Bancor is a decentralized trading protocol that facilitates token swaps and staking. This project is based on the Ethereum and EOS blockchains. The Bancor Protocol employs the automated market maker (AMM) system to assist token trades in token liquidity pools without matching buyers and sellers.
What is Bancor?
Bancor consists of a series of smart contracts that power on-chain conversion of virtual coins. The protocol makes it easy and fast to swap digital assets without having to use a traditional exchange. The protocol's smart contracts manage a range of liquidity pools for various crypto assets.
Its name was inspired by English economist and financier John Maynard Keynes. Back in the 1940s, he had an idea of “the bancor,” a unit of account that could be used to track the flows of assets and liabilities.
What is Bancor's aim?
A common financial transaction that takes place on a crypto exchange includes the transfer of tokens between two participants, a buyer and a seller.
The uniqueness of Bancor is its goal to produce liquidity for altcoins and to reward liquidity providers. The protocol enables conversion of various virtual assets into other coins, including those running on other blockchains, without the interference of a third party.
Bancor was designed to support all tokens that are compatible with the ERC-20 standard. Any smart token built on the Bancor network is also ERC-20 compatible and thus compatible with other coins on the network.
Bancor aims to motivate customers to hold coins and convert them into other assets at an automatically calculated price, utilizing a simple online wallet.
Low-cap crypto on Bancor
Many small crypto coins are illiquid due to their insufficient market cap. Transaction costs for coins of that kind are higher than those for the most liquid crypto coins, like Ethereum and Bitcoin. To users who are ready to invest in small-cap virtual assets, Bancor's smart token technology offers an opportunity to buy and sell them smoothly and at low fees.
What is BNT?
The protocol’s native token is the Bancor Network Token (BNT). In mid-September this year, its market cap was $945,194,255. The highest price of BNT was $10 (Jan 10, 2018).
In addition to facilitating trades on the Bancor exchange, BNT acts as the default reserve coin for all smart tokens built on the Bancor network.
June 12, 2017
Bancor was launched with the largest initial coin offering (ICO) at the time. It collected $153 mln, distributing half of the initial BNT supply in the process. The other half was distributed among Bancor's founders, investors and treasury. Bancor was the first DEX to use an AMM to facilitate swaps between Ethereum-based tokens. Instead of a central order book that matched buyers and sellers according to their bid and ask prices, the AMM fulfilled orders with on-chain liquidity pools.
The project was faced with illicit activity. Hackers stole 25,000 ETH, 2.5 million BNT, and 230 mln NPXS tokens from the Bancor protocol. The team was able to recover, freeze or destroy the stolen BNT, but no ETH nor NPXS were recovered.
Bancor team's recovery sparked controversy around the protocol's centralized governance that enabled the team to unilaterally manipulate the BNT supply. The event pushed the team to decentralize its platform by transitioning governance to a DAO. The Bancor DAO went live towards the end of 2020. It allows BNT investors to propose and vote on updates and protocol governance issues.
Bancor announced it would airdrop its entire Ethereum reserve to BNT users. The team also changed the tokenization model to allow inflation and reward liquidity pools, oracles and developers suggested by the community.
Bancor v2.1 was launched with a new BNT supply and governance updates to address problems common to AMM-based exchanges. Bancor’s previous iteration required LPs to deposit two assets to each pool, BNT and its paired token, in proportional amounts. This often resulted in involuntary exposure to either cryptocurrency. Liquidity providers experienced impermanent loss when asset prices on Bancor lagged behind prices elsewhere. The new BNT supply is elastic to mitigate these problems. Single-sided deposits are now accepted and paired with newly minted BNT, eliminating involuntary exposure. As LPs deposit BNT in the same pool minted, BNT is burned to balance BNT's circulating supply. Bancor now requires a minimum BNT staking time to receive vBNT, the protocol's new governance token. The Bancor Vortex provides BNT depositors with additional rewards for subsequently staking their vBNT.