The Bancor Protocol is a proposed standard for the creation of Smart Tokens, a new category of intrinsically tradable cryptocurrencies that calculate their own prices & enable a single party to convert any token to another, without requiring a second party to exchange with. Thereby enabling the long-tail of completely liquid cryptocurrencies.
Bancor already has a working front-end product which includes smart token creation and wallet, as well as community features like discussions, profiles and stats.
How does it work?
Bancor creates relationships between the ever-increasing number tokens and allows conversion between them through a new kind of economic model which uses an algorithmically discovered price to balance buys and sells, keeping constant the ratio of reserve balances available. This reserve ratio is called a CRR and is user-configured.
What Bancor is really doing is creating a paradigm shift, by allowing any token to have liquidity and a market price from day one, which is something not possible on today’s financial exchanges. Moreover, it is intended to support any token, whether it is a fiat currency (dollar), a cryptocurrency (Ethereum), a token issued in a crowdsale (Augur) or a token that represents physical assets (gold). Currently, this is possible through the increasingly popular “tokenization” of assets. In the future, the protocol will support additional Blockchains and currency types as well.
The company is also developing a partnership with TokenCard, the first project issuing Visa debit cards based on ERC20 tokens, to allow smart tokens to be used wherever Visa debit cards are accepted.
Bancor protocol provides a solution to the Coincidence of Wants Problem in economics, which states that it is very difficult to match people with opposite wants in real-time. Think about the challenges involved in barter and the difficulty finding the perfect coincidence of opposite needs. To address this we invented money, but currency trading (including stocks) still works like barter, you need to find an opposite match. With the invention of smart contracts, decentralized immutable software code that can hold programmable money, Bancor was able to solve the same problem for asset exchange that money solved for barter.
With the invention of the Smart token, we no longer need to rely on speculators to provide the liquidity for currencies. Smart tokens have a built-in market-maker that ensures they are always liquid and can always be traded for other assets. Using a type of smart token called a token changer’, Bancor has created a new type of decentralized exchange that does not suffer from the liquidity barrier of current projects.
As mentioned above, Bancor is a protocol designed to maximize the efficiency and usability of tokens on smart contract blockchains. Some of the key features of the platform include:
• Continuous Liquidity: Smart tokens can be purchased or liquidated by anyone, anytime, through their smart contract.
• Backwards Compatibility: Bancor enables liquidity and asynchronous price discovery for any existing ERC20 standard token.
• No Spread: Prices are calculated by the smart token, which means buys and sells use the same current price (yes, you read that right).
• No Counterparty Risk: There’s no need to deposit your money in an exchange in order to convert it between smart tokens.
• Lower Volatility: Reserves give smart tokens significant market depth, which means lower volatility across cryptocurrency markets.
• Predictable Price Slippage: Price slippage “is pre-calculated relative to transaction size and incorporated into current price.”
Practical Uses for the Bancor Protocol
Some of the proposed uses for the Bancor Protocol include all of the following:
• Token Changers: Token Changers are smart tokens that can be used to exchange between other standard ERC20 tokens that are held in reserve. The system will keep prices in sync with the outside world using arbitrageurs that are incentivized to restore market equilibrium when the calculated exchange prices drift in external exchanges.
• ETFs (Token Baskets): Token Baskets are smart tokens that hold a number of standard ERC20 tokens in their reserve. This allows you to hold a portfolio of tokens by holding a single smart token. ETFs, like Token Changers, have an equilibrium system in place to keep prices in sync with the outside world.
• Project and Protocol Tokens: Smart tokens can be used for crypto-funding initiatives, where participants receive tokens that are liquid and automatically market-priced.
• Complementary Currencies: You can use smart tokens to issue new, liquid currencies for a group. Some of the examples of this (some we’re already seeing in the world today) include complementary currencies, loyalty points, B2B barter, and blockchain protocol tokens. All of these token types can benefit from the Bancor Protocol.
Bancor (BNT) Token
Current coin Value: $2.71
Market Cap: $110,412,934
Circulating Supply: 40,772,871 BNT.
Total Supply: 79,384,422 BNT
The Bancor Network Token is a key part of the ecosystem. It is the unifying reserve token linking all network tokens together. It benefits from network effect as the more people use it as the reserve token for their smart tokens, the more value it captures, which in turn appreciates all the smart tokens holding it in reserve.
The token will hold a single reserve in Ether. Other smart tokens connect to the Bancor network by using Bancor as their reserve – or as one of their reserves. Bancor Network Tokens are compatible with ERC20 and EIP228. Over time, the protocol will evolve to include additional standards with the goal of allowing more flexibility, better blockchain compatibility, and increased security for smart tokens.
50/20/20/10 Token Distribution
50 percent of BNT will be issued to the contributors, 20 percent allocated to partnerships, community grants and public bounties, 20 percent to the foundation’s long-term operating budget, 10 percent to founders, team members, advisors and early contributors. Founders and team contributors will be subject to a three-year vesting schedule.
The Bancor Foundation raised $153 million worth of ether (the coin of the cryptocurrency ethereum) by selling its digital tokens (the equivalent of shares) for three hours on June 12, making it the largest token sale ever. As such, the figure is higher than even the funding raised by The DAO, the notorious failed fundraising project that made headlines last year when it lost the millions of the $152m in investor funds it raised in a similar sale.
The ICO attracted 10,885 buyers, according to available data, with more than 15,000 transactions sent to the address for purchases during the sale. One buyer went so far as to purchase 6.9m BNT, or roughly $27m, in the sale.
The team behind Bancor
The team behind Bancor has extensive experience in building software products and scaling companies. Yehuda Levi (CTO), Ilana Pinchas (VP engineering) and Eyal Hertzog (chief of product) have deployed a Bitcoin marketplace platform called AppCoin. Two of the founders, Galia and Guy Benartzi have each founded and exited a startup.
The team has been working together for over 10 years on a variety of these initiatives. Some of their advisers include venture capitalist Tim Draper, Founders Fund partner Brian Singerman, governance visionary John Clippinger, founder of Asana Justin Rosenstein and more.
Since the BNT smart contract introduces new mechanisms never deployed before on the Ethereum Blockchain, it is of utmost importance to ensure beyond any shadow of a doubt that funds will be secure. For this purpose, Bancor is working with some of the most respected Ethereum security advisors, including Nick Johnson and Martin Holst Swende from the Ethereum Foundation. The results of the audits will be made public.
Meni Rosenfeld, an award-winning mathematician well-versed in Blockchain technology, and Yoni Assia, the CEO of eToro, have both joined the adventure as previous advisors.
Smart contracts were a huge innovation in the world of blockchain. Projects like the Bancor Protocol aim to take full advantage of smart contracts by making it easier to launch cryptocurrencies on smart contract-based blockchains. The hype around the project is significant – especially considering the company just has an Alpha release at this point. The ICO blew away expectations on June 12 by attracting over $150 million in just a few hours, shattering the previous record held by The DAO.
Watch for the Bancor Protocol to continue making headlines over the coming months as more details of the project continue to be released.
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