With the upgrade to version 3.0, Kyber Network seeks to adopt a new token model, making a token migration necessary. One of the most high-profile investors in Kyber Network, Hyperchain Capital, has proposed a set of best practices to distribute the governance power over Kyber in a fairer and more decentralized way.
No Centralized Token Minting
The founder of Hyperchain Capital, Stelian Balta, has announced that he will support the migration plans, on the condition that Kyber adopts a fairer token model for investors and KNC token holders. He compiled a list of five safeguards to ensure that KNC does not fall into excessive inflation.
2/ 🗳This is a very important topic that requires input from the Kyber and #DeFi community. The eventual $KNC proposal will be voted on by members of the @KyberDAO including ecosystem delegates such as @DeFiSaver @enjin @bZxHQ @Instadapp @TrustWalletApp @KyberCP @unagiidotcom pic.twitter.com/PCdOlL3VAB
— Kyber Network (@KyberNetwork) February 18, 2021
The first point in his list states that Kyber should not be able to mint new tokens without getting consent from a governance vote. Furthermore, there should be a lockup period of at least 1 week, during which voters cannot redeem their tokens. This should reduce the risk of bad actors who vote against the interests of KNC holders, just to immediately sell their tokens once the vote passes.
Especially when there is a minting process that raises the supply cap for KNC, there should be at least a 3-week lockup period and a quorum of 40% of KNC holders that must be in favor of the mint, according to Balta. When newly minted tokens are used to reward stakeholders, they should be subject to a vesting schedule over 1 year.
Finally, there should be incentives for KNC holders to lock up their tokens to counterbalance inflation. This can be achieved by distributing rewards to voters when mandatory lockups are introduced, or by an easy method to automatically convert ETH rewards into KNC.
How to Avoid the Mistakes of 2017
In many aspects, the current DeFi hype resembles the ICO bubble observed in 2017 and early 2018. It seems like nowadays, anyone can list a token on a decentralized exchange, and, with enough marketing, the token can easily reach a market cap of tens or hundreds of millions of US-Dollars without having a useful product and a sound token model. The exit scam often exercised by ICO token issuers back then became the rug pull today.
Somehow, we need to avoid making the same mistakes and, in this light, the demands brought forward by Hyperchain Capital are more than reasonable. In the migration discussion thread on Kyber’s governance forum, some users have also expressed their concerns about KNC’s inflation. Pantera Capital is another large investor that wants to support the migration if Kyber Network adopts the new token model proposed by Hyperchain.