Bancor

About Bancor

Bancor is a decentralized liquidity protocol that allows for automated token swaps on Ethereum and other blockchains. Founded in 2017, Bancor uses an algorithmic market maker model to provide liquidity without order books or counterparties. The project aims to solve liquidity issues for long-tail tokens.

History and Origins of Bancor

Bancor was co-founded by Galia and Guy Benartzi in 2017. Galia first proposed the idea of programmable tokens and automated conversions in a paper titled “Bancor Protocol” in 2016. The project held one of the largest ICOs at the time, raising $153 million in 2017.

Bancor pioneered an automated market maker (AMM) approach for decentralized exchanges. This allowed token swaps directly between smart contracts without order books. Bancor introduced its own BNT token to facilitate conversions between token pairs.

How Bancor Protocol Works

The Bancor protocol uses smart contracts to connect tokens into currency networks. Each token pair has a formulaic price relationship allowing seamless conversions. Users don’t need to match buyers and sellers.

For example, 1 ETH may be worth 300 BNT based on the stored formula. This allows anyone to instantly swap ETH and BNT at the set price. The ratios adjust as the AMM pools expand.

Adding tokens to the network requires staking BNT in “Relay” pools to fund the reserves. In return, Liquidity Providers earn fees on swaps. This model reinvents AMMs for on-chain liquidity.

Bancor V2 and V3 Updates

In 2020, Bancor released V2 of its protocol on Ethereum with gas optimizations. Bancor V2.1 launched single-sided AMM for flexible liquidity provision. Users can stake one token and earn fees in a second without impermanent loss.

Bancor V3 in 2021 upgraded to concentrated liquidity and multiple independent AMMs. This bolsters capital efficiency for LPs. Bancor also unveiled support for NFT positions to customize strategy. Cross-chain features are in development.

Token BNT

The BNT token coordinates the Bancor network. BNT is the reserve currency for all conversions. Token connectors must stake BNT as collateral when joining the network. Fees from conversions get distributed to BNT stakers.

BNT also allows users to create Relays and vote on-chain. Increased BNT staking weights votes higher in governance. The floating BNT supply adjusts based on network activity, acting as a frictionless coordination tool.

Providing Liquidity via Bancor

Users can earn fees on token swaps by staking assets in Relays. Adding an ETH/BNT pool for example brings fees from all ETH conversions across the network proportional to the stake. V2.1 introduced single-sided exposure without impermanent loss.

Bancor uses “constant liquidity pools” – reserves maintain balance as prices shift. LPs often provide liquidity with the BNT token as one side of the pair. Providing symmetric 50/50 liquidity maximizes pool stability.

Using Bancor for Token Swaps/Conversions

Bancor automates price discovery and swaps between connected token pairs. Users can seamlessly convert ETH to any token in the network by routing through BNT reserves. Swaps execute at the formulaic market rate with low slippage.

Bancor allows users to swap tokens directly via smart contracts in a few clicks. This bypasses order books and waiting for trades. Users don’t need to match buyers and sellers as with AMMs like Uniswap. Bancor absorbs the counterparty risk.

Bancor DEX Features and User Experience

The Bancor Network provides an easy DEX experience. The interface allows users to swap any integrated token via web wallet or mobile app. Token listings happen on-chain via governance.

Analytics like swap volumes, liquidity depths, and impermanent loss stats bring transparency. Bancor doesn’t yet offer margin trading or lending. But the DEX provides fast and low-cost conversions thanks to gas optimizations.

Governance Mechanisms and Structure

Bancor uses a BNT-weighted voting system for on-chain governance. Users can stake BNT to create proposals. Higher stakes grant more voting influence over parameters and upgrades.

A core team stewards development but critical changes require majority approval. Recent examples include updating swap fees and migrating contracts. BNT staking also earns pro-rata swap fees from the protocol.

This governance structure aligns BNT holders with the protocol’s success. Bancor may consider migrating to a DAO-like structure as community involvement grows.

Competitors to Bancor

As one of the first AMM projects, Bancor pioneered on-chain liquidity but now faces stiff competition:

• Uniswap – Largest decentralized exchange and AMM. Lacks BNT cross-token functionality.
• Curve – Stablecoin AMM with deep liquidity. Focused on low-slippage trades.
• Balancer – Liquidity pools with programmable bonding curves. Advanced features.
• Kyber Network – Decentralized liquidity network similar to Bancor. Less usage/adoption.
• SushiSwap – Uniswap fork with incentives for liquidity. High TVL and volumes.

Bancor will need to leverage its cross-chain bridges and features like impermanent loss protection to thrive among rivals.

Future Outlook for Bancor

Bancor was first to crack automated on-chain liquidity but is now one of many AMMs. Maintaining its brand and adoption as the market matures will be a challenge.

Planned upgrades like NFT pooling, cross-chain expansions, and mobile apps could differentiate Bancor long-term. With strong tokenomics and on-chain governance, Bancor can potentially reinvent itself amidst shifting market dynamics. The protocol’s adaptability will determine its future role in DeFi.