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Top Things You Should Know About Bancor (BNT)

By MuyAsk | Crypto Truth Lexicon | 9 Jun 2020


Hey guys :) I’m back with another comprehensive Q&A piece, this time for the decentralized on-chain liquidity network and token – Bancor (BNT).

Bancor is an on-chain liquidity protocol that enables automated, decentralized exchange of digital assets on Ethereum and other blockchains. The protocol is currently ranked #10 in terms of locked USD value out of all DeFi projects on DeFi Pulse and is showing signs of strength and growth. 

The following piece is similar to my latest articles on Cosmos (ATOM), Matic (MATIC), and OmiseGO (OMG), so if you haven’t already seen those, be sure to check them out as well. 

Hope you enjoy!

The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:

  1. What is Bancor?
  2. Who and When Created Bancor?
  3. What are Bancor’s Liquidity Pools?
  4. What is Bancor’s BNT token used for?
  5. How is Bancor different from other Decentralized Exchanges?
  6. Can Anyone Add Liquidity to Bancor Pools?
  7. What are Staking Rewards?
  8. Where to store Bancor?
  9. Where to Buy & Sell Bancor?

1. What is Bancor?

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Bancor website homepage

Bancor is a decentralized exchange (DEX) protocol on Ethereum that uses pooled on-chain liquidity for non-custodial token exchange. 

Bancor’s decentralized liquidity network doesn’t use order books (as seen in centralized exchanges). Instead, Bancor uses an algorithmic market-making mechanism through the use of “Smart Tokens,” which ensures continuous on-chain liquidity between blockchain-based assets.

Providing liquidity to Bancor’s decentralized network are thousands of unaffiliated users who can easily contribute liquidity to Bancor liquidity pools in a permissionless way and earn a share of Bancor’s trading fees for doing so. 

Moreover, the Bancor protocol currently supports both the Ethereum and EOS blockchains as well as exchange support for hundreds of Ethereum-based ERC-20 tokens and EOS-based tokens. 

This expansive support makes the Bancor Network the world’s largest decentralized cross-chain liquidity network across blockchains, and it’s continuously expanding with support for more blockchains soon. 

Key Bancor Advantages Compared to Traditional Exchanges

No Counterparty
Unlike centralized and some decentralized exchanges, Bancor does not require that buyers and sellers are matched in order for a trade to be executed. Instead, with Bancor every transaction is executed directly against a smart contract; which means trades can be completed by a single party directly through the token’s smart contract, (there is no need to match two parties with opposite wants in real-time). 

Continuous Liquidity
In traditional exchanges, a token’s liquidity is dependent on the availability of a buyer or seller at the time of a transaction. With the Bancor Network, tokens are always liquid, regardless of trade volume. This is because Bancor uses an automated pricing mechanism which increases a token's price and its supply each time it is purchased.

No Spread
With traditional exchanges, there is usually a difference in price when one tries to buy a token as opposed to selling it, this is called the spread. In Bancor, the price for buying or selling tokens is the same due to the algorithmic price calculation of the Bancor Formula.

No Order Book/Predictable Price Slippage
Traditional exchanges use order books to match buyers and sellers, so when a buyer wants to buy more tokens than the seller is selling, there can be price slippage when there is more than 1 counterparty, as the other party may be selling their token at a different price. With Bancor, all prices are calculated using the Bancor Formula so there is no price slippage. 

2. Who and When Created Bancor?

The Bancor (BNT) project is developed by the Bancor Foundation and was founded by Eyal Hertzog, Guy Benartzi, and Galia Benartzi who launched the project via an initial coin offering (ICO) on June 12, 2017. 

Bancor’s founders named the project “Bancor” after the supranational currency proposed by John Maynard Keynes and E. F. Schumacher during World War II. 

The Bancor Network Token (BNT) launch was one of the largest ICOs at the time, raising $153 million from 10,885 participants in less than three hours.

Bancor Founders

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Eyal Hertzog, Co-founder and Product Architect at Bancor, is an experienced tech entrepreneur who prior to Bancor, founded AppCoin (a network of user-generated marketplaces & private-currencies) and also founded Metacafe Inc (a pioneer in the video-sharing space).

Guy Benartzi, Co-founder of Bancor, is also a serial tech entrepreneur who founded numerous companies prior to Bancor. For instance, Benartzi co-founded AppCoin with Hertzog in 2012 and prior to that, he founded Particle Code Inc and Mytopia. 

Galia Benartzi, Co-founder and Business Development Lead at Bancor, is also a tech entrepreneur with ties to Bancor’s other founders as she also co-founded Particle Code Inc. and Mytopia. 

3. What are Bancor’s Liquidity Pools?

Bancor Liquidity Pools are smart contracts that act as automated-market makers that perform on-chain, peer-to-contract token trades and generate fees from each trade.

Bancor’s liquidity pools don’t require buyers and sellers to be matched up through an order book in order to facilitate a trade. Instead, they use on-chain token reserves which anyone can easily and permissionlessly contribute to and collect a portion of Bancor’s trading fees in return for providing liquidity. 

Additionally, Bancor’s liquidity pools use an automated pricing mechanism (a bonding curve formula) which increases a token's price and its supply each time it is purchased. This system removes a token’s dependency on trade volume and ensures constant liquidity for tokens.

A good explanation of how Bancor liquidity pools work can be seen in the tweet below:

Full Video: link

4. What is Bancor’s BNT token used for?

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Bancor (BNT) logo

The Bancor Network Token (BNT) is the native cryptocurrency of Bancor’s decentralized on-chain liquidity network. BNT plays an integral role in the functionality of the Bancor protocol as it serves two purposes:

  1. As the intermediary token connecting pools in the network and across blockchains.
  2. As a staking token in Bancor Liquidity Pools.
  3. As a governance token for deciding the future of the Bancor protocol

BNT - An Intermediary Token

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(Source)

Every liquidity pool on Bancor must hold BNT or USDB (a stablecoin backed by BNT) in its reserves, as well as the “base token” receiving liquidity. The reason BNT is required in these pools is because it’s utilized in every trade that occurs on the Bancor network; BNT serves as the intermediary token connecting pools in the network and across blockchains.

For example, a trade from DAI to BAT includes BNT in its conversion path: DAI > BNT > BAT. 

The reason BNT is included in the conversion path is to efficiently process token trades across blockchains. With Bancor, ERC-20 tokens and EOS tokens can be converted cross-chain through BNT, with BNT minting and destroying itself across chains to process these cross-chain trades.

BNT - A Staking Token
Users trading on the Bancor Network do not need to hold BNT. However, users creating a liquidity pool or contributing to an existing liquidity pool must stake BNT (or its stable derivative, USDB) in the pool. 

This staked BNT is required for the intermediary use case described above, but also provides the Bancor protocol with more liquidity. Also, in Q2 2020, users who stake BNT into liquidity pools will begin earning staking rewards via newly minted BNT. 

BNT - A Governance Token
Included in the launch of Bancor V2 is the BancorDAO, which allows BNT token holders to vote on upgrades to the Bancor protocol. 

5. How is Bancor different from other Decentralized Exchanges?

Bancor is different from most other decentralized exchanges (DEXes) in the way it provides liquidity to the network. 

With Bancor, liquidity is provided by thousands of unaffiliated users in a permissionless way, where each user receives a portion of Bancor’s trading fees for providing liquidity. 

With most other DEXes, they source liquidity from a small number of professional market-makers to facilitate traditional orderbook based trading. 

To put it simply, Bancor facilitates instant token swaps (similar to Kyber), but with the simplicity of enabling anyone to easily contribute to a pool. On Bancor, any BNT token holder can add liquidity in a couple of clicks to start earning trading fees in a permissionless manner. 

As for other DEXes, they mimic CEX’s order books and all of their trading features which tend to involve high capital costs, permissioned access, and manual maintenance. 

Another major difference between Bancor and other DEXes is that Bancor can facilitate cross-chain token swaps. Traditional DEXes are limited to trading tokens on a single blockchain. 

6. Can Anyone Add Liquidity to Bancor Pools?

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(Source)

Yes, anyone can add liquidity to Bancor Pools with as little as $1, and no central entity can control or block the process. 

There are many intuitive interfaces where you can add and remove liquidity from Bancor pools, track profits, and find the best performing pools:

How to add liquidity to Bancor Pools

Providing liquidity to the Bancor network is easy and can be done in a couple of clicks.

Here’s what you need to know:

Users creating a liquidity pool or providing liquidity to an existing pool are required to hold some BNT (or its stable derivative, USDB) in addition to the asset they are providing liquidity for. 

So, when providing liquidity to a Bancor Pool, the user must deposit in equal values, the ERC-20 or EOS token + BNT. 

For instance, when users add liquidity to a DAI/BNT pool, they deposit DAI + BNT in equal parts and receive “pool tokens” (e.g., DAIBNT) in return. 

These pool tokens are ERC-20 tokens that represent your share of the pool and accrue value in three ways:

  1. Trading fees
  2. Staking rewards provided by the Bancor Protocol (BNT Staking Rewards)

A user can remove liquidity from the Bancor protocol by selling their pool tokens back to the pool’s contract in order to realize gains. 

7. What are Staking Rewards?

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Liquidity providers can earn 3 types of staking rewards: (1) Trading fees; (2) BNT staking rewards (Coming in Q2); (3) Project rewards

A concept that will be realized sometime in Q2 2020 is the staking of Bancor (BNT) to incentivize network liquidity through staking rewards. 

Users who provide liquidity on Bancor (liquidity providers) help the Bancor Network flourish, as more liquidity means Bancor can offer cheaper prices to traders and generate more trade volume and fees. 

Therefore, in order to incentive more users to participate in the system by providing liquidity, the Bancor protocol will reward these liquidity providers with newly minted BNT staking rewards on top of their earned trading fees. 

Therefore, BNT staking rewards will simply increase the ROI for liquidity providers, which should in turn stimulate growth and trading revenue.

When Bancor staking goes live, liquidity providers will receive staking rewards based on two things:

1) the pools they’re providing liquidity to

2) their ownership stake in the pool(s)

All in all, Bancor staking rewards will encourage users to bootstrap network liquidity by increasing their share of protocol ownership. 

8. Where to store Bancor?

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Official Bancor Wallet

The most popular wallet for storing Bancor’s BNT crypto-asset is the Official Bancor Wallet.

The Bancor Wallet is an impressive web-based cryptocurrency wallet that’s loaded with features and accessible on any device. 

Bancor Wallet Features & Advantages:

  • Multi-cryptocurrency wallet - any crypto, any chain
  • Seamless crypto-to-crypto conversions - including cross-chain
  • Fiat-to-crypto support - built-in credit card gateway
  • Non-custodial wallet - you own the keys
  • Friendly user interface - well designing with comprehensive functionality
  • Web3 dapp browser - launching soon

Multi-Cryptocurrency Wallet
Bancor wallet supports hundreds of tokens across the Ethereum and EOS blockchains, with support for more blockchains coming soon.

Crypto-to-Crypto Conversions
Bancor wallet features a single token exchange interface where users can seamlessly convert between all their tokens, even between Ethereum and EOS tokens in a single action. 

Credit Card Support
Bancor wallet features a built-in credit card gateway so you can securely buy and sell crypto with fiat directly in your wallet.

Non-Custodial Wallet
Bancor’s wallet is the first to allow for cross-chain conversions without having to manually transfer your tokens and give up possession of your private keys. 

Friendly User Interface
Bancor wallet’s UI is intuitively designed to provide a complete and seamless token management experience. The wallet supports detailed token charts and comprehensive functionality for all of the wallet’s other features. 

Web3 Dapp Browser
In a future release, the Bancor wallet will feature a Web3 portal granting access to decentralized applications (dapps). 

9. Where to Buy & Sell Bancor?

Bancor (BNT) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade Bancor is through cryptocurrency exchanges.

You can buy BNT with cryptocurrency or fiat at the following top exchanges. In most cases, you will have to fund your account with fiat, buy Bitcoin or Ethereum, and then use BTC or ETH to buy Bancor (symbol BNT).

  • Bancor Network - 90+ token pairs
  • Binance - BTC, ETH, BUSD, USDT
  • OKEx - BTC, USDT
  • Bittrex - BTC
  • Bitfinex - USD

In addition to the exchanges listed above, Bancor (BNT) is also traded on a wide array of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.

Hope you enjoyed that read :) Let me know if I have missed something in the comments.

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MuyAsk
MuyAsk

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