What is Bancor (BNT)?
in bancor (bnt)
Bancor is a protocol that enables the permissionless swapping of assets without having to rely on matching a buyer and a seller. The idea behind the network is that thousands of individual users can provide liquidity, rather than relying on a handful of large market makers.
Centralized and decentralized exchanges work by matching a seller and a buyer. If the two parties agree on a price, the trade is executed and a small trading fee is collected by the exchange.
While Bancor is a type of exchange, it works differently than most other platforms. Rather than having a book of buyers and sellers, all trades are executed via a smart contract (what Bancor calls a liquidity pool). Currently, Bancor supports both Ethereum and EOS tokens, although they could support other cryptocurrency tokens in the future. Here is an example of how a trade can be executed.
- A user tells the Bancor protocol what they want to buy and how much. For example, trade DAI for BAT.
- Bancor computes the trade and tells the user exactly how much it will cost them. If there is a lot of BAT liquidity, or if the order size is small, the cost for the BAT will be close to the market price. However, if the order is large or if there isn’t much BAT liquidity, then the price may be driven up.
- If the user agrees to the price, they can initiate the trade. Bancor will automatically swap the DAI for BNT, which then gets swapped for BAT. This is the key piece of the Bancor trade engine, all trades use BNT as an intermediary trading token (more on this in the next section).
The advantage of using the Bancor exchange is that there is always liquidity and there is always a seller (at least, up to the total amount of a token held by Bancor). The price rises as the order size increases, but at least the purchase can always be made.
Also, the price is known in advance. That’s different from a traditional exchange where you can do a market buy and not be sure what price the trade will end up clearing at.
- Bancor provides unlimited liquidity, up to the limit of the number of tokens held on the platform
- There is no party on the other side of the transaction; smart contracts control the exchange
- The price of buying a token rises as the purchase size increases
BNT: Bancor Token
As mentioned, the BNT token is the backbone of the Bancor protocol. Every trade on Bancor gets routed through BNT in a two-step process.
Asset A swaps to BNT and then BNT swaps to Asset B.
Similar to other decentralized exchanges and DeFi platforms, investors can earn a return by supplying liquidity to the Bancor protocol. It used to be necessary to provide equal parts BNT and the token to be a liquidy provider, i.e., allocate 50% BNT and 50% BAT. However, with the introduction of Bancor V2, it’s now possible to just supply liquidity via a single token. A guide to liquidity staking is available here.
Why would someone want to stake their tokens with Bancor? The financial benefit is that stakers receive a cut of all of the platform’s trading fees, in proportion to the number of tokens they’re staking.
There is also a proposed inflationary “staking reward.” With this system, Bancor would create new BNT tokens and reward them to stakers. This idea has yet to be implemented, but it could be adopted in the future.
A few key points about staking:
- Staking is permissionless; nobody can prevent someone from staking their coins
- Staking is designed to be dead simple so that anyone can do it. The whole process takes just several minutes.
At some point, BNT may also be used as a governance token, allowing BNT holders to make decisions about how the network is run. However, this DAO has not yet been launched.
The original Bancor whitepaper was released on May 30th, 2017. The paper contained details about how Bancor would use a dynamic pricing mechanism to determine trade prices, as well as information about how BNT would be used.
An updated version of the whitepaper was released in March 2018. This version contains more details about the protocol, more math, and more graphs explaining the pricing curve.
The Bancor ICO went very well and the project took in 396,720 Ether totaling $153 million. It was backed by the well-respected investor Tim Draper, which undoubtedly contributed to the project’s popularity.
At the time, the Bancor ICO was briefly the most profitable in the world. However, shortly thereafter, it was eclipsed by EOS’s extraordinary $4 billion ICO.
One of the best places to seek information about Bancor is on the official Subreddit. The following threads are also a good source of information
Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.