What is Bancor and how does it work?

Bancor is a blockchain protocol that acts as a decentralised liquidity network designed to exchange cryptocurrency. It operates through a system of smart contracts on the Ethereum blockchain.

In simple terms, Bancor is a crypto trading network that supports other crypto trading platforms.

Bancor is also a platform where users can list new cryptocurrencies, and also trade new currencies. One of the main issues for new cryptocurrencies is the lack of liquidity. As nobody is using the coin, or has bought it, trading is very difficult.

Using crypto liquidity pools, Bancor provides liquidity to these cryptocurrencies and allows traders to stake their money into these new cryptos using smart contracts, so the process is automated. 

Bancor is a decentralised exchange (DEX), however, has a unique model and incentive which makes it slightly different to other DEXs such as Uniswap and Sushi.

What is Bancor?

Bancor was created in 2017, during a time of great innovation for decentralised exchanges and trading. It was founded by technology entrepreneurs Eyal Hertzog, Guy Benartzi, and Galia Benartzi on the 30th of May 2017 upon the release of the Bancor Protocol white paper. 

For the initial coin offering (ICO), Bancor raised $153 million, which for the early days of decentralised exchanges, was a record amount.

The name ‘Bancor’ is a reference to John Maynard Keynes’ conceptual currency of the Bancor, which was Keynes’ proposed idea for an international unit of account to help regulate the world’s economy during and after the Second World War. Despite the soundness of this theory, it was rejected by the UK government at the Bretton Woods Conference in favour of pegging the US dollar to gold, and all other currencies to the US dollar – a system which only lasted until 1971.

Bancor has developed over the years into a full ecosystem of decentralised protocols and invented various trading tools such as bonding curves, and pool tokens, and helped to pioneer the automated market maker (AMM). Bancor’s core philosophy is decentralisation, and all its products and protocols are designed with this in mind.

What is BNT?

Bancor is run by the Bancor Network Token (BNT) which is the primary token within the network. BNT is important as this provides the foundation for all the protocols within the Bancor network.

As of August 2024, BNT has a value of $0.56 with a 24-hour trading volume of $4,249,966.

What is the Bancor DAO?

The Bancor DAO is the decentralised autonomous organisation that dictates how Bancor is run and how it moves forward. The Bancor Protocol has a democratic voting system where BNT holders can vote on various decisions, and even propose their own changes to the Bancor network, for which users will then vote.

Many decentralised exchanges will have a DAO and it allows the developers to be transparent but also encourages users to keep their assets within the network, thus increasing liquidity. 

How does Bancor work?

Bancor is an ecosystem of decentralised protocols, rather than one exchange where users can trade. Bancor is essentially an umbrella for several products, listed under one banner of ‘Bancor’ and all based on the BNT.

Carbon DeFi

Carbon DeFi is the main protocol within the Bancor network and is a decentralised trading platform which allows users to automate their trading.

This can be done by using custom on-chain limit orders, range orders, and a novel form of trading known as recurring orders. Recurring orders are essentially a method of trading where the user will create two linked orders: a buy order and a sell order. When one order is filled, the other order will be immediately funded, compounding profits in the process.

The Arb Fast Lane

The Arb Fast Lane is another protocol by Bancor which is open source and facilitates arbitrage trades across automated market makers.

The system is designed to capture arbitrage opportunities across the network and fill them before external arbitrageurs can exploit them. This is not only profitable for traders, but it also helps to maintain liquidity in the market, as it will protect LPs from price inefficiencies and potential losses. 

Bancor AMM

Bancor also has its own AMM trading platform, where users can stake their cryptocurrency into crypto liquidity pools and earn from them. Bancor makes the claim to be the first AMM ever created and continues to pioneer the DeFi sector today via the Bancor DAO.

Is Bancor a DEX?

Yes, Bancor is a DEX, but is much more than that, and supports a much wider range of functions. Bancor does not advertise itself explicitly as a DEX, although Bancor AMM by nature is a DEX, and Bancor as a brand is a foundation for other smaller brands.

Bancor differs from other classic DEXs like Sushi and Uniswap in a few ways. One way is that most other DEXs will require deposit pairs of tokens, whereas Bancor supports single-sided staking.

Another way is Bancor’s defence of potential runs with its Impermanent Loss Insurance. This unique feature is a protective measure against volatility and works by allocating around 15% of all trading fees into a unique pool that is there in the event of impermanent loss.

Bancor also supports the development of new cryptocurrencies that might not be listed on other exchanges. Users can submit their coin to the Bancor DAO, and if approved, they can begin trading that coin using the Bancor Network.

As Bancor has single-sided liquidity, it means that users or liquidity providers need to supply liquidity only with the new token, without needing to provide an equivalent amount of another token. This makes starting a new token a lot more accessible, as there is much less of an upfront cost.

Conclusion

Bancor was one of the pioneers of DeFi and continues to innovate in the DEX space. The use of smart contracts, AMMs and crypto liquidity pools is quickly becoming the norm for the crypto space, and as user adoption begins to increase, the clear democratic benefits of DEXs will be seen.

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Author

Caleb is a financial copywriter with a specialisation in fintech and forex. Former copywriter at Barclays and Paysafe. Contributing writer for LiquidityFinder. You can message Caleb here.