What is liquidity?
Finance and economics grow when things are lent, borrowed, or bought and sold between specific people.
The "exchange of value" that occurs through lending, borrowing, and selling is the most important element of finance and the economy.
Liquidity is a necessary element to facilitate this exchange of value.
For example, in lending, borrowing, and selling, there is always a buyer and a seller.
If there is no one who wants to buy or sell, or if no one shows up immediately, the value of the item being traded will decrease.
This condition is described as "low liquidity.
On-chain liquidity is essential for DeFi
When we use CEX to trade cryptocurrencies, there are countless buyers and sellers.
This state can be called "highly liquid".
Basically, in off-chain transactions such as CEX, liquidity is maintained at a high level due to the large number of users.
On the other hand, in the case of on-chain transactions such as DEX, there are still few users, so it is difficult for buyers and sellers to appear, making it difficult to conclude transactions.
By using DEX, you can conduct transactions without depending on a specific third party, but it is meaningless if there are no buyers or sellers.
This is where on-chain liquidity is important.
Kyber Network, a provider of on-chain liquidity
Kyber Network is a project that was created to solve the problem of liquidity in on-chain transactions.
The Kyber Network addresses this problem by holding a large amount of cryptocurrency in reserve in advance, creating a situation where it can be lent, borrowed, or sold at any time.
Professional market makers and projects funded by ICOs often have large amounts of cryptocurrency in reserve.
Kyber Network is getting those organizations and projects to provide cryptocurrencies that they don't need immediately as a reserve.
This eliminates the need for "people who want to sell Ethereum to buy DAI" to wait for "people who want to buy DAI" to come up.
Through the Kyber Network, transactions can be concluded from the reserve at any time.
When offering cryptocurrency as a reserve, the organization or project is free to set the price.
In this way, the reserve with the best price for the transaction will be given priority for use, and the dynamics of price competition will come into play.
In this case, the company/project has to pay 0.25％ of the transaction volume to Kyber Network.
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Applications of Kyber Network
For the blockchain industry, which is still in its infancy, liquidity is a huge issue for the smaller DeFi project.
This is why many projects are using the Kyber Network to solve this problem.
DEX
As we have learned so far, the liquidity problem in DEX is very significant.
KyberSwap is a DEX designed to allow users to buy and sell cryptocurrencies at a better rate at all times.
Unlike CEX, where the transaction is executed once the order is submitted and matched, KyberSwap executes the order immediately.
The Kyber Network is used to achieve this instantaneous execution.
Wallets
Some cryptocurrency wallets allow users to buy and sell cryptocurrencies directly from the wallet.
In other words, they are equipped with the functions of an exchange.
Again, the Kyber Network is used to ensure that users can make transactions at any time.
Mutual Funds
Mutual funds, which are commonly used in the financial industry, have recently become popular in the cryptocurrency industry as well.
In a project called TokenSets, smart contracts will automatically execute transactions by fulfilling predetermined conditions.
Specifically, when the conditions are met, the transaction is executed immediately via the Kyber Network.
The Kyber Network is used not only for short-term transactions, but also in investment strategies such as mutual funds.
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