Original Title: "Understanding the Kine Protocol in Decentralized Derivatives"

Source: Kine Community

Derivatives play a very important role in traditional financial markets and centralized cryptocurrency exchanges, but the significant gap between the demands for high-frequency/high-speed trading and the slow/high-cost on-chain interactions has yet to be effectively bridged.

In the 9 months since its launch, what characteristics and advantages does Kine, a DEX ranked in the top ten on CoinMarketCap and competing in the same space as dydx, possess?

1. What is Kine?

Kine Protocol is a decentralized derivatives protocol platform based on Ethereum, aimed at building a derivatives market with infinite liquidity, helping users conduct derivatives trading quickly, transparently, and conveniently. All transactions are supported by an industry-innovative peer-to-pool engine, maximizing capital efficiency based on the best leverage through cutting-edge cross-margining. Currently, Kine has achieved a multi-chain layout to meet diverse user needs, creating a multi-chain integrated trading ecosystem and becoming the best user experience decentralized derivatives trading platform.

In simple terms, Kine is a decentralized derivatives trading platform, but it is not satisfied with merely achieving "monotonous" trading of crypto asset derivatives.

Generally speaking, derivatives can better meet market participants' advanced asset allocation needs for higher volatility or risk hedging. Although spot trading can also manage risks through combinations, from the perspective of the entire capital market, it loses the foundation for continuous capital valuation and inter-capital conversion, leading to a significant decline in capital circulation efficiency. From a financial perspective, derivatives trading, in terms of liquidity and trading volume, is always larger than spot trading.

Not content with trading crypto asset derivatives, Kine aims to achieve "trading everything" and hopes to bring mainstream traders into the decentralized finance (DeFi) world on a large scale through more flexible and pragmatic methods.

In product design, Kine's goal of "trading everything" is very similar to the attempts made by popular DeFi protocols like Synthetix, Mirror, and UMA, which aim to establish "images" of financial assets that already have a broad consensus in the blockchain world and provide them more openly to every market participant.

Compared to the consensus relied upon by cryptocurrencies, U.S. stocks, gold, and other commodities are more easily accepted by participants in traditional financial markets and investors who are not yet familiar with the cryptocurrency world after undergoing long periods of validation. Moreover, this on-chain synthetic asset not only lowers the entry barriers that Robinhood has raised after bowing to Wall Street but also brings infinite possibilities to participants in the cryptocurrency world.

From Kine's product design, it can be seen that Kine takes Synthetix as a model, adopting a "peer-to-pool" model to provide "infinite liquidity" for derivatives in a DeFi manner. Additionally, Kine has optimized the issue of high collateral rates based on the existing attempts of Synthetix and Mirror, further enhancing capital utilization.

Furthermore, all on-chain contracts of Kine Protocol have passed security audits by PeckShield.

2. KINE Rejects "Decentralization for the Sake of Decentralization"

In terms of implementation, Kine hopes to adopt flexible and pragmatic strategies to bring mainstream traders into the decentralized finance (DeFi) world on a large scale.

Kine founder Lei pointed out that in the current crypto asset trading field, most people are extremely positioned at one end of either CeFi (centralized finance) or DeFi (decentralized finance), but the financial world is not black and white. DeFi still needs to learn from the efficiency of CeFi, while CeFi needs to learn from the security and decentralized governance of DeFi.

Therefore, he plans to start from a middle path, first adopting "on-chain staking + off-chain trading" to enhance trading experience while protecting asset security; then, evaluate various on-chain scalability solutions, choosing and adopting safe and reliable Layer 2 solutions to achieve fully decentralized trading.

The core goal of this path is to allow the widest range of cryptocurrency users to transition from centralized exchanges to the world of decentralized trading.

In the first version of the product launched by Kine, users can stake ETH, WBTC, mainstream stablecoins, Kine (the platform's token), and other major ERC20 tokens in a smart contract to mint kUSD, and then trade on the platform through off-chain matching.

The advantage of this approach is that the security of funds is placed on the smart contract rather than the platform's moral integrity. Another benefit of online staking is the transparency of data; the online staking data is verifiably placed, avoiding serious exaggeration of trading data.

At the same time, Kine also promises that when Layer 2 solutions are proven to be safe and reliable, Kine will adopt them without hesitation.

"I, like everyone else, am looking forward to the implementation of Layer 2 technology, but so far, no one knows when Layer 2 can be efficiently implemented while ensuring safety.

Currently, Layer 2 solutions are experimental; this experimental nature implies significant uncertainty and security risks, so it is not a practical choice for large-scale applications before Layer 2 solutions mature," Lei stated. "However, Kine will ultimately choose Layer 2 solutions that are proven feasible by facts. Our first step is to transform CeFi in a DeFi way, creating an on-chain product that offers an experience comparable to CeFi, pragmatically bringing users from traditional centralized exchanges into the DeFi world."

3. How Does Kine Ensure Trading Liquidity and Improve Capital Efficiency in Product Mechanism?

To achieve large-scale user adoption, liquidity and capital efficiency of the derivatives trading platform are also key.

To address liquidity issues and the related severe slippage problem, Kine has borrowed the Peer-to-Pool liquidity pool trading model promoted by Synthetix, providing users with infinite liquidity and zero slippage advantages, significantly enhancing the trading experience. The so-called Peer-to-Pool means that the platform creates a liquidity pool, but most of the liquidity in the pool is added by DeFi users, who become the ultimate counterparties for trading users through over-collateralization.

To encourage DeFi users to provide liquidity and reduce their concerns about impermanent loss, Kine has designed a complete set of incentive mechanisms for staking users, including fee dividends and platform token (KINE) rewards. In the system designed by Kine, the liquidity providers in the pool are not Kine itself, but Kine's users, a group of DeFi players who provide liquidity to earn income and tokens.

When users trade, the trading price is a composite of real-time price indices from multiple sources such as Chainlink, Coinbase, Bitstamp, and Kraken, thereby avoiding situations where the platform subjectively manipulates prices or experiences price spikes.

Through the design of "infinite liquidity + real-time price index," the trading experience for contract investors on the Kine platform will be better than that of most centralized and decentralized derivatives platforms currently on the market, and it will be simpler and easier to use.

4. Team and Financing

Kine founder Lei graduated from Imperial College London with a degree in computer science and has over 15 years of experience in traditional investment banking, including well-known financial institutions such as Merrill Lynch, HSBC, Standard Chartered, and Citibank. He is also a CFA charterholder. After entering the blockchain world, he served as the head of the institutional department at Huobi, gaining ample experience in the digital currency market.

According to Lei, Kine's founding team largely comes from international teams of well-known traditional financial institutions such as Merrill Lynch, HSBC, Standard Chartered, and Citibank, with an average of 7 years of R&D experience and core team collaboration of over 5 years.

Currently, Kine Protocol has received support from top global investors and institutions, completing three rounds of financing totaling $20 million.

It is worth mentioning that Kine has received support from two renowned angel investors, Naval Ravikant and Alex Pack.

Naval Ravikant is a co-founder and former CEO of Angellist. He not only founded Angellist in 2010 but is also one of the most well-known investors in the fintech sector. He has invested in many well-known companies and projects, including Uber, Twitter, Notion, and Clubhouse, with over 10 unicorns (companies valued at over $1 billion) among his investments.

Alex Pack is one of the earliest institutional investors in the crypto space. He has worked at Bain Capital Ventures and the crypto investment fund Dragonfly Capital, being an early investor in many leading teams in the crypto field, including Compound Finance, MakerDAO, UMA Protocol, Amber Group, MatrixPort, Polychain Capital, Ethereum, and Cosmos. In October 2020, Alex Pack joined Huobi's strategic investment department as an investment advisor.

5. Development Plan:

Kine's blind box NFT marks the beginning of Kine's metaverse ecological plan, gradually launching the Kine 2.0 version to build a more complete decentralized DeFi ecological product. It aims to meet users' basic on-chain investment and trading needs while providing a safer, fairer, and highly entertaining and innovative product experience.

Additionally, not satisfied with its current achievements, Kine Protocol is accelerating the deployment of its metaverse ecological landscape, unprecedentedly constructing and landing more diverse metaverse application scenarios. The platform is committed to breaking down the barriers between centralized and decentralized trading. In the future, the platform will also lead users to navigate the crypto world more freely, seizing the first-mover advantage in the blockchain market and the dividends of the metaverse era.

In Kine's decentralized governance, DAO is introduced as the first step towards community governance decentralization. Kine DAO is mainly composed of KINE token holders, and users can maintain project operations and promote project development through proposals and voting. The ultimate goal of Kine DAO's development is to dissolve the Kine Foundation, achieving a more thorough decentralized autonomy and building a Kine ecosystem completely led by users.