Kinetex presents an innovative approach to solving several existing problems in the field of blockchain. The first task that the Kinetex team solved (unlike many existing systems) was to store assets within the network, eliminating the need to create wrapped tokens. This approach maintains the integrity of the original assets and reduces the vulnerability associated with wrapped tokens.
Kinetex's decision to stop issuing wrapped tokens aligns with our belief that the future belongs to cross-chain technologies without fragmented liquidity. By creating a peer-to-peer platform for trading native assets, we strive to simplify the swap process and make it scalable for any network, eliminating the need to build complex systems with a bunch of code, dependencies, and support for what is unrelated. Our approach is to make swaps secure at the network level itself. Since the tokens do not leave the network, liquidity is stored in resolvers' wallets and moves between them and the users. Therefore, Kinetex completely prevents TVL attacks.
One of the key features of Kinetex is the ability to transfer assets instantly. All transactions occur on-chain, contributing to an efficient and seamless user experience.
Kinetex's approach to instant transfers is truly revolutionary, as it removes the need to wait for cross-chain validation. Resolvers in the Kinetex system manage the risks of reorganization independently. Furthermore, the notion of instant finality between Layer-2 solutions adds an extra layer of efficiency and security to the system.
Resolvers offer competitive rates, creating a marketplace where they compete for the users' transactions. This competition ensures that the users always get the best rates available. Additionally, Kinetex allows resolvers to link DeFi with the liquidity from centralized finance (CeFi), increasing the number of available liquidity sources.
The Kinetex protocol employs an optimistic system that optimizes gas usage and costs. Instead of requiring users to pay validators for every transaction, Kinetex allows users to pay only for the asset transfer itself, eliminating extra costs and creating a more efficient transaction process. However, liquidators and resolvers have to pay for generating proofs. Liquidators must send proofs when they want to take a resolver's collateral after liquidation, and resolvers must send proofs when they want to withdraw their collaterals.
Instead of AMMs that have several issues, Kinetex offers a system that allows each market maker to use private developments for their trading strategies and create new-generation smart bots with automatic machine-learning engines to analyze the external environment and all possible risks, generating bot competition between professional market participants. Kinetex also allows market makers to use their own liquidity and connect fragmented liquidity between DeFi and CeFi, expanding their capabilities beyond managing a single pool.
Such a system will enable market makers to combine their trading potential with machine learning. Current trends show that generative Artificial Intelligence (AI) improves efficiency and provides a much faster response to changes in the market environment. AI uses deep learning algorithms to learn from large data sets in automated processes and decision-making, improving overall customer service and preventing attacks.
Security of the Kinetex Protocol
The Kinetex protocol was created to protect the users as much as possible with the help of professional market makers (called resolvers) that manage all risks connected to trading and blockchain reorganization. Although anyone who provides collateral to ensure security can participate in the Kinetex protocol, they should take into consideration the said risks and build their trading strategies accordingly.
To enhance the security of each transaction, Kinetex implements a collateral system, which is the backbone for safe interactions between users and resolvers. Each transaction is backed by a resolver's collateral, eliminating the need to trust resolvers and ensuring the safety of the users' assets. As swap transactions occur almost instantly, unused collateral can be used for subsequent transactions. This efficient use of collateral further optimizes the system's operation.
The main difference of the Kinetex protocol is completely decentralized ZK-based liquidation that ensures a lack of a single point of control. Kinetex is designed so that any participant can initiate liquidation of an unfilled order, provide a proof that they have completed it, and take a resolver's collateral. Such a liquidation process creates competition between liquidators, motivating them to act as quickly as possible, further enhancing the stability and security of the system.
The liquidation system is completely open and public, which means anybody can liquidate an expired order and claim the collateral assigned to that transaction, which often far exceeds the value of the order. This approach encourages quick filling of orders and adds an extra layer of security to the system.
For example, a user wants to swap 1 ETH on the Ethereum network for 1800 xDAI tokens on the Gnosis network, and a resolver allocates 2000 USDT tokens as collateral. If the resolver does not complete the transaction in time, the liquidator will be able to take 2000 USDT at the price of 1800 xDAI while giving the user the xDAI tokens they wanted. Thus, the liquidator is motivated to finish the transaction by the ability to buy a USDT token at a discounted price, which can be used later for arbitrage trading.