The success over the past two years for DeFi has not only provided an important use case for blockchain technology but also shone a light on the likely future for the entire financial services industry. Composability and the ability to compound value creation across numerous different decentralised financial applications is why total value locked (TVL) in DeFi has experienced explosive growth. The recent explosion of Non-Fungible Tokens (NFTs) has also led to many people exploring the application of ‘one-of-a-kind’ assets in the digital world. The ability to own unique data verifiable on the blockchain represents a huge opportunity to digitize real-world assets (Art or real estate) and bring them on-chain.
While all appears well and good, security issues with the nascent ecosystem still pose many threats to the longevity and sustainability of this paradigm shift towards a future characterised by access to financial instruments without the need for an intermediary. For example, the interconnecting smart contract layer that now houses more than $40bn TVL is subject to extreme risk and malicious activity from nefarious actors. The DeFi application layer — comprising of complex contract calls — can act as a honeypot for exploits.
Despite NFTs also capturing the world’s imagination in recent months, today they offer little utility or yield-generating opportunities to purchasers for the most part. While we see a place for collectables in the future, we believe there is an enormous opportunity for NFTs to serve as collateral in the crypto sphere generating lucrative income-generating opportunities.
In this post, we are excited to present KIRA Network – an up and coming layer 1 network with a radically different crypto-economic system design. KIRA is among the very few layer 1s we have come across that accept assets other than its own base currency (KEX) as a stake-able asset for block validation purposes. By also enabling ‘liquid staking’ (through the issuance of a staking derivative), we believe KIRA’s block rewards and transaction fees can present attractive risk-adjusted returns to crypto-asset and NFT holders.
Through unlocking new yield opportunities for idle and conventionally non- or low-productive assets, we envision KIRA creating a liquidity black hole. Taking into account KIRA’s unique consensus model, the suction of assets into the KIRA ecosystem will serve to improve the overall security of the network and make it a more attractive and fertile platform for dApp builders (demand-side). In short, at Rarestone we are particularly excited about KIRA’s thoughtful design and attentiveness to the game-theoretic components that have the power to trigger a highly reflexive virtuous cycle.
KIRA is launching its own blockchain network with a novel approach to the traditional Proof of Stake (PoS) consensus model. Termed Multi Bonded Proof of Stake (MBPoS), KIRA allows token holders from neighbouring ecosystems (e.g. Binance Chain, Polkadot, Cosmos, etc.) to port their crypto-assets over to KIRA using cross-network bridges to be used as staking collateral for validator delegation purposes.
Once assets are staked, the KIRA network will mint staking derivatives that represent the underlying staked collateral at a 1:1 peg in an effort to unlock liquidity. Holders of the staking derivative will be entitled to the staking rewards generated by the underlying. Staking yields are generated through block rewards and transaction fees. The interest rates for each staked asset are individually assigned manually by KIRA’s council.
KIRA aims to be a multi-chain network, meaning that the central KIRA blockchain (KIRA Hub) provides security and interoperability to a potentially infinite amount of application-specific layer 1+2 blockchains (KIRA Zones), connected as sidechains.
Connected to and secured by the central KIRA Hub, KIRA’s application-specific chains share and benefit from the security, scalability, interoperability and governance of the KIRA blockchain. Decentralised applications built on KIRA will also be welcoming of all staking derivatives.
- DeFi Application Builders — Developers looking for a secure and fertile platform to develop smart contract-based applications that offer users access to financial services in a permissionless manner.
- Web3/DeFi Entrepreneurs — start-up founders looking to solve a compelling problem using decentralised technologies and are in need of financial support to help bootstrap development and network expansion.
- Stakers: Crypto-asset and NFT holders — holders of low- or non-productive assets (e.g., NFTs) looking for attractive risk-adjusted returns and liquidity.
- Validators: IT Infrastructure providers — Node operators who do not want to be overly exposed to slashing risks if they fail to maintain 100% uptime nor cannot afford to keep their assets illiquid by locking it in a staking contract.
- Multi-layer security — KIRA’s security increases with the growing number of tokens deposited and staked allowing it to deploy an uncapped number of applications and settle transactions without throughput or security limitations due to no limits of the real value at stake.
- Performance — parallelising computation across application-specific chains combined with sharding technology exponentially increases transaction throughput and performance.
- Liquidity on yield-bearing instruments — KIRA’s liquid staking feature allows token holders and validators to reduce their investment risk and improve overall market liquidity levels through the creation of a staking derivate pegged to the underlying.
- Attractive yields — KIRA will offer existing NFT and/or crypto-asset holders the opportunity to stake their assets for validator delegation purposes for an attractive and competitive risk-adjusted return.
Bridging Assets From Neighbouring Networks into KIRA
Trustless staking of any digital asset or use of any of blockchain applications within KIRA Network is possible thanks to interchain protocols such as Cosmos IBC and Polkadot XCMP. By interconnecting with other networks within the interchain ecosystem KIRA can facilitate value and data transfers between any blockchain applications. Validators in the KIRA network will be those that host the multi-signature wallets for the cross-network transfer of Ethereum-based assets.
From a user perspective, the process will be relatively seamless. KIRA will host an easy-to-use self-service interface where a user can select the assets which they’d like to port over to the KIRA network. Note — KIRA governance members will determine the specific assets are applicable to staking, which will be visible in KIRA’s multi-asset cross-chain register.
Multi-Bonded Proof-of-Stake Blockchain
The network is secured by a delegated Multi-Bonded Proof of Stake consensus mechanism. KIRA’s governing council will be responsible for setting the conditions for the Validator ballot, taking into consideration factors that extend beyond just infrastructure requirements.
Holders of crypto-assets will delegate their stake to their validator of choice. The new model allows network participants to earn revenue (block rewards and transaction fees) by staking any digital asset type, including digital fiat, cryptocurrency and NFTs. The KIRA network is more secure the more assets that are deposited, and all staked assets remain liquid due to natively supported derivatives.
Setting Interest rates for Staking
To ensure a diverse range of crypto-assets to enter the ecosystem, KIRA will offer varying interest rates for each asset staked. KIRA council member validators will be responsible for manually determining the interest rates, taking into consideration network security, market demand, and other factors. This is a different approach from leaving a complex algorithm to determine the rate itself. KIRA takes this approach because they recognize that an asset’s value is not the same as market price, meaning that KIRA cannot simply allow staking of a random asset and assign a rate relative to its market price. Therefore instead, KIRA’s governance is structured to decide and assign a subjective value to foreign tokens.
Token holders will not only benefit from the block and fee rewards but further from maintaining full liquidity of their assets at stake because KIRA will support native derivatives. However, when choosing an interest rate, there will be some qualifying parameters to ensure the sustainable onboarding of new assets to the KIRA network. Interest rates will be capped to 1% of the total revenue generated (block and fee rewards) by the assets on the KIRA network. To prevent the possibility of a price death-spiral due to native token price fluctuations, all node operators will be incentivised by equally sharing 50% of all network fee rewards.
Decentralised Applications on KIRA
KIRA will not be a one-chain solution with many tokens (on-chain rule all) like Ethereum but instead will serve as the settlement layer for a variety of application-specific blockchains called zones. Instead of running the contracts themselves, projects and developers will be able to launch their own side chains. These application-specific blockchains will each have their own validators. Each zone validator will periodically flush the hash values to the KIRA blockchain to ensure data immutability and market-wide trust is maintained.
Similar to fishermen in Polkadot, the KIRA network will also include node operators who are responsible for monitoring the network in case validators are behaving badly. These nodes must stake a small number of tokens but can be rewarded lucratively if they find bad behaviour.
KIRA’s smart contract platform — based on CosmWasm — will be optimised for finance applications that require access to liquidity since the greater the TVL, the more secure the network becomes. Sharding and parallelisation of computation will also enable KIRA to scale in an economically efficient manner, housing an uncapped number of applications without throughput or security limitations due to no limits of the real value at stake.
Interchain Exchange Protocol
KIRA’s founding team are developing the first application-specific chain on the network — named the Interchain Exchange Protocol (IXP). IXP will host an automated market maker (AMM) similar in its design to Uniswap. The IXP AMM will enable the permissionless exchange of cross-chain assets. The derivative assets created during the staking process can be used to create trading pairs and bootstrap the DEX’s liquidity.
KIRA’s validator set will hold the majority of power in the ecosystem. Their role will primarily involve electing officials for certain tasks and responsibilities, who in turn will have some degree of power in electing additional officials for a specific role within the organisation. Our view is that permission and control will trickle down the multi-layered governance model branching out across multiple departments, similar to how things operate in traditional hierarchical businesses.
To prevent a plutocracy from forming, electing validators to the validator set will not be solely determined by the value at stake. The election process will account for several qualitative factors such as contributions to community development, attendance at KIRA meet-ups/workshops, among other factors.
Bootstrapping the Demand Side
KIRA LaunchPad — Initial Validator Offering
Legacy forms of funding in crypto, namely IDOs and ICOs, have flaws:
- Requires (investment) exchange of tokens or fiat currency for tokens
- Investment is final and cannot be returned if the project does not meet goals
- High exposure to market volatility and risk of “ICO token flipping”
- Lack of privacy and risk of identity theft
KIRA launchpad will offer a new way of obtaining capital for projects looking to launch. In an IVO crowdfunding, stakers in the KIRA network can decide whether to contribute the token rewards they would have received for block validation purpose to a start-up (building a zone on the KIRA network). In return, the stakers would receive the start-ups native token perpetually. The cost for stakers to do this is accurately characterised as the opportunity cost from receiving the typical staking rewards.
With the IVO, start-ups will be able to overcome the initial bootstrapping problem startups face, as they can receive a constant flow of funding from the validator. For stakers/investors the risk are also somewhat dampened as the cost of capital is lower. If they perceive that the project is not delivering, stakers have the freedom to un-delegate and cut funding.
KEX Token – Value Accrual Thesis
Based on our analysis, we believe that the KEX token will capture value due to the following features:
- Staking — KEX will be among the variety of crypto-assets individuals can decide to stake for block validation and validator delegation purposes. Rewarding stakers with inflation-based block rewards and transaction fees from the network give KEX capital-asset like features.
- Gas — KEX will be among the variety of crypto-assets individuals can opt to use to pay to process transactions. Therefore, KEX can also be considered a consumable asset.
- Collateral — As KIRA grows in adoption it is to be expected that the market capitalisation and liquidity of the KEX token to rise in conjunction. In turn, this will serve to increase the economic bandwidth of the asset. Greater economic bandwidth increases the likelihood of the KEX adopting money-like properties. Use-cases may include use as collateral, medium-of-exchange or storage of wealth.
Milana Valmont | Co-Founder & CEO
- Working in the space since 2017
- Binance Angel
- Core team of Israeli based blockchain startup KNOKS
- Private Equity Analyst at Isaac Organization
- BA Economics at Fordham University
Mateusz Grzelak | Co-Founder & CTO
- Over 3 years experience full time in the blockchain industry, including Product Manager at Bitly, an engineer at DeFi protocol Settle Finance
- Experience at Barclays as R&D Developer
- Technical University of Wroclaw
Yuri Papadin | COO
- Joined the team as an advisor pre-funding and has since become integral to the team.
- Held multiple leadership positions in startups, including VIMANA Global, a Blockchain protocol for Airspace and VTOL Autonomous Aerial Vehicles
- Investor in residence at The Angles forum
- HBS Graduate Private Equity & Venture Capital
- HEC Paris
Stage of Maturity
After a private test-net that included 222 participants and started at the beginning of 2021, lasting 90 days and finding 412 issues – KIRA Network has launched their public test-net, as of March 31st 2021. The test-net is the first stable release of the KIRA main chain (KIRA Hub), a governance module, infrastructure tool, and front-end application.
KIRA is incentivising participation with a host of different activities, allowing participants to earn KEX rewards, validator seats and even monthly stipends guaranteed to every main-net validator. KIRA will also test the social aspects of its governance model, and use the challenges and games to rank validators in order to elect the best validators for main-net.
Rarestone Capital has taken a position in KIRA. This is meant to disclose any perceived conflict of interest and should not be mistaken as a recommendation to purchase KIRA tokens. This overview has been prepared solely for informational purposes and is not to be considered as investment advice. It does not purport to contain all of the information that may be required or desirable to evaluate all of the factors that might be relevant to a potential investor, and any recipient hereof should conduct its own due diligence investigation and analysis to make an independent determination of the suitability and consequences of any action.