Bancor decentralized exchange has come to offer help to markets that find it difficult to sell their assets or raise capital by encouraging members to give while they get profits from trading fees. Users don’t have to see themselves physically before swapping tokens as long as liquidity is at hand.
Bancor possesses the Bancor Network Token. It is an ERC20 variant and does transactions from the network to blockchain. For instance, if you would like to trade between ETH and DAI, the transaction would be divided into two. The first will be from ETH to BNT while the second one, BNT to DAI, will go along with it without delay. The BNT token is also beneficial to Bancor users for changing any token of their choice on Bancor.
How it started
Bancor started last three years and got some money from an ICO. The ICO drew more than 10,000 people who gave up to $153 million. 50% of the BNT tokens lie in the hands of those who took part in the ICO while the remaining is kept for Bancor’s workers and other needs that may arise.
Three people wrote the first white paper three years ago in May.
Reasons you should join Bancor
You should join Bancor if you have ERC20 or EOS tokens that you would like to keep or trade. These tokens can be found in Bancor’s liquidity pools and it is easy for traders to change from EOS to ERC20 and vice versa quite easily. Permission must be granted to those who are willing to build liquidity and the requirements are very simple since requests are generally granted so long as the token has a value of $1.
There is no token supported by Bancor that does not relate with another through a formula. This coherence makes more people flock to Bancor when they think of changing their tokens. It is easy to know the price by using the formula below:
Price= Reserve Balnace ÷ (Total supply of smart token × Reserve Ratio)
Bancor network also got PEG Protocol to create a stablecoin for it that should be worth $1. The stablecoin, USDB, was successful and useful in generating more liquidity as users saw it as a safer option. Increasing cash-flow for Bancor through tokens is a sacrificial act because the tokens may be lost or gained depending on how their prices move. Token holders will likely lose if the price of their tokens depreciates when it was staked for a stable asset. If two stable assets such as DAI/USDB were provided for in the pool, changes in price may not affect the token holder’s profit.
Bancor launched another version of its protocol in July 2020 and it was named Bancor V2. Bancor V2 was created to make DeFi lending easier, reduce fees during exchange, supply liquidity with minimum potential losses when a single pair is involved, partner with Chainlink for its oracles to have a liquidity pool called Automated Market Maker (AMM).
Hence, Bancor V2 has come to address the concerns people have about the use of AMM. These include: impermanent loss, accessibility to several assets, high fees during exchange, and the real cost of giving liquidity.
To be brief, impermanent loss compares AMM and wallet-held tokens. Since users are expected to use their tokens to buy and sell, they can lose their tokens if the forces of demand and supply moves prices against their favor. On the other, the token holder doesn’t bother if the token just sits in a wallet. The loss encountered in AMM is not final though since market forces can still restore the loss but this does not always happen.
Whether there is a positive or negative movement in price, the person giving liquidity will face impermanent loss that corresponds to the price change. The reason is that the AMM in Bancor does not quickly show prices in the external market but depends on those who buy and sell tokens from one market to another. Here is an illustration. If provision is made for BNT/DAI with an equal amount of the tokens, nobody will know what happens to one of the pairs if its price changes in the external market except when an arbitrageur goes to sell to users there or comes to buy at a cheaper rate since price change is yet to be seen. If an arbitrageur buys BNT for instance, the number of BNT will reduce while that of DAI will increase relative to the BNT. Therefore, any withdrawal request during the period will be favored for DAI thereby making the asset holder to lose an asset that is more profitable. This is how a user loses whether the price in the market moves up or down.
However, with Bancor V2, this case where liquidity providers lose is eliminated through the introduction of AMM supported by Chainlink oracles. The action of arbitrageurs in determining the fate of users no longer stands. Moreover, it is now possible to earn by providing liquidity on only one token instead of two as was the case. To know more about how Bancor is preventing users from incurring impermanent losses, follow this link.
One other way Bancor V2 is improving the experience of its users is by making its AMM compatible with some DeFi lending firms. This puts Bancor users in a position to get interest when they lend apart from the trading fees they share. Moreover, the development gives a satisfactory conclusion that there is interplay among protocols in the DeFi space.