Kinto: The safety-first L2 for Finance
the future of finance
Hey friend, today’s project research edition focuses on Kinto, the safety-first L2 for Finance. Enjoy the gems.
The ultimate promise of Decentralized Finance remains equitable access to financial instruments for all. Notwithstanding color, race, and shape - everyone with an internet connection should access and benefit from this system.
So far, there's been a remarkable progression in the actualization of the promise, as more than 55 million users have interacted with DeFi over time. However, the journey wasn't without challenges, and it would have reached more users if not for some drawbacks.
Security is one of the significant drawbacks to mass and institutional adoption, followed by Compliance. About $7.7 billion has been stolen from the crypto market due to vulnerability issues. Plus, there needs to be an effective KYC layer that will bridge the compliance gap between traditional finance and decentralized finance.
Solving these duo battles will advance DeFi and open the gates for mass adoption—that's where Kinto comes in.
What is Kinto?
Kinto is an L2 chain that provides safe access to on-chain financial instruments. Built on Ethereum using Arbitrum Nitro Stack, it is non-custodial, transparent, permissionless, and governed by the community.
The platform prioritizes finance safety above all else, so it is popularly known as a 'safety-first chain.' For that purpose, it provides KYC, insurance, AML, and fraud monitoring services, ensuring the chain stays secure at institutional and user levels.
Interestingly, Kinto runs in a way that maintains end-to-end security. All users are KYC'ed at entry, routine AML is carried out and only verified users perform transactions on the network. That way, it'll be difficult for anyone to game the system and quickly get away with stuff.
Beyond the safety of user funds, Kinto also provides a timely solution to compliance challenges faced by RWA platforms and traditional institutions. These institutions can easily leverage the network's KYC and AML systems to scale through regulatory bottlenecks of their local territories.
Tech: How it Works
Kinto emerges as the pioneering L2 platform constructed atop the Arbitrum NitroStack, operating as an Optimistic Rollup alongside Arbritrum One and Nova. Settling on Ethereum, Kinto boasts a fully compatible EVM - featuring a customized execution layer designed to roll back transactions not initiated from addresses verified through KYC.
Additionally, Kinto offers a gasless experience for users. Application & protocol developers pay for fees in advance via Paymaster, paying some of the fees incurred by users (e.g. during their onboarding process). The network's earnings derive from the margin between network fees and the expenses incurred in settling the batched transactions on Ethereum Mainnet.
Kinto's KYC architecture consists of three vital components: the NFT Smart Contract, Kinto ID, Identity Nodes, and KYC providers. The NFT Smart Contract grants users access to the platform, the Identity Nodes manage the Kinto ID, and the KYC providers handle all participant-related data. Together, they create a formidable chain for everyone.
Best Features
Now, let's see some of the critical features of Kinto and how it stands out:
• KYC and AML: All users must go through KYC to use the platform, and the network equally runs occasional AML on all users. That means only verified users can make transactions on Kinto. It is also worth noting that Kinto doesn't store the user's profile information, as the chosen KYC provider stores it. The available KYC providers on Kinto are Onfido, Synaps, and Plaid.
• Account Abstraction: Kinto's account abstraction simplifies platform onboarding and crypto creation processes. Users don't need another wallet or browser extension to interact with the network; they can quickly sign up using passwords/usernames, 2FA, or mobile device keys. This is a next-level user experience.
• Built-in Insurance: Insurance services are rare on L2 chains. But Kinto provides insurance against black swan events to all applications and contracts on the platform.
• On-Chain Governance: The platform is 100% decentralized and runs an on-chain governance structure. The governance controls everything from treasury to fees to integrations to identity providers and more. Kinto is leveraging Open Zeppelin's governor to manage its governance.
• 100% Finance: Kinto is not just a finance-focused chain; it's an enabler for secure financial transactions. Think of it as an island where finance institutions, investors, and developers can rent their houses. The network aims to power the next wave of financial applications across territories.
Tokenomics
$KINTO will be the platform's governance and utility token. Ten million $KINTO will be minted at TGE, of which 60% will be allocated to the community, 25% to investors and advisors, and 15% to team members (three-year vesting). The token's supply will be capped at 15 million and has a 2% yearly inflation target.
Interestingly, Kinto has a two-layer governance system that is fully on-chain. The $KINTO holder's governance capabilities lie in sharing the network's ownership and voting on proposals, while the $KIN holder's governance includes the following: treasury management, network fees, the $KIN participation rewards program, and system upgrades.
Important to note that the docs state $KINTO is just a proposal, but sure sounds good!
Engen
Back in November 2023, Kinto started Engen, the launch program of Kinto. The essence of this program is to onboard and reward early participants to the network. So far, it has been a ride. Engen was divided into four phases:
Phase 1: KYC Arrival — Started on November 27th.
Phase 2: Wallet Set-Up — Started on January 15th.
Phase 3: DeFi Rescue — Started on February 7th.
Phase 4: Capital Commitments — Started in March.
Currently, they're in the capital commitments phase, during which users can make deposits to secure an allocation and gain exposure to future rewards and incentives. Participants receive Engen credits upon deposit, distributed according to the attached formula.
It is important to note that locked funds can’t be withdrawn until May 16th, when Kinto launches properly, and Engen credits won’t be tradeable for fiat or tokens. With that out of the way, there are a couple of DeFi plays you can make with your lock funds on Kinto.
For instance, you can get extra APRs on your USDC, DAI, USDe, GHO, stETH, or wstETH by depositing and selecting to lock to one of the available assets. Locking weETH gives you Engen Credits, Eigenlayer points, 2x EtherFi points, restaking rewards, and a 3-4% yield. It’s just like using a stone to kill five birds - sounds interesting.
Wrapping Up!
The best part is that on Kinto, there is no botting, users can’t farm with multiple wallets, and whales can only use one wallet—giving everyone a fair chance to transact, as DeFi should be. So far, Kinto has 26k verified users, 1500+ unique depositors, and about $11.5m in TVL. With these figures, it is evident that Kinto has found its product-market fit.
The Bitcoin ETF approvals open the first crypto gates to institutions, and Kinto is set to open the second gate. This time, it’ll be by being a base layer that gives institutions and complaint-sensitive applications a soft landing to crypto. Not just that, they’ll also be able to access the over $1T liquidity on-chain to build killer applications.
Curious to see how it plays out.
NB: Thanks to the Kinto Team for supporting this research.
That’s a wrap!
Thanks for reading!
Until next Friday,
Viktor DeFi.
PS: I’d love to hear your feedback and comments.