A 27-year-old PhD holder has a plan to make blockchain mainstream
You’re at McDonald’s. Starving, you fish out some McCoins from your wallet to pay for food. Later, you head to an Apple store to buy an iPhone. But you’re out of iCoins. So, you visit a money changer to exchange your dollar notes for them. While you’re at it, you buy some Amazoncoins and Grabcoins, just in case you run out.
This may sound ludicrous, but it’s a scenario cryptocoin owners face. Depending on where you live, converting fiat money like Singapore dollars into ether – the currency of Ethereum – can be troublesome. Then there’s the matter of converting ether into niche blockchain tokens like gifto or BAT, which are used only within their own ecosystems. To do all of the above, you need to use multiple exchanges.
That’s not ideal. The rise of Ethereum and decentralized apps (dapps) could cause thousands of tokens to coexist, creating a messy digital feudalism. A decentralized economy, which wrestles control away from governments and corporations, works better if you can painlessly convert one coin to another. The dream is that owning ether should give you access to all the dapps in the world.
But if Loi Luu has his way, you may not need to own ether either.
Luu is a 27-year-old Vietnamese PhD graduate in computer science from the National University of Singapore (NUS). He did research on cryptocurrencies and the security of smart contracts – a crucial feature in any blockchain that allows the automatic exchange of assets.
He is also the CEO and co-founder of Kyber Network, a Singapore-headquartered exchange for cryptocurrencies that, with just a prototype, raised US$52 million worth of Ether in an initial coin offering (ICO). It’s a sizable amount even for a bubble-prone ICO scene.
Kyber is impervious to hackers and does not need a tedious verification process.
Kyber’s deep bench of talent is revered in the Ethereum community. Its other co-founder and CTO, Yaron Velner, also has a PhD in computer science and studied game theory incentives in blockchain protocols. One of Kyber’s advisors is the inventor of Ethereum himself, Vitalik Buterin.
The startup is building something novel: a simple-to-use and completely decentralized exchange (DEX) that lives entirely on the blockchain. The exchange aims to convert one cryptocurrency to another within seconds and can be integrated into all kinds of dapps to allow the seamless conversion of digital assets. When Kyber receives an order, its smart contract withdraws tokens from reserves run by third-parties that are responsible for ensuring the liquidity of the network.
“We looked for existing solutions to see if they are addressing the problem completely, but we couldn’t find any that could convince us,” says Luu. So he began building his own.
However, Kyber only addresses one part of the process. You’ll still need to use centralized exchanges to convert fiat money into cryptocurrencies – which Kyber doesn’t do.
But because it’s fully on the blockchain, Kyber is impervious to hackers and does not need a tedious verification process. After all, blockchains are designed to be “trustless” – it automates identity and transaction verification. Its setup process involves just one step: connecting to your cryptocurrency wallet.
Meanwhile, centralized exchanges require you to submit your personal documents to verify your identity when linking your bank account with the exchange. It can take days. The transfer of money from the trader to the exchange also happens outside of the blockchain, making it vulnerable.
Kyber has just gone live. Right now, you can trade Ether into 19 types of tokens that adhere to ERC-20, a commonly-used technical standard for tokens within Ethereum. Its user interface is child’s play compared to Idex, which also allows users to convert between ether and ERC-20 tokens but isn’t completely decentralized and therefore open to manipulation.
Next on Kyber’s roadmap is the ability for people to convert Bitcoin into ERC-20 tokens – without needing to own Ether.
In the long run, running a DEX may be cheaper than operating a centralized version because many of the needed features are already built into the blockchain. The savings can be passed onto users.
Getting his hands dirty
This is not Luu’s first rodeo as an entrepreneur. When he was in college in Vietnam eight years ago, he started a company that built a school management system. It received funding from Viettel, the country’s largest telco. He also worked as a freelance programmer to pay off his tuition.
He sensed a bigger calling, though he didn’t have a clear picture of what he wanted to do. “In order to create something significant, I either needed much better connections or create something that someone else couldn’t do,” he tells Tech in Asia. So he applied for graduate school at NUS, packed his bags, and left home.
His interest in cryptocurrency developed around 2014 when Mt Gox, then the world’s leading bitcoin exchange despite being ill-managed, got hacked and the currency’s price plunged.
He read up more about it, and narrowed his doctoral research from applied cryptography to cryptocurrency. He became active in the blockchain community, published research, and contributed to open-source projects.
Luu developed Oyente, a tool that analyzes the security of Ethereum smart contracts. He became friends with co-founder Velner after the Israeli expert reached out to Luu to comment on a paper he published. Together, they started Smart Pool, an open-source smart contract for decentralizing cryptocurrency mining pools.
Again, Luu sensed a bigger calling. “We wanted to get someone else to deploy our solutions. But I realized that it’s really hard to convince other people to use our stuff,” he says.
“That’s why we decided to start our own venture and create direct impact by ourselves instead of relying on someone else.”
Kyber was the vehicle to do just that. If it succeeds, it could shape not just the blockchain world but the entire financial economy as well.
The problem with decentralized exchanges
If the blockchain is an infallible god, exchanges would be the church: prone to corruption and human foibles. To date, numerous cryptocoin exchanges have been hacked, and millions of dollars have been stolen. As a solution, decentralized exchanges are the promised land: exciting in theory but difficult to execute.
Yes, DEXes promise robust security, but centralized ones with strong anti-hack measures like Coinbase and Binance aren’t too shabby, either. “Centralized exchanges are inspired by exchanges in traditional markets, like stock and foreign exchanges,” says Luu. “That’s 20 to 30 years of experience in building a platform for mainstream users.” In comparison, DEXes have only been discussed in the past couple of years.
Also, while DEXes have the potential to be faster and more user-friendly, they’re restricted by the limitations of the Ethereum infrastructure.
As such, centralized exchanges will stick around for two reasons. First, DEXes like Kyber, which are built on top of Ethereum, are limited by the blockchain’s small throughput (the number of transactions it can process per second), although that problem might resolve itself since the solutions are in the works.
Second, there still isn’t a way to convert fiat money into tokens in a purely decentralized way. An interesting solution has been offered by Tether, a company that has created tokens (USDTs) that are pegged to the value of the US dollar. Each token also corresponds to an actual unit of currency held in Tether’s offline reserve.
A mad dash to the finish line
The CEO has been flying in and out of Singapore a lot. “I need to cut down on my trips,” Luu says wearily. That may be difficult to do, given how Kyber needs to build a community to succeed.
And because its entire code base is open-source, the company needs to outsprint other DEXes to become the de facto means for the world to exchange cryptocurrency. Only then can its position be unassailable. This is no small feat even with US$52 million in funding.
Kyber is at the genesis of a long process. It is integrated with four cryptocurrency wallets to allow direct trading within those apps, and has partnered with ETHLend, a decentralized lending marketplace, to do all its token conversions. It needs to secure a lot more partnerships.
Most people are in cryptocurrency because of money and because they want to get rich.
At the time of writing, Kyber is processing about US$50,000 a day, according to Dapptrack, though Luu says the number is closer to US$160,000. But it’s not even the leading DEX right now – Idex processes close to US$2.6 million a day. Kyber has even more catching up to do with Binance, which transacts billions in US dollars a day, and has its own DEX in the works.
While Kyber’s purely decentralized approach is a purist’s dream, it needs to prove that consumers would favor its approach over centralized or hybrid exchanges. That said, the startup’s long financial runway, ease of use, Buterin’s support, its integrations and upcoming features like trades between Bitcoin and Ethereum and between ERC-20 tokens, could give it an edge.
At the moment, it looks like the flights will continue at a brisk pace for the Kyber team. But Luu, who rejected two lucrative job offers to start this company, is up for the challenge.
“Most people are in cryptocurrency because they want to get rich,” says Luu, pointing out that building a centralized exchange is the easiest way to get there. “As for me, it’s all about the impact I want to create.”
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