DYOR Crypto Wiki
Advertisement


Basics

  • Based in: Zug
  • Started in: 2017
  • A decentralized liquidity network that allows you to hold any Ethereum token and convert it to any other token in the network, with no counter party, at an automatically calculated price, using a simple web wallet.
  • “The Bancor protocol enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains. These “smart tokens” hold one or more other tokens in reserve and enable any party to instantly purchase or liquidate the smart token in exchange for any of its reserve tokens, directly through the smart token’s contract, at a continuously calculated price, according to a formula which balances buy and sell volumes.“

History

  • In 2017, Bancor pioneered automated market makers (AMMs) to replace order books using a native reserve asset, the BNT token. From Token Tuesdays (29-7-2020):

"Bancor was one of the first DEXs built on Ethereum. Made famous for their $150M ICO in 2017, Bancor has long had somewhat of a weird standing in the wider Ethereum community. While the product works, it’s requirement to hold BNT as a means of providing liquidity drastically hindered its adoption relative to competitors like Uniswap and Kyber which largely rely on ETH.

In essence, every trading pair uses BNT as a reserve. This design allows any two tokens to be connected in a trade but created somewhat of a bottleneck for people to actually provide liquidity, thus reducing the desire for traders to use it. For more context on Bancor’s V1 design, check out this resource."

"In 2017, Bancor came up with a method to trade coins on-chain through a new system. Instead of leveraging order books, the protocol introduced pooled trading. By creating different pools of ERC-20 tokens and Bancor’s native token, BNT, traders could effectively exchange with the pool instead of each other. To attract funds, liquidity providers were promised part of the swap fee from these transactions. To this day, this system is fundamentally unchanged in all of DeFi. Decentralized exchanges all function with liquidity pools used by traders to exchange currencies.

The next big innovation in decentralized exchanges was creating pools between any two ERC-20 tokens, removing the necessity for a central currency. Largely, Ethereum took on that role as it makes up $3.4 billion out of Uniswap’s $7.6 billion current liquidity. This convenience is largely why Bancor struggled to keep up with Uniswap or Sushiswap, especially during the summer of 2020. BNT is at the center of Bancor. All liquidity pools are divided equally between an ERC-20 token and BNT. In that sense, BNT is a sort of neutral unit of exchange. Interestingly, this idea of a neutral exchange currency to facilitate global trade stems from economist John Maynard Keynes."

Audits & Exploits

  • Bug bounty program can be found here (17-7-2020). None according to Blockchain Security DB (29-6-2020) but they do, the website does show 1 audit(5-2017). Their V2 also got audited (31-7-2020).
  • Bancor's Bug Bounty program is active and offers up to 100k for the most critical of finds (27-8-2021).
  • Scored a 90% with an update on DeFi Safety (27-8-2021):

"Bancor Protocol has had multiple audits before deployment, both V1 and V2, as well as 2.1. A full list of reports can be found here."

With the comment: "Excellentprotocol, that needs to do some work on their access controls."

"There are 5 different audits published. Links can be found in the Security Page." "​Perfect on everything but testing and once their coverage report is out, higher still!"

Bugs/Exploits

Governance

Admin Keys

"The Bancor Protocol governance portal is clearly indicated on their website.

a) All contracts are clearly upgradeable through the DAO. 30%

b) Bancor has a multisig through which it appears DAO changes are implemented 20%

c) Capabilities for change not clearly described. 0%

There is no evidence of Pause Control or a similar function documented in the Bancor documentation."

BancorDAO

"The BancorDAO will allow BNT holders to not only vote on staking rewards but also change value accrual."

Token

ICO

  • “BANCOR tokens will be issued in a crowdsale. The crowdsale proceeds will be used to deploy and continuously evolve a user-friendly web/chatbot interface for issuing and using tokens in the BANCOR network, to support various efforts for growing the network such as investing in the reserves of new tokens, and to make the initial deposits required to set up a new type of high liquidity decentralized token exchange network based on the Bancor protocol, using 100% CRR token changers.”

Token allocation

Utility

  • A portion of trading fees are distributed to BNT liquidity providers. 
  • From V2 on it will also (3-2020) have stake rewards and governance. Update (12-10-2020), "vBNT, Bancor’s new governance token, can be generated by staking in a protected pool. BNT holders who provide liquidity to a whitelisted (protected) pool receive vBNT, which represents their protected BNT stake and can be used to vote in Bancor governance." 

"BNT is the Bancor protocol token. When users create or stake in a Bancor pool, users are required to do so in equal values of ERC-20 token + BNT (or EOS token + BNT). It offers cross-chain conversions and positive network effects; it is also expected to be used for staking in Q2 2020."

"The Vortex Burner introduces an adjustable fee taken from swap revenue generated by liquidity providers (BIP9 and addendum). For example, if a $100,000 trade is executed on a pool with a 0.2% pool fee, $200 is collected by the liquidity providers as commission. The vBNT burner takes a 5% portion ($10) and uses it to buy vBNT and burn it. vBNT burning is designed to:

  1. Increase locked liquidity: a portion of every swap is permanently locked into the protocol
  2. Reduce the circulating supply of BNT: BNT is continuously bought and removed from circulation forever
  3. Increase lending capacity: By putting continuous upward pressure on the vBNT price, the burning of vBNT lowers borrowing risk for users who wish to take leverage on their staked BNT"

Token Details

  • The BANCOR network token is the Genesis smart token to be deployed, establishing the BANCOR network, functioning as its native currency. The BANCOR token will hold a reserve in ETH. Update (9-9-2019): "To accelerate and incentivize network liquidity, Bancor will airdrop BNT’s entire Ethereum reserve, which will amount to 10% of BNT’s market cap at the time of the airdrop, on all BNT holders."
  • All smart tokens issued within the Bancor network will hold the BANCOR token as a reserve (though they may also hold additional reserve tokens.) This means that an appreciation in the value of any of the network’s smart tokens will appreciate the value of the BANCOR network token, benefiting all other smart tokens in the BANCOR network, since their reserve balance value will increase.
  • BANCOR will also be used as a reserve for the token changers that make up its decentralized exchange network. A BANCOR token changer is basically a smart token that holds a 50% CRR reserve in BANCOR, and 50% CRR reserve in an existing, standard ERC 20 token (e.g. REP, GNT, RLC) allowing end-users to easily convert between the two by buying the smart token with one reserve token and selling it for the other. In the future, Bancor plans to support additional tokens as well.

Stablecoin

 Coin Distribution

"It’s circulating valuation of $96M paired with its fully diluted valuation of $102M makes it one of the most well-distributed tokens on the market. This is in stark contrast to the existing DeFi token models in which a minuscule amount of the supply is circulating relative to the total."

Tech

How it works

"Bancor is composed of smart contracts (called “liquidity pools”) designed to perform algorithmic token trades and pooling of on-chain liquidity. Prices are determined by the reserve balance of coins deposited into the protocol, divided by the token's total supply multiplied by a reserve ratio."

"By segmenting liquidity through a dynamic design based on automated market makers (AMMs), traders can enter pools with single-sided liquidity, meaning they can just deposit one of the tokens in a pool, while on Uniswap LPs need to provide 50/50 of each. Bancor V2 aims to attract more volume with less liquidity by using more flexible bonding curves, or the formulas used to calculate token pricing in many AMMs.

Backed by automated rebalances, V2 shifts pool weights according to market demand, ensuring LPs benefit from little to no impermanent loss even as token price increases. This design provides low-slippage across most assets, even volatile ERC20 tokens like LINK."

Fees

Upgrades

V3

  1. "Bancor 3 proposes a new protocol version to the BancorDAO that reduces costs for traders and stakers, and makes it easier for users to earn on their favorite tokens.
  2. An Omnipool allows for all trades on the network to occur in a single transaction.
  3. Infinity Pools enable unlimited deposits while introducing Superfluid Liquidity that can be simultaneously utilized for market-making and other fee-earning strategies.
  4. Instant Impermanent Loss Protection is offered by the protocol, instead of users needing to wait 100 days for full IL protection.
  5. Liquidity mining rewards no longer require gas-intensive manual re-staking; rewards are now auto-compounding.
  6. Dual-sided rewards allow third-party token projects to offer IL-free incentives on their pools.
  7. Revised tokenomics enable a more cost-efficient system for IL protection and create greater deflationary pressure on BNT.
  8. Multi-chain and L2 support, and more."

Bancor V2

  1. "A new automated market maker (AMM) liquidity pool integrated with Chainlink price oracles that eliminates the risk of impermanent loss for both stable and volatile tokens.
  2. The option to provide liquidity with 100% exposure to a single token
  3. A more efficient bonding curve that reduces slippage
  4. Support for lending protocols

These features address four key issues commonly cited as obstacles to the widespread adoption of AMMs:

  1. Exposure to “impermanent loss”
  2. Exposure to multiple assets
  3. Capital inefficiency (i.e., high slippage)
  4. Opportunity cost of providing liquidity"

"High capital efficiency allows Bancor pools to capture volume and drive higher fees (APR) for liquidity providers. For the end-users, this means Bancor pools can offer better prices than other DEXs using less liquidity.

To do this, Bancor V2 utilizes a new type of liquidity pool which features:

  • Single-Reserve Pool Tokens: Each v2 pool is anchored to two pool tokens (one per reserve)
  • Staked Balance and Current Balance: For each reserve, staked balance indicates the total amount of tokens staked by liquidity providers, and current balance indicates the amount of tokens held in the reserve.
  • Dynamic Weights: The pool updates reserve weights to incentivize market participants to equalize the current balance with the staked balance.
  • Price Feeds: Price feeds are used for calculating the weights such that after arbitrage closure, the pool price becomes equal to the market price.

For the sake of length, the key takeaway here is that you can enter a Bancor V2 pool with any token you want, and be sure that regardless of how the price changes, you’ll be able to exit with that same amount of tokens [not value, as with earlier AMM designs]."

"The total cost of impermanent loss compensation paid to LPs to date is 41K BNT or $64,000 USD, whereas swap fees earned by the protocol and BNT liquidity providers are 350K BNT, or $560,000 USD. Protocol revenue is dominating the costs of impermanent loss protection at present and is generating profits for the protocol and BNT holders."

Staking

"In essence, LPs contributing to Bancor V2 pools will stand to earn staking rewards in a Compound-esque fashion. What this means is that staking to the pools generating the most trading fees will earn you the most BNT inflation.

“The Bancor Protocol will start generating staking rewards through the creation of new BNT (inflation). To begin earning rewards, you must deposit BNT into a Bancor liquidity pool (e.g., the MKR/BNT pool). Holding BNT in a Bancor pool entitles you to a share of its staking rewards.”"

"Currently, 54.95% of total BNT supply is staked within the protocol."

Liquidity Mining

Scaling

  • From their blog (11-2-2021):

"Arbitrum testnet contracts deployed w/ front-end demo"

Interoperability

"Supporting both ERC-20 and EOS tokens, Bancor implements a liquidity pool curve on both Ethereum and EOS networks."

  • Bancor has announced the expansion of its network on the EOS blockchain. With it, Bancor will become the first cross-blockchain “decentralized liquidity network”. The Bancor project has promised to launch its decentralized cross-blockchain liquidity network (Bancor-X). Bancor-X will now support EOS and Ethereum making it the first cross-blockchain project. The team has gone ahead to list the first EOS-based tokens on Bancor-X. They include Everipedia (IQ), MEET.ONE (MEET), HireVibe (HVT), Lumeos (LUME), DEOS (DEOS) among others.
  • From Paradigm (2-2-2021):

"The work is underway on a cross-chain bridge that would allow Bancor to expand to Polkadot. The implementation could eventually give users the ability to create pools, provide liquidity and perform trustless cross-chain swaps on Bancor between Polkadot and ERC20 tokens."

Other Details 

Single-Sided Liquidity

  • From their blog (18-3-2021):

"How it works:

  1. Provide liquidity to a pool in the risk asset (e.g., ETH, WBTC, LINK) or in the Bancor Network Token (BNT).
  2. To support single-sided, non-BNT deposits, the protocol co-invests BNT in its pools to match user deposits. For example, a user deposit of $100K LINK triggers $100K of BNT emissions by the protocol into the LINK pool.
  3. Protocol-invested BNT generally remains in the pool earning fees until the associated stake (i.e., user-deposited $100K LINK) is withdrawn, at which point the protocol burns the BNT it had invested and its accumulated fees.
  4. Protocol-invested BNT may also be burned if a BNT holder provides their BNT to the pool. In this case, the user-deposited BNT takes over the protocol’s position in the pool, burning an equal value of protocol-invested BNT."

Impermanent Loss Protection

  • From their blog (18-3-2021):

"How it works:

  1. When a user makes a new deposit, the cover offered by their insurance policy increases at a rate of 1% each day the stake remains live, and matures to full coverage after 100 days.
  2. After this period, any impermanent loss that occurred in the first 100 days or any time thereafter is covered by the protocol at the time of withdrawal.
  3. Withdrawals prior to the 100-day maturity are only eligible for partial compensation. For example, withdrawals after 60 days in the pool receive 60% compensation on any impermanent loss incurred.
  4. There is no IL compensation offered for stakes withdrawn within the first 30 days; the LP is subject to the same IL they would have incurred in a standard AMM."

Oracle Method

Privacy Method

Compliance

Their Other Projects

Roadmap

  • Can be found [Insert link here].
  1. "To accelerate and incentivize network liquidity, Bancor will airdrop BNT’s entire Ethereum reserve, which will amount to 10% of BNT’s market cap at the time of the airdrop, on all BNT holders on Ethereum and EOS.
  2. BNT will be upgraded to an inflationary token with a default setting of 0%. BNT holders will vote on the rate of inflation and its recipients — deploying funds to strategic Bancor liquidity pools, oracles and developers, as determined by the community."
  1. "We are announcing the Bancor Foundation Grants Program aimed at funding a broader array of developers and startups building on the Bancor Protocol. Initial grants are awarded by the Bancor Foundation, while future grants will be voted on by BNT holders. (Update: live as of 10-2019)
  2. The first two grant recipients are PEG Network, which is developing a stable version of BNT (USDB) (Update: live as of 10-2019) to be used in Bancor liquidity pools, and CoTrader, which is developing a permissionless liquidity portal.
  3. The core developer of Bancor Protocol, LocalCoin, is piloting a self-service token creation platform for digital content creators called Creator."

V2.1

"Bancor v2.1 offers two key features to AMMs:

  1. Liquidity Protection (i.e., Impermanent Loss Insurance)
  2. Single-sided exposure

For example, if you stake 100 of a given token (“TKN”):

  1. The protocol will protect the value of your 100 TKN, regardless of their price.
  2. Meaning, you can enter a pool with TKN worth $100 and withdraw tokens worth $200 if the TKN price has doubled in the market. Plus swap fees.

Liquidity providers accrue Liquidity Protection over time while collecting fees from swaps. The longer you stay in a pool, the more protection you earn against impermanent loss, increasing the ROI of your collected fees.

Since Bancor v2.1 changes the protocol’s tokenomics, it is necessary to gain community approval in order to push the upgrade live. Following 48 hours of community discussion, voting on the proposal will occur October 15–18, 2020. A quorum of 20% of staked vBNT is needed to approve the Bancor v2.1 proposal. If approved, the upgrade will be pushed to mainnet in the days after its approval."

Other

"A perpetual burning mechanism, called the Bancor Vortex, has been proposed to burn fees from each swap instead of fee-burning only occurring with LP withdrawals/deposits."

Usage

  • Logged over (17-7-2017) 1,000,000 transactions in custom currencies that we created on our own, off chain platform at our previous company, Appcoin. There was no Ethereum back then, not even Mastercoin (now Omni), so we built our own system (and hosted the Mastercoin management and hackathons in our office)”
  • "The Bancor Protocol stands today (9-9-2019) as the largest automated liquidity infrastructure in the world — recently surpassing $2 billion in total conversion volume."
  • From Paradigm (8-12-2020):

"Bancor Progress Update: November 2020: Last month was an exciting month for the Bancor ecosystem. Following the launch of Bancor v2.1 and the announcement of BNT liquidity mining, total value locked (TVL) increased 5X from $15M to over $85M, driving a 300% increase in weekly swap fees generated by the protocol."

"The protocol has seen an 1000%+ increase in liquidity since impermanent loss protection launched in October, driving over $4.5M in annualized swap fees. More than 5K users (including several token treasuries) are currently providing single-sided liquidity, collecting fees and BNT liquidity mining rewards."

  • From their blog (11-2-2021):

"$23M+ in BNT rewards paid out to LPs so far; over 85% of rewards re-staked to the protocol."

Projects that use or built on it

Competition

"Roughly 18 months in, it entered basically the same space as Bancor, a token-swapping project that raised $150 million in an initial coin offering (ICO). Uniswap simplified the design by using ETH instead of a new ERC-20. When we last made the comparison in February 2019, Uniswap and Bancor were closely matched.

Today, DappRadar shows $213,000 in volume for Bancor over the last seven days and $38 million for Uniswap. Another third-party source, Dune Analytics, reports larger numbers for both projects, with Uniswap doing $67.8 million in volume and Bancor $3.2 million, over the last seven days."

"Bancor is no stranger to contention, enduring constant criticism after its $153M 2017 ICO. The token sale drama is behind it, but it still got some flak for its upgrade, with  Uniswap developers suggesting Bancor had copied their interface code. Bancor’s Hindman denied they had “forked” the code, while admitting they had been “inspired” by their design. “You guys can be inspired by our formulas, smart contract code and invention of AMMs and we can be inspired by your front-end,” Hindman tweeted."

Pros and Cons

Pros

  • Has a very good distribution of tokens (especially compared to other DeFi projects).
  • Is blockchain agnostic (Ethereum and EOS at the moment).
  • Has a low PE valuation (around 30).
  • Created something new which shows an innovative team. 
  • It seems to be getting more respect among the community with it’s V2 changes. 

Cons

  • V1 had a lot of criticism. 
  • The requirement of having to use BNT for each pair creates friction, something Uniswap, Kyber and Balancer do without.
  • Gas fees on BNT are quite high (4-2021), this is due to always having to use BNT as a middle token for swaps.
  • Still early stages of V2. Front running and other flaws could be there.
  • Emin Gün Sirer wrote a piece explaining why Bancor is flawed. Bancor’s response can be found here.
  • IL Protection is being funded with BNT inflation.
  • Bancor has to whitelist new token pairs, whereas on Uniswap anyone can list any pair.

Team, Funding, Partners

  • LocalCoin; "The core developer of the Bancor Protocol, has previously developed key features including cross-chain support, a non-custodial crypto wallet and permissionless liquidity pools."
  • Benartzi, Galia; co-founder
  • Eyal Hertzog, Guy Ben-Artzi, Yudi Levi; co-fouders
  • Lietaer, Bernard; Chief monetary architect “Dr. Lietaer has been active in the realm of monetary systems for nearly 4 decades. He is the author of widely acclaimed books including The Future of Money, Money and Sustainability, and New Money for a New World. Dr. Lietaer is known as the “Architect of the Euro” for designing the ECU, the mechanism which enabled the currencies of twelve countries to converge, while he was at the central bank of Belgium. Businessweek named him “the world’s top currency trader” in 1992.”
  • Schmitz-Krummacher, Guido; Foundation Council, “SME executive with over 25 years experience in Board and CEO roles throughout Europe. Guido joined the crypto-industry a few years ago and focuses on representing the emerging ecosystem landscape in Zug, Switzerland."

Has a large Advisory Board, a couple of the advisors are:

  • Draper, Tim; Advisory board, Venture Capital Advisor. “Timothy Draper is an American venture capital investor, and in 1985 founded the firm that would become Draper Fisher Jurvetson (DFJ). Draper is also the founder of Draper Associates and Draper University. In July 2014, Draper received wide coverage for his purchase at a US Marshals Service auction of seized Bitcoins from the Silk Road marketplace website.”
  • Clippinger, John Henry; Governance Advisor, “John Henry Clippinger is a research scientist at the MIT Media Lab Human Dynamics Group where he is conducting research on trust frameworks for protecting and sharing personal information. He is the author of “From Bitcoin to Burning Man and Beyond: The Quest for Identity and Autonomy in a Digital Society,” and “A Crowd of One: The Future of Individual Identity.”
  • Linden, Lee; Mobile App Advisor “Lee Linden is an entrepreneur and early stage investor. Previously, he lead Facebook’s emerging initiatives in commerce, including Gifts and the Facebook Card. Lee founded Karma, a breakthrough mobile commerce platform which let smartphone users instantly send real gifts to others without the burden of physical mailing addresses. Karma was acquired by Facebook in early 2012.“
  • Rosenstein, Justin, Collaboration Software Advisor “Justin Rosenstein is the co-founder of Asana along with Facebook co-founder Dustin Moskovitz. Asana’s software enables teamwork without email, and provides key communication infrastructure to companies like Airbnb, Foursquare, Pinterest, Twitter, and Uber. Asana’s mission is to help humanity thrive by enabling all teams to work together effortlessly.”

Funding

  • ParaFi invested in the Bancor Network Token (20-8-2020).
  • DeFiance; from the Bancor blog (18-3-2021): "Has a position in the BNT token and will serve as strategic advisors to the Bancor protocol, advising on tokenomics, strategy and institutional liquidity provision."

Partners

"EOS blockchain has partnered with automated liquidity provider Bancor to launch a platform to boost the network’s DeFi ecosystem. The platform, called xNation, will enable anyone to launch and fund liquidity pools for any EOS token, and receive the fees generated by the pool in proportion to the amount that was funded. Liquidity pools allow users to trade tokens through on-chain transactions, without needing an order book. The platform aims to increase liquidity and trading volume, while generating an additional source of income for token deposits, the release says."

(:

Knowledge empowers all and will help us get closer to the decentralized world we all want to live in!

Making these free wiki pages is fun but takes a lot of effort and time.

If you have enjoyed reading, tips are appreciated :) This will help us to keep expanding this archive of information.

ETH tip address: 0x83460bE5F218b1520B69D702cE60A1DE37dD8E31

Advertisement