Since Ampleforth’s infamous Geyser incentivized liquidity program kicked off the DeFi summer 2020 liquidity mining has been a mainstay in the cryptospace. The basic concept this revolves, predominantly, around offering additional benefits (outside swap fees) to individuals who provide liquidity to market makers. In some respects this has come to be the benchmark for how a lot of pools are established and maintained. Such programs help bring stability and funds to decentralised exchanges, allowing them to be able to cater to (and corner) substantial portions of the crypto market. Interestingly the focus on such programs has also in turn led to the layering of secondary automated ‘yield farming’ solutions (such as those offered by Harvest.Finance), making it even easier for users to maintain and maximise earning on locked-in liquidity.
Market maker solutions (like UninSwap, KyberSwap, Balancer etc.) which are dependent on liquidity provision have recently seen a developmental drive with a number of second gen protocols and, as we’re beginning to see, we’re currently in the process of seeing these next level solutions focused on improving some of the current drawbacks of existing liquidity provision (slippage, impermanent loss etc.). In this article we’re going to look at one such solution the recently deployed Kyber Dynamic Market Maker (DMM) and their specific liquidity mining launch program, in which I am taking part, Rainmaker.
Please remember this isn’t financial advice, always be sure to do suitable research before committing your funds to a project.
What is a DMM?
Before I completely slaughter the the differences between a traditional automated market make (AMM) and Kybers new DMM take a look at this short video prepared by the Kyber team.
The two key takeaway points that really make Kyber's DMM different focus around the high capital efficiency and the flexible fees. The combination of these helps create positive trading market conditions for both liquidity providers (through the fee capture offsetting of impermanent loss) and low slippage for traders (due to the utilization of an amplification factor). This is a factor set by the pool creators amplifying the underlying assets within a specific range meaning that they behave more like a liquidity pool of greater value within that range, in turn helping to reduce the slippage impact on the pool that can be seen when trading on some other AMM.
To take a deeper dive into how to setup liquidity pairs and developing on the DMM check out these articles:
Rainmaker (Liquidity Mining)
We've seen that one of the core goals of the DMM is to be a better space for liquidity providers and help offset the thorn in our side, impermanent loss. However, in addition to the flexible fees capture mechanism, Kyber also launched an incentivized program both on their Ethereum and Polygon DMM. The program will run for 3 months on Ethereum (which we'll focus on today), 2 on Polygon, and consists of a whopping 15,120,000 KNC tokens and 454,545 MATIC spread over 11 pools (5 ETH and 6 MATIC).
The goal of these yield farming programs is to help the DMM capture and maintain reasonable liquidity over first few months of the DMM's life span giving it Kyber team to establish and solidify the position of this new decentralized exchange in the market place. As someone who like to make the most of this kind of opportunity to put idle assets to work (and specifically trying to maintain some exposure to ETH DeFi, rather than going all in on BSC), I decided to go with the highest rate option at the time of my deposit, the ETH-KNC pair.
Before we look into the rainmaker pools let's first look at the main swap/liquidity functions on which the DMM is built. The DMM can be found here: https://dmm.exchange/#/swap and is built in the standard swap style we've come to expect from market makers (leaning heavily on a UniSwap design we're all so fond off) but with the aesthetics twist and colour scheme of Kyber.
Moving on from the swap section of the main DMM site we have the 'pools' which form the backbone of the trading provision. In the example below we can see the following:
- 1.) The coin/token pairing (and a link back to trade if we've lost our way)
- 2.) The create new pool function, note here that like UniSwap users can create their own pairs along with establishing price curve rules
- 3.) The blue rainmaker symbol can be seen for pool that fall under the rainmaker liquidity farming program
- 4.) Pool details (including the AMPL=amplification factor, total locked in values, volume fees, etc).
- 5.) This is where we can add liquidity to one of the rainmaker pool
Adding liquidity is again (like the swap section) much the same layout as we've come to expect from market makers.
Once liquidity has been added we can access the yield farm pools here: https://dmm.exchange/#/farms. In this section we select the pool by clicking on the down arrow and then deposit out LP (liquidity provider) tokens into the farm to start earning. If you've ever done any liquidity farming before you'll be familiar with this process, it is designed to show proof of liquidity and holds that proof in place allowing you to earn additional funds (KNC in this case) on top of any pool fees.
When it comes to harvesting this program is slightly different from others, where we have a 30day vesting period meaning harvested funds are locked for that time. This means that if you took part in the full ETH program and only harvest right at the end you'd be looking at your liquidity unlocking after 3 months and then another month later unlocking your additional earnings. The process was put in place as a governance safeguard to prevent people from gaming the system and protecting the underlying value of the Kyber Network.
As you can see from above I've made so far around an addition ~35KNC for just over two weeks in the program. I didn't invest a massive amount, instead making this part of a distributed exposure program to a few different platforms. I'm happy though with the KNC tokens initially deposited maintaining value vs ETH and also happy with the way the rainmaker program has played out so far, with a slight drop in APY since I joined the ETH-KNC pair has held steady.
Note of Warning: The old KNC tokens (KNCL) can be swapped for KNC in the swap function of the DMM but are not part of the rewards program or the rainmaker pools. If you have KNC bought on Coinbase or earned through Coinbase earn those will be the legacy token. I made the mistake of buying the older token first on UniSwap then having to swap them to the new version.
- Old contract (KNCL): 0xdd974d5c2e2928dea5f71b9825b8b646686bd200
- New contract (KNC): 0xdefa4e8a7bcba345f687a2f1456f5edd9ce97202
If you are keen to make the most of Kyber's DMM rainmaker program I urge you to get a move on, this program only runs for another 66 days so the earning potential of it is going down over time. Personally I've had a good experience of it so far and it is good to get exposure to different programs and maintain a presence on the ETH network. That said if you're a big fan of MATIC and the polygon pump that has been going on the last few months it could be good to have another well established (reliable) platform on which to build your polygon foundations. Take note though that the polygon program will be over before the ETH version so at this stage you may have to add more to get the returns you're looking for in that timeframe.
On the flipside, if you're just interested in having another market maker options instead of always defaulting to UniSwap, then I recommend you to take another look at Kyber's DMM. For a while Kyber seemed to go quiet while a lot of other projects were zipping forward with new partnerships/listings and development. As you can see, however, they weren't sitting idle, instead the team were working on the next iteration of market maker technology. The innovation in these pools can only be a good things for both liquidity providers and traders as the focus seems to be on maximizing benefits to both parties and in doing so acknowledging the symbiotic relationship between the two.
Thanks for taking the time to read my article, I hope it peaked your interest enough that you'll go do a little more research into Kyber's DMM. Happy farming and good luck y'all!