Bancor's name is a homage to John Maynard Keynes - a 20th-century British economist who came up with the term for his proposed supra-national reserve currency.
The Bancor protocol was launched by Eyal Hertzog, Galia Benartzi, Yudi Levi and Guy Benartzi in 2017, well before decentralised finance or “DeFi” had entered the common vernacular. Exactly this head start is what gave Bancor the ability to launch the first-ever automated market makers (AMMs) and become one of the largest DeFi staking protocols today.
What's even more interesting is the fact that the ownership of Bancor is in the hands of its community, more specifically, its decentralised autonomous organisation - the Bancor DAO.
The idea behind Bancor was to create a blockchain protocol that would facilitate the conversion of different virtual currency coins instantly and autonomously without the need for middlemen or an order book.
Put simply, Bancor and similar AMMs help give liquidity to small-cap or micro-cap crypto coins allowing them to be bought and sold more easily and with lower fees and greater transparency.
How is this achieved? With the help of its on-chain liquidity protocol, Bancor enables decentralised automated exchange on Ethereum with plans to expand to other blockchains supporting smart contracts.
Bancor's “protected” liquidity pools
Bancor's liquidity pools are what allows the protocol to process instant, on-chain trades. These pools can be funded by an unlimited number of unaffiliated users with no limitations on who can contribute liquidity. Users who deposit their crypto assets in the pools do so in exchange for fees earned from each trade that passes through the pool. When a user deposits their tokens in a pool, they receive a receipt of deposit called a “pool token”, which represents their percentage ownership of the pool and accrues interest from both trading fees as well as liquidity mining rewards.
What makes Bancor unique compared to other AMMs on the market is depositors (also known as “liquidity providers”) are fully protected from a complex risk in DeFi known as “impermanent loss” Impermanent loss arises from volatility between paired tokens in a pool, and can lead to a liquidity provider withdrawing fewer tokens than they initially deposited. With Bancor’s Impermanent Loss Protection, liquidity providers can retrieve the exact amount they deposited, plus their earnings from trading fees and rewards.
Another distinctive characteristic of Bancor is users deposit a single token, which is not the case on other AMMs where users are required to lock up pairs of tokens in certain proportions to one another, or sell half their tokens for the paired asset.
Bancor’s novel “Single-Sided Staking”, combined with 100% Impermanent Loss Protection, enables simple, safe and reliable access to high-yield interest in DeFi.
Bancor Network Token (BNT)
BNT, Bancor's primary token, has a CoinMarketCap ranking of #117 and a live market cap of 575,075,453 USD at the time of writing this article.
BNT has an elastic supply based on the minting and burning of tokens.
The current circulating supply of the token is 262,062,154.
Lastly, for the sake of transparency, it's worth pointing out that BNT has seen some sharp price swings over the years, so be sure to do your research and assess if this is an asset fit for your risk preferences before purchasing it.
Bancor 3: The future of the protocol
Bancor is, without a doubt, a project that strives for improvement as well as advancement. Attesting to this is Bancor 3 - a redesign of the protocol that aims to allow users to earn even more with less effort. This redesign and the features it will bring were conceptualised based on the key learnings from the previous year.
The Bancor 3 Beta went live on April 18, 2022.
Once the full release goes live in May, Bancor 3 will serve as the biggest update the protocol has seen.
Here is a short overview of what Bancor 3 has in store:
- Simplified smart contracts enabling reduced staking and trading costs
- Unlimited Single-Sided deposits with Superfluid Liquidity used for market-making and other fee-earning strategies simultaneously
- Instant Impermanent Loss Protection - 100% protection from the moment you deposit
- Auto-Compounding Rewards - re-staking rewards with no need for gas-intensive manual transactions
- Dual-sided rewards - additional incentives offered by third-party token projects in their pools
- Revised tokenomics - a system with more cost-efficiency for Impermanent Loss Protection and additional deflationary pressure on BNT
- Support for multi-chain and L2
- And more
