Project Overview
Bancor is a system that provides liquidity for small-cap tokens. It has built-in tradable one or more ERC20 tokens as a reserve. New tokens are issued through smart contracts in exchange for reserve tokens. The price of new tokens is priced autonomously through smart contracts, so that tokens can be directly converted without an exchange, without the need for a second party to participate in the transaction, or the third party Three parties to match the transaction. The network effects of the tokens created by the Bancor protocol lower the barriers to entry for these new currencies, effectively solving the liquidity problem.
New coins are backed by Bancor, Bancor is backed by ETH, and Bancor's constant reserve ratio (CRR) is set and maintained at 20%. BNT is issued by sending ETH to a smart contract where Bancor holds reserves, and the ETH sent in the past becomes Bancor's endorsement. Under this setting, the user can send 20 ETH to the smart contract to buy 100 BNT, and the 20 ETH will be forced into the reserve by the smart contract. Using the same method, BNT can be exchanged back to ETH, and as long as the user sends it to Bancor's smart contract, they get some ETH. The Bancor protocol allows users to generate or burn BNT every time they deposit or withdraw their reserves (ETH). If the price of ETH rises (due to the development of the Ethereum ecosystem), the price of BNT will also rise (because BNT and its reserve token ETH maintain a constant reserve ratio), and the rise in the price of BNT will also increase the price of the new currency.
The biggest innovation of the Bancor protocol is that the value discovery of digital currency in traditional exchanges is based on the real-time synchronization (Synchronous) matching of buy orders (BID) and sell orders (ASK). However, based on the Bancor protocol, the price of digital currency The process of value discovery is Asynchronous, depending on the reserve balance and the amount of tokens in circulation.
1. Continuous liquidity
Even if there are few or no other buyers or sellers in the market, users can buy or sell tokens directly in the network through smart contracts. Since the price is adjusted according to the exchange size, a certain exchange price is always formed. The Bancor Protocol effectively decouples liquidity from transaction volume.
2. There is no fee for the exchange executed by the smart contract
The only fee incurred by the user is the fee required to interact with the underlying blockchain. While the exchange of some Smart Tokens may have optional usage fees set by the creator, these fees are generally very low, and because of the open source nature of the Bancor Protocol, other users can easily create competing Smart Tokens to provide similar exchange services , effectively reducing costs.
3. Adjustable price sensitivity
The large amount of connector token reserves and relatively high CW, resulting in leverage, makes the price of smart tokens very useful for short-term speculation or sudden fluctuations caused by large orders are less sensitive.
4. No Spread
When processing buy and sell orders, the Bancor formula uses the same price calculation method, and there is no bid-ask spread, which is the same as the buy price is always lower than the sell price In contrast to traditional trading platforms that offer prices.
5. The price is predictable
Unlike traditional order book-based trading, the price algorithm of smart tokens is completely transparent, allowing users to pre-calculate their exchange before executing the exchange The effective price of , before the execution of the transaction, the price decline warning will be given according to the transaction volume.
Comparison of Bancor, KyberNetwork and 0x liquidity solutions:
1) Bancor Protocol's solution to liquidity problems is through blockchain-based smart contracts and reserves currency, so that smart Tokens can be exchanged for reserves at the corresponding exchange rate without the need for a counterparty;
2) KyberNetwork provides liquidity for it through reserves and reserve contributors, Kyber smart contracts Provide the best reserve pool price, and the settlement can be completed quickly through the smart contract on the chain;
3) 0x adopts the order matching mechanism to ensure liquidity, and the relayer manages the order book on the chain, and the settlement is completed on the chain , the matching speed depends on the transaction volume.
Application scenarios
1. User Generated Currency This is also the first application product developed by the Bancor team. , and generate its own digital currency network through intelligent chatbots (Chatbot) based on WhatsApp and Telegram (will support WeChat in the future). Users can also use this product to initiate Token Crowdsales with one click.
2. TokenChangers When the user sets the "constant reserve rate" to 100% (meaning that the "reserve balance" is equal to the "token circulation"), and When two different digital currencies X and Y are placed in the user, the user has the ability to exchange these two currencies, and is called a "currency swapper". For example, the user wants to exchange currency X for currency Y, he only needs to deposit currency X in the reserve, then burn the "smart token" and withdraw currency Y from the reserve. It is worth mentioning that changing the "reserve balance" and "token circulation" of X and Y affects their price, and when the price of X and Y in the Bancor network and its price in the external exchange market, there is a difference When there is a risk-free arbitrage (Arbitrage) opportunity. By constantly discovering arbitrage opportunities, currency swappers effectively keep the price of each currency in the Bancor network consistent with the market price under economic incentives.
3. Decentralized Token Baskets is the same as "currency swapper", when the user will set the "constant reserve rate" to 100%, and put it in the reserve fund When there are multiple digital currencies, he can realize the similar functions of Exchange Traded Funds (ETF) or Index Fund. It is worth mentioning that the concept of Bancor was first proposed by John Maynard Keynes, an economist who was a consultant to the British Treasury at the time, after World War II. He advocated the principle of overdraft and established a world central bank called the International Settlement Union. And issue a super-sovereign currency called Bancor (Supranational Currency). In a sense, the Bancor team is paying tribute to Keynes and building the first real "Network Currency" through the Bancor Protocol.
