Bancor Review

What is Bancor?

Bancor Protocol is one of the pioneering projects in DeFi, launched soon after the creation of Ethereum in 2017. Bancor developers were among the inventors of the now commonly known AMM model, describing it at the time as an “automatic price determination and an autonomous liquidity mechanism for tokens on smart contract blockchains”.

Bancor Network’s history started in 2017 in Israel, when the project was launched by Eyal Hertzog, Galia Benartzi, and Guy Benartzi. Initially built on Ethereum, Bancor has expanded to the EOS blockchain in November 2018. 

The protocol’s name was chosen as a reverence to British economist John Maynard Keynes, who proposed to introduce a multinational reserve currency called Bancor.

How does Bancor work?

Bancor provides on-chain liquidity for numerous tokens using its patented Smart Tokens standard and a network of converting contracts. Any token locked on Bancor can be converted to any other whitelisted token in a single transaction using Bancor Formula. Bancor uses its native governance token BNT and its own stablecoin, USDB, to leverage locked tokens’ value. Each token added to the Bancor pools is converted into BNT or USDB, and the whole system operates as a network of interconnected conversion contracts.

In February 2021, the Bancor team introduced a new yield-farming upgrade called Bancor Vortex which significantly improves the user experience and promises higher profits for the protocol’s customers. The solution allows users to lock their BNT in liquidity pools receiving vBNT tokens in return. vBNT (as well as other types of vTokens, depending on the pool) is an ERC-20 Ethereum token that can be freely traded across blockchains or in turn staked in pools to earn fees. Importantly, a user needs to deposit vBNT tokens back to the Vortex to be able to withdraw their BNT holdings. There is also a built-in burning feature the main purpose of which is to tackle inflation by burning vBNT tokens. Thus, the underlying BNT tokens are removed from circulation and locked in the protocol. 

Since Bancor v2.1 went live, the protocol offers its users an impermanent loss protection mechanism. Staked tokens gain 1% of insurance each day they are locked in the liquidity pools. On the 100th day, the insurance becomes full, and the users will be compensated by Bancor for any impermanent loss they may experience. In case there are not enough funds to pay for insurance expenses, Bancor is set to mint more BNT tokens and sell them to cover the loss.

Another distinctive feature of Bancor is the so-called single-token exposure. Unlike most DEXes and AMMs where a user needs to provide pairs of tokens to the liquidity pool, Bancor requires adding just one asset. It is important though, that users still need to hold some BNT to pay the protocol transaction fees.

At the end of November 2021, the Bancor team introduced the latest version of the protocol named Bancor 3. The new version was to reduce costs for trading and was said to include an Omnipool allowing for all trades on the network to occur in a single transaction. At the same time, Infinity pools enabling unlimited deposits while introducing Superfluid liquidity were to be presented, to allow for simultaneous utilization for market-making and other fee-earning strategies. 

Bancor 3 was to have Instant Impermanent Loss (IL) Protection and have users no longer need to wait for 100 days for 100% of it. Auto-compounding rewards were to be introduced to make restaking rewards no longer require gas-intensive manual transactions. By introducing dual-sided rewards, third-party token projects were to be allowed to offer IL-free incentives on their pools.

Moreover, Bancor 3 was said to come with revisited tokenomics to create a more cost-efficient system for offering IL protection and more deflationary pressure on the BNT token. The new version of the project was to also have Multi-chain and L2 support, and other new features.

At the beginning of May 2022, Bancor 3 went live and came with a brand new Bancor app, but launched with only four tokens, with hundreds more coming in the following months, a process that is ongoing at the time of this writing. 

The full release of Bancor 3 is happening in phases due to the team’s security-first approach. To check which features of the new version of the dApp are live, users can check the project’s Medium blog page, where the team publishes weekly updates.

How to use Bancor?

The Bancor app operates as an autonomous market maker for established and micro-cap digital assets. Many small coins or tokens with micro-capitalization otherwise would be illiquid on popular exchanges that utilize a two-tokens model to fill their liquidity pools. Bancor gives those newborn or outsider cryptocurrencies a live market and a decentralized exchange on Ethereum and across other blockchains.

Bancor liquidity pools allow trading tokens in an autonomous way and generate fees from each trade. Bancor fees are proportionally distributed among the liquidity providers. Depending on the pool, there may be additional incentives for LPs from token projects or the Bancor protocol itself.

The current version of the Bancor app supports wallets like MetaMask, Coinbase Wallet, GnosisSafe, Frame, Fortmatic, Portis, and Torus. The list of wallets Bancor supports also includes popular hardware crypto wallets Ledger and Trezor.

The BNT token

BNT is the Bancor native token and the core of its conversion system. This ERC-20 token serves as a price measure for any asset locked in the protocol and BNT is being used as an intermediary currency each time when locked tokens are traded. 

BNT also serves as a governance tool for Bancor DAO, allowing its holders to vote on proposals and decide the fate of the project.

The BNT supply is elastic, which means that the token is minted and burned depending on the total value of assets deposited on Bancor. 

Is Bancor safe?

The Bancor Foundation which stands behind the core development of the protocol is headquartered in Zug, Switzerland. All of the Bancor team co-founders are well-known developers and entrepreneurs mostly based in Israel.

Eyal Hertzog is the product architect of the Bancor protocol, and the mind behind BNT, and other services provided by the network. Before Bancor he founded MetaCafe, a video-sharing platform, highly popular in Israel.

Yudi Levi works as a CTO of Bancor, he is also known as a co-founder of the AppCoin project where he worked alongside Bancor CEO, Guy Benartzi. His sister, Galia Benartzi is a San Francisco-based entrepreneur and works as a business developer at Bancor.

An important role in Bancor development was played by the late Bernard Lietaer, a Belgian economist and social engineer who died in 2019. Before his demise, he was involved with the Bancor project as a Chief Monetary Officer.

When Bancor Network got hacked in July 2018, the protocol initially lost $12.5 million worth of Ethereum and $1 million worth of Pundi X tokens. Bancor prevented the loss of $10 million worth of its BNT token by freezing the assets. That Bancor hack and the team’s actions sparked criticisms over Bancor’s decentralization leading to the creation of Bancor DAO in 2020.

A critical bug in three newly deployed versions of Bancor smart contracts left users who did direct swaps of their ERC20 tokens after the deployment of the contracts vulnerable to losing their funds. The team was tipped for the bug by a whitehat hacker before anyone could begin draining user funds and made attempts to rescue the vulnerable assets by withdrawing them from users’ wallets. During the rescue operation, the team was joined by three front-runner bots that withdrew large amounts of user funds but later agreed to return them.

Currently, there is a bug bounty published on the Bancor blog, promising up to $1 million in rewards for vulnerabilities found in the protocol. Bancor audits can be found in the protocol dashboard on this webpage.

Partners 

Ledger, Trust Wallet, MetaMask, and Coinbase are among the wallets supported by Bancor. The protocol also integrated various DeFi platforms, allowing them to add or remove liquidity on Bancor, including Zerion, 1inch, Paraswap, CoTrader, and EOS Nation. 

Bancor Network enables fiat deposits and withdrawals via third-party dApps, such as MoonPay, BANXA, Simplex, Ramp Network, and Mercuryo.

The partnership with PEG Network made it possible for Bancor to create its stablecoin USDB while integration with Dune Analytics created a simple and easy-to-use dashboard to monitor network activity. The latest version of the protocol - v3 introduced the integration of Chainlink Keepers on Bancor to provide the platform’s users with advanced AMM tools.

What's next?

There is no clear Bancor roadmap published officially. However, the Bancor team provides its community with weekly updates on the development of the protocol on the Bancor blog webpage. Part of the current list of tasks the Bancor team is working on is testing automation tools to report on the performance of the freshly released Bancor v3. The company is anticipating audits from OpenZeppelin, Certora, and Chainsecurity. At the same time, the front-end of the Bancor app is said to be getting a complete redesign.

Links

https://docs.bancor.network/