šLitepaper
Overview of the most important concepts behind Kinto.
Last updated
Overview of the most important concepts behind Kinto.
Last updated
Kinto is an L2 focused on providing safe access to financial services.
Blockchain technology has the potential to improve all financial services drastically. You can now create more efficient services that are non-custodial, decentralized, and free of rent-seeking middlemen.
However, all these benefits are dwarfed by the constant scams, smart contract hacks, and rug pulls plaguing the industry. If these problems are insufficient, the current UX forces users to safeguard and manage complex cryptographic keys or risk all their funds. More than $30B was lost in 2022 alone.
Kinto is the first blockchain network designed to address all these problems at the root to support a new wave of secure financial applications.
"Kinto" literally means golden road. In this case, a safe road to bridge the gap between traditional finance and the blockchain-based financial system. This road is open, everyone can set up business along its path, and guardians protect travelers passing through 24/7.
Kinto is an L2 rollup based on Arbitrum Nitro technology that settles on Ethereum Mainnet. The network has been designed from the ground up to provide a safe environment for users and financial applications alike.
By default, Kinto provides KYC, insurance, and AML & fraud monitoring at the blockchain level. All participants are KYC'ed, and the network runs AML on all of them continuously. Transactions can then only be performed by verified participants. PII is only saved in select identity providers chosen by each user. The available providers are curated by network governance (Onfido, Synaps, Plaid). Their information cannot be linked to their on-chain accounts except when each user grants it to an application that requests it.
Furthermore, using Kinto, users can access crypto financial services without being forced to install a browser extension or store seed phrases or private keys. Thanks to native account abstraction at the chain level, applications can offer easy onboarding and account creation through username/password, 2FA, or mobile device keys.
Finally, Kinto will provide financial institutions and developers with a secure SDK ecosystem to develop upon. Through Kinto, they can access all public and liquid protocols on the Ethereum Mainnet safely.
Users and developers get ownership and governance rights by using and developing applications on the network. Kinto has a two-layer governance system fully on-chain. The protocol parameters, sequencer, and treasury will be voted on-chain by 9 Nios (Guardians). Token-holders elect these nine guardians on a rolling 6-month basis.
You can read more about the principles behind Kinto below:
KYC, yet permissionless. Everyone can join the network. You don't need permission from any single company or individual. There is a clear rule at the entrance: Participants in the network need to KYC. All the other participants in the network enforce this rule.
10x safer. KYC plus AML at the network level makes the network ten times safer than other blockchains. Smart contract hacks, rugs, or scams are highly unlikely; perpetrators are identified immediately.
Non-custodial. Users retain ownership over their digital assets and data. The protocol and applications built on top must request access to personal data. Only the owner of the data can grant access. The network doesn't store PII.
Gateway to Ethereum. It's imperative to remain connected to the main crypto highway. Ethereum is the leading blockchain network in terms of developers, liquidity, and financial innovation. Through Kinto, you can connect to Ethereum financial applications safely.
Decentralized Financial System. Everyone can create safe financial applications on top of Kinto and safely unleash blockchain technology's possibilities. We are convinced all asset classes will eventually be tokenized and available through public blockchains. Kinto's features are uniquely designed to satisfy all the compliance requirements to offer real-world and digital assets.
Currently, there are two different kinds of smart contract platforms.
On one side, you have general-purpose networks that are decentralized, open, and permissionless, like Ethereum, or layer-2s like Arbitrum or Optimism. They are extremely powerful but routinely suffer from smart contract hacks and scams.
On the other side, many efforts have been made to provide private blockchain networks for financial applications. Many of these approaches suffer from the same problem; they are creating a closed system that is not connected to where the activity and innovation are. Provenance is one example.
We believe there is a huge gap in the market for a safer blockchain that is open and connected to the main hub of Ethereum but with high-security guarantees and compliance tooling built in.
Kinto's main features are as follows:
KYC & AML. By default, Kinto provides KYC, insurance, and AML & fraud monitoring at the blockchain level. All participants are KYC'ed, and the network runs AML on all of them continuously. Transactions can then only be performed by verified participants. PII is stored by identity providers chosen by each user and curated by governance. Personal information cannot be linked to on-chain accounts except when each user chooses to grant it.
Built-in Insurance. The network also offers insurance against black swan events to all the smart contracts and applications built on top of Kinto. Sequencer fees from the network are given as a yield to network underwriters.
Default Revenue Stream. Kinto offers Contract Secured Revenue. Sequencer fees are shared with every smart contract based on their tx volume.
Magical UI, aka Account Abstraction. Users can access crypto financial services without being forced to install a browser extension or store seed phrases or private keys. Thanks to native account abstraction at the chain level, applications can offer easy onboarding and account creation through username/password, 2FA, or mobile device keys while remaining non-custodial.
Full on-chain governance. Governance will fully control the Treasury, fees, integrations, identity providers, and main chain parameters. Governance will be implemented using Open Zeppelin's governor. The votes are binding, and insiders cannot bypass, cancel or prevent the execution of proposals.
100% Finance. Kinto is 100% focused on financial use cases. Kinto offers a native infrastructure that connects to the main DeFi protocols, oracles, and everything in between so you can focus on building the future of finance.
Kinto is the best platform to build the new wave of financial applications. You can leverage blockchain technology's unique benefits without the associated headaches and risks.
Kinto is for you if:
You are a financial institution that wants to invest in digital assets, but existing solutions don't allow you to meet your compliance requirements.
You are a developer that wants to build a smart contract application, but you are afraid of smart contract hacks.
You are an investor tired of being a victim of smart contract hacks, rugs, and scams.
Kinto's network offers the opportunity to bring highly valued traditional financial products on-chain while providing the optimal environment for crypto-native financial products to thrive. For example:
You can build an asset management protocol that offers access to real-world assets.
An investment club platform where users can pool funds to invest in different digital assets.
A secondary offering market to give liquidity to employees and early investors in private companies.
The Arbitrum Nitro stack is the standardized, shared, and open-source development stack that powers Arbitrum, maintained by the Arbitrum Foundation.
Kinto is the first L2 built on the Arbitrum Nitro Stack as an Optimistic Rollup parallel to Arbritrum One and Nova. Kinto settles on Mainnet Ethereum and has a fully compatible EVM. Kinto has a modified execution layer that reverts transactions not originating from KYC'ed addresses.
Kinto collects all sequencer fees (gas) from all the txs sent to the network. The network's profit is the spread between all these fees and the cost of settling the batched transactions on Ethereum Mainnet.
Developer experience is the same as Arbitrum and almost the same as Mainnet Ethereum. If you are brand new to Arbitrum, we recommend you follow this gentle introduction to Arbitrum.
Kinto KYC Architecture relies on three components:
NFT Smart Contract - Kinto ID
Identity Nodes
KYC Providers
Kinto introduces a new series of nodes that perform KYC-related functionality. These nodes are called Identity Nodes.
Identity Nodes interact with a smart contract deployed on Kinto L2 called Kinto ID that gives untransferrable NFTs to users that have completed the KYC process.
Identity Nodes leverage different KYC providers to store the user's private information. The user can choose which KYC provider to use, and governance can add/remove KYC providers.
It is imperative to break the link between personal data and on-chain addresses. Kinto takes many steps to ensure data privacy is preserved:
Kinto doesn't store any user data. None.
Kinto ID NFT doesn't have any personal data. It only has flags identifying whether a user has KYC'd, accreditation, and whether or not there are AML violations in different jurisdictions.
Personal data is stored in the KYC provider chosen by the users. Only the most trusted and secure Identity providers, including Plaid and Synaps, are available. Data stored doesn't include your wallet address, so nobody can link your account even if they suffer an unlikely security breach.
Personal data can only be accessed with permission from the user. User needs to sign messages giving permissions to applications built on Kinto. These applications will call an API with the signature to receive the data granted from the user.
In an emergency like a smart contract hack or an exploit, governance can access the hacker's information and provide it to the relevant authorities.
This NFT token grants access to Kinto. Users cannot send a single transaction on the Kinto network without it. The token cannot be transferred to a different wallet. These NFTs are unique; one real-world identity can only receive one NFT.
At the same time, a KYC user can create delegated addresses, which are secondary addresses tied to the same unique NFT, and can use the network based on the primary identity & NFT.
Onfido, Plaid, Synaps.
There needs to be a process to handle several edge cases:
Lost wallet - The user wants to move his NFT to a new address. The user needs to KYC with the same information one more time and provide both the old wallet address and a signature that proves ownership of the new address. Then the endpoint will verify that the KYC exists, burn the old NFT, and mint a new one to the new address.
Stolen & black market KYC detected by a KYC provider. KYC providers can trigger callbacks on the identity nodes to burn NFTs flagged as risky.
Identity Nodes perform the following functions:
Given a user signature and PII information from a KYC provider, the node will mint the Kinto ID NFT gas-free to the user, allowing the user to transact within Kinto.
Suppose a user wants to grant access to his PII information to an application built on top of Kinto. In that case, the application needs to request data from the user, and the user can grant access to specific personal fields by signing a message. The API endpoint will return the appropriate fields to the requester application.
The identity nodes also process AML & KYC updates based on callbacks from KYC providers. The relevant information is updated on the Kinto ID smart contract whenever required.
Finally, the identity nodes also have API endpoints to handle stolen identities and lost wallets explained above.
It is essential to highlight that the code of the identity nodes will be open-sourced, and anyone will be able to run their own.
The text below should only be considered a proposal that must be ratified. There is no guarantee that a token will be released at any time.
The $KINTO token is the governance & utility token for the Kinto network. It ensures that Kinto is owned by its users & developers.
60% of $KINTO tokens belong to the community, dynamically rewarding developers, investors, and financial institutions for the activity they generate.
The network goal is to attract the safest financial blockchain applications. The network will provide a safe passage for investors to interact with the best of DeFi safely.
10 million $KINTO will be minted during the token generation event. There is a 2% yearly inflation target. The max supply will be capped at 15 million. The $KINTO is distributed as follows:
Kinto community members: 55% initial token supply. Most of it will be distributed to users and developers building on top of it.
Investors: 25% initial token supply. Three-year vesting.
Team and advisors: 20% initial token supply. Three-year vesting period.
Community Distribution Split
The 5,500,000 tokens allocated to the community will be split as follows:
500,000 for Engen participants. Launch members will receive tokens proportional to the Engen credits they accumulated.
2,000,000 in Participation Mining rewards for the community. They will be awarded to developers and users based on their activity. The initial program will last for 10 years, slowly decaying over time. Rewards are higher at the beginning.
1,000,000 reserved for the $KINTO liquidity event.
2,000,000 for the network treasury to fund new initiatives and pay contributors.
More details on the proposed $KINTO token can be found here.
Letās start with the supply curve. The supply curve is designed to optimize the long-term sustainability of the network. The rewards are front-loaded, slowly decreasing quarter by quarter.
Participation rewards will run for 10 years initially. We target a specific number of quarterly rewards, but the network may under-allocate or over-allocate depending on the market conditions.
Here is how we will calculate the rewards target for a given quarter E:
Given the supply curve, we can calculate how many rewards we can distribute per second of a specific quarter. Rq(E) for a given epoch E. An epoch is three months or a quarter.
Then we calculate the max number of rewards to distribute in a second divided by the number of seconds in the epoch. Rs (Rewards per second) is then calculated as follows:
The rewards will be calculated and rewarded every week.
More details on the proposed mining program can be found here.
Sequencer fees will be collected by the network on the treasury contract, wholly owned by on-chain governance and its representatives.
Here is a proposal of how the fees can be redistributed to increase the utility of the network:
š CSR - Contract Secured Revenue: 10% of the sequencer fees collected through the smart contract are given to the contract developer.
š”ļø Safety Module: 10% of the sequencer fees collected through a smart contract are set aside in the reserve pool to buy smart contract insurance and offer yield to the safety module liquidity providers.
š Treasury: 80% of the fees will be returned to the treasury to increase Network Controlled value and liquidity.
Safety Module
There will be a USDC Safety Module. In emergencies, this safety pool will be used as a guarantor of last resort. Underwriters can supply USDC in exchange for a yield generated from 10% of the staking fees.
The max supply of this pool will be capped at 10% of the total TVL secured in the network.
For the first two years, the treasury will guarantee an % yield for underwriters, making up any shortfall that couldn't be filled with fees alone.
Optionally, you can supply USDC and KINTO to get a 20% yield.
Users and developers get ownership and governance rights by using and developing applications on the network. Kinto has a two-layer governance system fully on-chain.
Once the initial version of the protocol has been developed, control will be given to to $KINTO holders on public launch.
$KINTO holders will share network ownership and vote on proposals through an on-chain governance system called the Kinto Governor. If you are new to blockchain governance, you can read more here.ā
We have designed the protocol with the goal of self-sustainability and governance minimization. Coordination is a complex and expensive task. Members need assurances that the protocol will not change against their interests.
$KINTO holders may change over time. To remain credible, the protocol needs to be resistant to value capture. Kinto has the smallest governance surface area needed to function, also known as āessential governanceā.
Governance will control the following:ā
Treasury Management. How to allocate the fees collected by the protocol.
Network Fees. Management and performance fees can be changed through governance.
$KINTO Participation Rewards Program. Governance controls the parameters of the $KINTO Participation Rewards Program.
System upgrades. Proposals can upgrade several core components of the network.
Kinto will work towards progressive decentralization. The goal is to create a secure and usable protocol that reaches protocol-market fit. These are the expected stages of decentralization:
Development and Alpha/Beta. Initially, there will be a multi-sig comprised of trusted individuals that can change the protocol parameters and perform rescue functions in case of an emergency.
Once the protocol is battle-tested and has reached a stable equilibrium, upgradeable contracts will be removed and full control of the multi-sig will be handed over. On-chain governance through Kinto Governor will be enabled.
Governance will be performed in two levels. First, voters elect Nios on-chain through Governor Bravo using $KINTO weighted voting. $KINTO holders will elect nine guardians of Nios on a 6-month rolling basis.
System upgrades, treasury allocations, and fee changes will be voted on-chain by 9 Nios (Guardians), requiring a simple majority to pass.
We expect these 9 Nios to participate in all governance proposals. If a Nio misses two proposals in a row, his position will be automatically vacated, and a new election will start.
