token holders will, you know, vote and decide, you know, which token to list and de-list. But it's going to be like in the future, not in the early stage of Kiber network.

So in general, I think we are open to list any tokens. We have not much concern about listing new tokens at all, as long as they have enough liquidity and, you know, traction in the community. So one of the questions I would have here is, so you have this network operator, which is essentially playing some form of administrator role. It is just ensuring that everything runs smoothly, the right token pairs are there,

if there's some fault, there's a way to recover from that fault and so on. And I'm assuming like this network operator can charge some fees for its service for every transaction. My fundamental question is why decentralizing network operator? Why not keep it centralized? Why not just the small team of cyber network being the network operator from now until infinity? Right. So that's the good question. So first of all, in the early stage, we are not going to decentralize that process.

Only a few of us will decide which token to list and which one is to delist, right? Because we need, first of all, we need to guarantee the liquidity of these tokens. because if there's no reserve like trading that tokens, then we should not list it, right? But so the network operator, they do not take any fee at all, or, you know, at least we do not take any fee at all. The fee, so let's talk about the fees later. But in the future, I think it's good for the token holders in the network to decide, you know, which token they should list or they should not list, right? Because essentially they are the main, you know, owner of the platform, not the, you know, carbon network operators, like not a fewer person.

So that's the main reason why we should like centralize the decision, you know, whether to list or not to list any tokens. I see a lot of projects and that have this idea that they are going to decentralize some function over a lot of people. So out here you have these decisions, the network operation decisions. And you're saying, when you start out, probably it's your startup. They're like three or four people that are going to make those decisions and they're going to make the platform run well.

And then you're saying from three or four people, you're going to go to at least 400 or 500 people when you go to the Dow. Right. Now, let's assume that there is some economic value to this. this activity meaning let's say I don't know let's say there's like one million dollars in trades happening in your platform let's say ten million dollars on trades whatever and this network operator is making I don't know point 5% point two 5% out of it so if it's 10 million dollars this becomes like

$25,000 a year now this 25,000 dollars a year is being paid to the operator. And right now with your startup, there's only like four people that are playing the role of the network operator. So each one of your employees, that is, is doing activity worth $6.25K, right? $6,250. Now, when you decentralize it to like 400 or 500 people, the same decision-making process, when it's decentralized over four people, each one is doing activity worth $6.25. and make sense for a human to learn this thing and do that for $6,250.

If you decentralize it over 400 people now, then each person is going to only make, I don't know, $62. And they have to learn how to make these decisions in order to be a good network operator. So I think like my feeling is going from 4 to 400 is not going to make sense in terms of time. Like if I become a cyber network token holder, I need to learn how to do all of this voting and stuff, make all these decisions. But what I'm being effectively paid for is just like $62 a year. Do you face this kind of problem in your design? Right. So voting is always a good question. Like how do you like incentivize people to vote? if you see from most of the election, like even in the U.S., you know, like we have like 50% of people like, you know, appear and, you know, vote, right?

Because essentially they, they don't see, you know, much, you know, much incentive for them to go and vote and make the decision for the entire system because, you know, someone else we do that for them. So we haven't like, you know, dive much into, you know, this, you know, concerned because, you know, Our only concern now is to develop the platform and make it run as soon as possible. But I think that's a good question to think of in the long run, like how to develop a governance model that can incentivize people to vote and make it like practical one. The governance issue is a really important issue. I personally feel that a lot of projects right now are focusing on new types of innovative use cases and are not addressing the question of governance. I'm not sure if it's because governance is hard or maybe it's just not very interesting, you know, if you compare it to some of these other interesting use cases that are being developed, or maybe because, you know, we're waiting for other projects like, you know, Decred or Tesos to solve those issues.

But it is something that at some point, you know, we're going to have to address if we're talking about, you know, decentralization and at the core of it, there's there is a team that is managing, um, the keys to a Dow that will continue to remain a somewhat centralized system. So one point in other, we will have to face the issue of decentralized governance, uh, no matter how complex or, or uninteresting it may be from a, you know, user face. point, you know, use case kind of point of view. Okay. I think that's a valid concern. But like so in Khyber network, decentralized governance is not something really important because, you know, what the most that the network operator can do, they can just list or delete some token, right? They cannot like, you know, hold user fund or, you know, hold a reserve fund.

or they cannot like, you know, go away with others' money. So it's not, you know, some security concern or, you know, even like just less concern that we need to address in the near future. No, I think that's, I think you're right there. But one thing that network operators might be able to do is, you know, upgrades to the protocol. And once you have something that has a lot of value and you get into these decisions having to do with upgrades to the protocol and how those play out, then you've fallen to similar situations as we've seen in Bitcoin recently, where you have a lot of value behind

a certain network, and there are factions that may want to go in one direction or another, and that's where I think governance will play a major role, not just in a decentralized aspect of it, and whether or not the app, the DAPP can run away with your funds, but how what is the governance around how the system continues to evolve and upgrade? Yeah. So I think if we are, you know, if we ever go into that point, that's a good problem to have because now the system, like there's no much, so much stage in the system. So people will have more incentive to vote and, you know, to participate into the governance,

right? So I guess that will address the incentive issue that was raised like five minutes or two minutes ago. Yeah, if the system becomes very successful, then they will actually be incentive for people to learn and participate in governance. If you want like 400 people to participate in decision making, you realistically need a trade volume of $100 to $500 to $500 million in order to have sufficient incentive for that to happen.

Yeah, I agree. Right? So it is certainly that it is certainly like some ways out before. that incentive structure is created. Otherwise, you will only end up getting voters that really don't care because their effort is only worth, I don't know, $100 a year. Yeah. Which is like tiny, right?

Like, you could make more doing an epicenter episode. Yeah. So, right. Which isn't a lot, by the way. Yeah, okay. So if you take a look at the trading volume, at the daily trading volume of, you know, or the cryptocurrency now, it's like more than $1 billion per day, right?

So if we, like, you know, can take like 1% of the pie, then it's going to be like, you know, a lot per year. So with a lot of these decentralized exchange projects that are built on Ethereum, you know, the focus has been mostly on trading ether for other ERC 20 tokens. And it appears that when you want to interface those decentralized exchanges with other blockchains, say Bitcoin, Zcash or other decentralized internet platforms like Cosmos, Pocodot, etc. It sort of becomes kind of hacky and you either have intermediaries

there or some sort of gateway or something like that. So how will users be able to, or is this part of the roadmap for users to be able to trade, say, for instance, Ether or ERC20 tokens with Bitcoin, Zcash, or through other platforms. What do you envision there in the future? So there are several approaches to do like, you know, cross-cryptocurrency trading, right? So we can wait for Cosmos and Pocadot to and use these protocols to support that feature. Another approach which is already practical and existing, that is to use all the chain relay. And we just, so just like two or three weeks ago, we made a good progress in building the

BIS relay between Ethereum and Ethereum Classic. So now you can basically justlessly move your ETC to Ethereum and allowing people to trade between ETH and, you know, any EIC 20 tokens to ETC. So that's already practical and you can, you know, do it today, right? And there is also BTC relay, which was built like a year ago by Joseph Charles. But still you need some hacking there in order to make BTC relay practical. But I think it's not hard. We just released a blog post like a week ago to discuss about our approach in trading different

cryptocurrencies. And after Metropolis, I think building a relay for ZCAS is going to be practical because you know, Ethereum will support, you know, zero-knowledge operation and also they may, you know, support the, the hash function of ZCAS proper work so that we can practically, you know, build a ZCAS relay on Ethereum and allowing people to trade between ZCAS and, you know, any EIC 20 tokens or even Ethereum. So before we wrap up, tell us where you are in terms of developing this platform and what's your roadmap for the future?

Right. So we are releasing our demo or our test net deployment in two days, two or three days from now. So we are pretty close to the main net deployment. So we are targeting the end of this year to file main net release. That will allow you to trade between Ethereum and any EIC 20 tokens. And our roadmap has several major releases. We are going to have a release that allows you to support to do all the payment services.

Like you can pay anyone in any tokens. We also have another release. that allows you to trade between like advanced financial instruments, like, you know, hedging derivatives. And another major release will allow you to trade between different cryptocurrencies. And by then, we expect that, you know, Metropolis is already released. And hopefully Cosmo and Pocadot will be launched by then as well. Otherwise, we will just go with all the chain relays approach that we have. And what's the business model here?

How do you plan to make money with this? Right. So we are going to take a cut from, you know, all the transaction or other trade in our platform. So first of all, the company is not going to, you know, take any fees or any share from that. Or the transaction holder will, you know, enjoy that generation fees. and we are still working on the model for that. Does your company plan to be, for instance, like on the also on the reserve side,

do you plan to also provide liquidity in the network somehow or would you strictly be on the technology side and as operators of the network? Right. So when we first launch, we need to provide and maintain the first reserve of the system before others can participate and guarantee enough liquidity for the platform. So in the beginning, we must play both the roles, the platform provider and a reserve provider. Where will you get these reserves?

Are you partnering with exchanges or will you have the reserves to? So that's why we need the crowd sale. So part of the money raise in the crowd sale is going to be spent on the reserve. Okay, so there will be a crowd sale at one point. Okay. Yeah. All right. Well, thank you so much, Loi, for coming on today and telling us about Khyber Network.

We'll be looking forward to seeing how the project develops and how it will play out in this ecosystem of the decentralized exchanges. I think that this is a space that will continue to evolve and this type of decentralized platform, providing liquidity and providing the instantaneous trades is something that will be sorely needed. once as more and more cryptocurrencies enter into the ecosystem. Thank you both for having me. And thank you to our listeners for tuning in. We are part of the Let's Talk Bitcoin Network. You can find this show and lots of other great shows at let's talk bitcoin.com.

Of course, if you like the show, you can support us. And there's multiple ways you can do that. You can leave us a review on iTunes or any other platforms you listen. You can also leave us a tip or tipping address will be in the show of description. So thanks so much. And we look forward to being back next week. I'm not no

no mrs. I don't know.