Nate Hindman head of growth at Bancor Network joined us to talk about his crypto career, his work with Bancor, and to answer questions from our community. The hour-long AMA covered a variety of topics that will be of prime interest to crypto users in general and DeFi enthusiasts in particular.
If you weren’t able to watch the live broadcast, be sure to check out the replay here. We’ve covered the highlights from Nate’s engaging Q&A session below:
Please tell us about your background. How did you come to Bancor?
I started my career as a financial journalist in New York for the Huffington Post, covering business and financial issues. Crowdfunding platforms like Kickstarter were just starting to take off. I contributed to The Atlantic and the Wall Street Journal, so I started getting very into tech startups. I went back to school to learn programming, and started doing mobile development from there. I joined a few startups that got acquired, and from there I entered the world of crypto. I dove deep around 2017 and joined Bancor in late 2017/early 2018. It’s been a wild ride in crypto, but it blends my passions from finance to programming to startups and beyond.
Why did you choose to work with Bancor over other crypto companies?
They started off doing a lot of interesting work in community currency. This idea that economies would function better if we had many different types of money, no monopoly on currency. They started building these projects, which is how I came across it. A lot of the way currency systems work are based on traditional order book bid/ask model tend to fail a lot of early stage low-volume currencies. Bancor’s solution was to bring automated market makers onto the blockchain. There are community currency pilots in Africa and Israel, really started tuning into them around that. Nowadays they’ve processed billions in trade volume, but it’s that early stage community currency angle that got me.
What is decentralized finance as it stands today?
I think it’s the idea that you can rebuild financial services with large groups of users providing liquidity as opposed to small group of institutions or companies. We can create financial services without an intermediary or bank by putting everyone’s idle assets to work to create the rails for such a system. This is about lending, synthetic assets, and even decentralized exchange. That’s where Bancor is really focused.
Why is DeFi such a hot topic right now?
Like many things in technology, we can dream faster than we can build. In many ways, the crypto and blockchain industries got ahead of themselves. Even Bancor’s vision of community currency is still evolving. DeFi to me is about returning to crypto’s original roots: generating yield and interest and making money with financial services. Before we can get something like the sharing economy on the blockchain, I think we need to really nail this use case. It’s about focusing the crypto community specifically on the use case of financial services.
Why would a user engage in this?
Let’s answer that by asking why we need liquidity in a token in the first place. If you don’t have liquidity in a token, two things happen: first, it becomes expensive to trade the token though slippage or large spreads. Second, it’s easy to manipulate the price of a low-liquidity token through tactics like pump-and-dumps or spoofing. Users want liquidity so they can trade the token without a high cost, and also people won’t be able to manipulate the price of that token.
So why would a user stake liquidity? They want to make money! They put their idle assets into an automated market maker, and each trade processed by that market maker gives a percentage of the trade into the liquidity pool, which is shared amongst the people holding liquidity in that automated market maker. It generates yield. In some of these liquidity pools, we’re seeing APRs of 20 and 30 percent. It’s attractive!
What trends do you see in the world of decentralized finance?
I think we’re seeing an interesting shift in these DeFi protocols — if they didn’t start with tokens, they’re launching governance tokens. If they started with a token and a foundation model, they’re shifting to a DAO-esque model. It’s a “DAO or die” phase in crypto in general. You have to decide if you want to be a regulated for-profit business, or if you want to be a decentralized exchange. Compound just said they’re going to launch a governance token, Bancor is evolving into a DAO, Sythetix is another DeFi protocol on the cutting edge of the push toward “DAO-ifying.” That’s a big trend I see here.
There’s tons of challenges too. The beauty of DeFi is its composability. You can build incredible on-chain financial products involving so many protocols and systems. You can create cool, weird, lucrative financial instruments. But that comes with increased risk — just look at recent hacks in which a hacker used a bunch of different protocols to pull off a sophisticated attack.
What is a DAO? How do they work?
A key to a DAO is that anyone can become a member. There’s no central entity to block someone from becoming a member. Anyone can participate in governance or process once they’re a member to affect the protocol. And the third prong is that there’s a reward generated from participation in the DAO. The things voted on in the network take place on-chain — changes happen not through some guy, but happen because it’s connected to the network.
For Bancor, you can think of the three key roles of an exchange: anyone can list a token on Bancor by creating a liquidity pool. Order matching happens autonomously through automated market makers. And the third is the exchange revenue, the circulation of trading fees. That also happens autonomously with users staking a liquidity pool and generating something called a pool token that accrues value based on the fees generated in the market maker.
Does Bancor plan to use liquid oracles?
We have an announcement coming soon, I can’t share too much now. But we will be using an interesting oracle system to help improve Bancor’s USDB stablecoin, which is backed by BNT. The short answer is yes.
How do you explain the differences between Uniswap and Bancor?
The simplest explanation is that Bancor was around very early, and Uniswap essentially forked Bancor’s code and replaced BNT with ETH. Within each of Uniswap’s liquidity pools there exists the ERC-20 token that’s receiving liquidity and Ethereum. Within Bancor’s pools, there’s BNT and the ERC-20 token. So why would you use a protocol token instead of a blockchain asset in your liquidity pools?
There’s probably three big advantages to using a token like BNT. The first is cross-chain — we can connect to any chain. The second gets to the core of tokenomics — it’s the network effects. The more liquidity added to Bancor’s protocol has a direct effect on BNT. Every stake puts upward pressure on BNT. The third is protocol-level rewards — Bancor in Q2 of 2020 will incentivize users who hold BNT to stake it in liquidity pools by offering BNT staking rewards. This will be funded by BNT inflation, which is voted on by the DAO, but this increases your incentive to stake. If you just hold BNT, it’s going to get diluted.