In the last month, the total value locked in the Bancor Protocol has more than doubled, exceeding $1.6 billion. Bancor broke into the top 10 projects by TVL and now generates the fifth highest revenue of any protocol on Ethereum.
Bancor’s traction in the DeFi world is developing rapidly. LPs are increasingly reluctant to risk their capital under the threat of impermanent loss on competitor protocols. The cosy climate inside the Bancor ecosystem is in high-demand, manifesting in exciting new token listings and a surge in governance activity and community engagement.
Meanwhile, development in the core offering is moving faster than ever. This update covers recent progress and upcoming plans, including:
- Full Vortex: With phase one of the Vortex roll-out complete, the next step towards Full Vortex is the introduction of a flat protocol fee that uses swap fees to buy and burn vBNT. (Target: 1–2 weeks)
- Gasless Voting: The vote to transition DAO operations to Snapshot was approved, with gasless voting expected to go live next week.
- Shadow Tokens: A new pool design will allow for limitless stablecoin pools, with minimal impermanent loss.
- Origin Pools: A collateralized token launch system to support DeFi gems on the Bancor Network is in the final design stages. Origin pools are designed to offer an IL-protected liquidity solution to new token projects without exposing the protocol to excessively high risk.
- Fiat Ramp: Users can now exchange between Fiat currencies and ETH directly on the bancor.network web app, via the MoonPay payments infrastructure.
- Limit Orders: Strategic integration with KeeperDAO will permit limit-order functionality to be introduced to Bancor AMMs.
- Trader Incentives and UX: A trader-centric user experience is being developed for the explicit purpose of increasing Bancor’s volume share, and profitability for liquidity providers. The new UX will coincide with the launch of a limited trading incentives program to encourage the DeFi community to use Bancor’s new swap features.
- New LM pools: ROOK, UNI, ALPHA, GRT, ENJ, MATIC were approved to each receive 12 weeks of BNT rewards. Collectively, the pools have attracted so far more than $170M in locked value.
- L2 Arbitrum: Mainnet is fast approaching and Chainlink recently featured Bancor as a key DeFi app that will integrate Chainlink price feeds on Arbitrum to power new pool designs.
- Rewards Re-staking: Over $161M in BNT rewards have been paid to LPs, with 78% of rewards ($126M) re-staked to the protocol by LPs, providing crucial capital to the protocol and allowing users to compound their yield.
- BNTEE.shop: Bancor announced the grand opening of its apparel shop, with three t-shirts based on bonding curves. As of this writing, one BNTEE is worth over $7,000.
- Listings: FTX, Coinbase New York, Crypto.com Staking, Blockfolio Trading
- DeFi Rankings: Top 10 by TVL (DeFi Pulse), Top 5 by Fees (Cryptofees.info)
Industry View
Bancor’s elastic token supply and co-investments are attracting new attention from on-chain analysts. While crypto investors are using more sophisticated metrics to evaluate DeFi protocols, we’ve noticed two common misconceptions:
Supply: The BNT supply has been rising steadily since the launch of Bancor v2.1. Much of the supply growth can be attributed to the protocol’s co-investments to support single-sided liquidity. Bancor mints BNT into its pools to match single-sided deposits by users. This BNT is considered part of “circulating supply” by analytics sites like CoinGecko & CoinMarketCap. However, this BNT is effectively protocol-owned, and largely remains within Bancor’s pools earning fees until it is eventually burned (along with its earned fees), placing deflationary pressure on BNT. We are working on improved analytics to illuminate the percentage of BNT supply associated with direct protocol ownership, and the “true” circulating supply on the open market. In the meantime, inflation hawks would be wise to take note of this nuance in BNT’s elastic supply.
Revenue: DEXs produce two kinds of fees: supply-side and protocol fees. Supply-side fees are paid to liquidity providers (market makers), while protocol fees are paid to the protocol’s owners (e.g., BNT token holders). It is erroneous to value a traditional exchange based on how much is paid to its market makers, yet this is precisely the approach applied to DEX evaluation by many analysts. In Bancor’s case, 50% of total swap fees can be considered “protocol fees”, earned by BNT holders, after accounting for the cost of IL compensation. In contrast, the Sushiswap and Uniswap protocols earn 16% and 0% of total swap fees, respectively. As tensions rise between LPs and protocol token holders, Bancor is well-positioned to balance their competing interests, given that by design around half of Bancor’s LPs are also BNT holders.
Protocol Updates
vBNT Burner Contract (Phase two: Full vortex)
- Full vortex is expected to go live in the next 2 weeks
- 5% fee of swap fees will be used to buy and burn vBNT
- The vBNT burner contract can be “poked” by any user to activate a burn
- Each vBNT token burned represents a BNT token that is locked in the protocol forever
The original Bancor Vortex proposed a novel token supply management solution via the capture of a small proportion of trade revenue, which is used to buy and burn vBNT. During development, changes to the model were proposed and accepted by the DAO on 8th March. The revised vBNT burner supplants the original dynamic model with a clean, flat-fee. Beginning at 5% of total protocol swap revenue, the vBNT burner transforms vBNT into a scarce resource, and creates a new, long-term positive pressure on the system’s locked liquidity.
The flat vBNT burn rate is adjusted incrementally with volume targets over the next 18 months, up to a final level of 15%. As trade volumes improve with the strategic capture of new trader demographics (see below), the burning of vBNT tokens accelerates. Over the coming years, the vBNT burn rate will be a critical component of the DAO’s flexible monetary policy.
The vBNT burner will be implemented as envisioned in the original proposal. A small proportion of swap fees are diverted to a dedicated wallet; however, the burn is not automatic. Users are offered an incentive to interact with the burner contract, and in turn pay the gas associated with the burn. The tokens inside the wallet are swapped in two legs via their respective pools. Each vBNT token burned represents a BNT token that is locked in the network forever — resulting in increased scarcity, and supporting a continued growth in TVL.
The burner also creates fertile new ground for gamified DeFi strategies. In addition to direct incentives to activate the burn mechanism, a new type of transparent and equal-opportunity game becomes available for vBNT. Speculators will have ample capacity to observe each other’s activities on-chain, and may choose to simultaneously create and seize arbitrage opportunities on the vBNT pool at their leisure.
Learn more about using the Bancor Vortex
Gasless Voting
- Following its approval by the DAO, gasless voting via Snapshot is imminent
- As a security measure, an on-chain vote can return DAO operations to the Ethereum blockchain if deemed necessary
The Bancor community has voted to move DAO decision-making to the off-chain, gasless, Snapshot governance platform. The vote passed with a 98.4% majority on March 6th, and is the largest unique voter turnout for any DAO decision to-date, with 84 unique addresses participating.
The BancorDAO Snapshot implementation is unique. The BancorDAO recognizes that Snapshot is not as censorship-resistant as the current form of on-chain voting. Therefore, the DAO authorizes Snapshot only for 1-year terms. If during an active term the Snapshot system is compromised, an on-chain vote on Ethereum can depose it, and revert DAO operations back to the Ethereum blockchain. These safety features provide an effective quick-release mechanism, and will protect the integrity of the DAO in the event of an emergency.
A live Snapshot integration is due imminently, and is expected to lead to increased participation levels in Bancor governance.
Shadow Tokens (Stablecoin Pools)
- Shadow tokens offer a new design for stablecoin pools with unlimited single-sided capacity and IL protection
- The new design could increase TVL dramatically while reducing the network’s overall IL costs associated with stablecoins
With the vBNT burner contracts and Snapshot implementation nearly done, developer attention is turning to building the still reticent, new stablecoin pools. While the precise details of the pool design are not yet public, we are happy to share the utility that it brings to the network.
The stable pool redesign has two core functions: grow the TVL and revenue of the network and reduce the impermanent loss associated with stable assets, which tend to incur a higher cost of IL borne by the protocol. Moreover, these pools will maintain their ability for single asset exposure and have the same protection from impermanent loss as any other whitelisted asset.
The new stable pools will have an unlimited single-asset deposit capacity, able to accommodate any amount of stablecoin liquidity. It is anticipated that such an offering could attract significant capital to these pools, and help to accelerate Bancor’s TVL. Importantly, the specific implementation will still employ the BNT token, allowing for stablecoins to be exchanged for any other token on the Bancor Network as normal.
To our knowledge, this pool design is the first of its kind. We are excited to unveil its inner workings after contract development is completed. The full design and contracts will be presented to the DAO for consideration, prior to a vote to upgrade the system.
Origin Pools
- Origin pools allow new token projects to bootstrap BNT-based pools with ETH
- LPs provide dual-sided liquidity, with the ETH side protected from IL
Bootstrapping liquidity pools on the Bancor Network can be hampered by the necessity of BNT as the base token. Uniswap and Sushiswap, for example, benefit from the relative ubiquity of ETH in DeFi; creating a liquidity pool with ETH as the base is more convenient than BNT. Bancor’s single-asset exposure and elastic BNT supply offers a convenient solution to this; however, access to these features is contingent on DAO approval via the whitelisting process. This creates a type of incentivization stalemate, and is inhibiting the capture of long-tail, low-cap assets that is core to Bancor’s mission.
Origin pools are a compelling answer to this conundrum. To create an origin pool, a user provides both ETH and TKN, and from their perspective everything looks more or less the same as providing liquidity on Uniswap. The liquidity provider enjoys the convenience of bootstrapping their pool with ETH instead of BNT and the DAO is not exposed to insuring a token with which they have little familiarity or trust. It is noteworthy that such a system is especially attractive to LPs on Uniswap and Sushiswap, as the ETH used to bootstrap the origin pools is protected from impermanent loss.
As with the new stablecoin design, origin pools will require DAO approval prior to their implementation.
Fiat Ramp
Users can now buy ETH on bancor.network via MoonPay using a credit card, Apple Pay, Google Pay and more. This feature will be especially helpful for onboarding mainstream users into the crypto space and the Bancor ecosystem.
Try it out: bancor.network/eth/fiat
Further developments on the open-source bancor.network front-end can be tracked on our github
Limit Orders, Trader Incentives and User Experience
Since the launch of Bancor v2.1, the platform and community messaging has catered to liquidity providers, almost exclusively. The Bancor UX is populated with a feature-rich interface for LPs, but not necessarily for traders. This is changing.
Strategic integration with KeeperDAO is allowing for limit orders to be introduced into the bancor.network front end. This is the start of a new effort to furnish Bancor’s environment with features that are better aligned with increasing trade volumes, rather than liquidity only. The new trader-centric UX will continue to develop, guided by community feedback.
To inaugurate the limit order functionality and UX redesign, a new trader incentives program is being designed. The program has not yet been finalized, but may include gas refunds, a trading competition, a specially curated wallet airdrop list, or something similar. The program is intended to build a robust trader community that rivals the size and enthusiasm of our LPs.
The trading incentives program will be presented to the DAO for feedback via the gov.bancor.network forum, and iterated on within the community, prior to its final publication and vote.
L2 Arbitrum
Arbitrum mainnet is expected soon, with Bancor contracts already live on Arbitrum testnet. Chainlink recently deployed its own price feeds on Arbitrum testnet, and highlighted Bancor as a DeFi app that plans to integrate Chainlink oracles to power novel pool designs on L2.
More details will be provided once development is further along.
Rewards Re-Staking
One of the most common fears for protocols running liquidity mining programs is that such incentives will create undue selling pressure on the token, as opportunistic miners farm and dump the token. This has undoubtedly not been the case for BNT liquidity mining, thanks in large part to the protocol’s single-sided pools, which allow LPs to re-stake their BNT rewards to the protocol and compound their yield, without selling off BNT or needing to provide additional capital.
Thus far, nearly 80% of the approximately $161M in rewards paid to LPs have been re-staked to the protocol. Re-staking results in protocol-invested BNT being burned and opens space for additional single-sided TKN liquidity to enter the system. The process has also served as an effective on-boarding mechanism for TKN LPs. User testimonials reveal that regardless of whether a user was previously holding BNT, once they start receiving BNT rewards, they get hooked, and instead of converting their rewards, they re-stake them and become loyal BNT LPs.
We expect these mechanics to carry over to joint liquidity mining programs, whereby third-party token communities will feel more comfortable dropping rewards on Bancor pools, knowing the high likelihood that rewards will be re-staked to their pools, instead of being sold.
Around the Community
- BNTEEs are live at the BNTEE.shop! Bancor’s bonding-curve based t-shirts are, as of this writing, fetching $3,000-7,000+ a pop. (Some buyers are already flexing by burning their BNTEE tokens and receiving real-world t-shirts in the mail.)
- Nate & Mark on Cryptotesters podcast
- A simple guide on how to farm BNT (ChainBulletin); The rise of Bancor (ChainBulletin)
- DeFiFrog is back with another explainer video — this one dives into the mechanics of Bancor’s single-sided pools. (In case you missed it, here’s the last one)
- CryptoOneShop video on Bancor’s explosive growth
- Twitter threads: Wangarian1, CryptoDavid, Fiskantes, Korpi, CryptoDragonite, mrjasonchoi
- Bancor Twitter Bots: BancorVortex & BNTVortex
- Bancor Telegram Alerts — sharing new liquidity provider deposits
