Bancor V2 Launches with new Dynamic Liquidity Pools
Bancor Network, the decentralized exchange enabling traders to swap Ethereum and EOS tokens, has successfully launched Bancor V2 bringing new Dynamic Liquidity Pools to the forefront of the platform. These upgrades have promised to dramatically improve the overall user experience for traders and liquidity providers.
Currently, the contracts have been deployed to mainnet in beta mode, where there is a liquidity cap on each pool at $1 million USD. Once the contracts are confirmed to be safe then a pool manager will remove the limits. The main change to these liquidity pools is the introduction of price oracles powered by Chainlink, this setup aims to solve what Bancor refers to as DeFi's dirty little secret.
Key Bancor V2 pools features:
- Single-token exposure: 100% exposure to a single asset.
- Staked Balance and Current Balance: each liquidity pool will now have a total amount of tokens staked (provided by liquidity providers) and also a current balance (the total amount of tokens held in the reserve.
- Dynamic Weights: the pool's reserve weight will update automatically as a way to incentivize market participants into providing liquidity that will equalize the current balance with the staked balance. This is a new concept referred to as Liquidity Amplication and will greatly reduce slippage.
- Price Feeds: oracle driven price feeds powered by Chainlink are used to ensure that after arbitrage opportunities are spotted and acted on, the pool price will become equal to the market price.
Currently, the only pool deployed on Bancor v2 is to trade BNT/LINK. Several other launch pools have been announced such as LEND, REN, renBTC, and ENJ; and we would expect various DeFi assets to follow quickly.
Solving Impermanent Loss with Bancor v2
Decentralized Finance (DeFi) has seen a major boom throughout the industry in recent months, especially Automated Market Maker (AMMs) platforms such as Uniswap, Curve Finance, Kyber Network, and Balancer. There is now over $692.5M USD supplied to these protocols in liquidity or staking. The rapid growth has been astounding, however, there is a major barrier faced by AMMs to continue the widespread adoption. Which is how to solve the problem of impermanent loss for liquidity providers - who are arguably the most important actors in an AMM platform because without liquidity no traders will use the protocol.
Impermanent loss refers to the unique type of loss felt by liquidity providers due to the prices of crypto assets being very volatile and fluctuating. For example, Uniswap does not calculate the price of an asset by checking the market rate it works off an inbuilt algorithm of supply and demand. If an asset such as ETH drops or increases quickly by 50% on a centralized exchange, then it is always the arbitrageur trading between Uniswap and the CEX that wins - even though the liquidity provider is technically taking much more risk.
Bancor has taken steps to solve this problem with its new Dynamic Automated Market Makers (DAMMs) which are powered by oracle-driven price feeds along with a combination of incentives.
A new analytics platform has also been announced which will allow users to easily find which pools are providing the best returns on their liquidity, this is being called Bancor Data. No date has been given for its release, the team did publish a screenshot which appears to show an interface very similar to Uniswap Analytics.
The launch has been very much anticipated by DeFi enthusiasts, DEX traders, and BNT token holders alike. It can definitely be thought that if the design works then other existing AMM platforms will have to adopt a similar architecture or risk losing the bulk of their liquidity providers moving to Bancor.
Stay safe and trade well!
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