Since the launch of Bancor v2.1, TVL increased over 2,000% and monthly swap volume rose over 1,500%, as liquidity providers have rushed to take advantage of Bancor’s single-sided exposure and impermanent loss protection.
As the ecosystem expands, development is rapidly moving forward. This post covers recent progress & upcoming plans, including:
- BNT liquidity mining rewards: $23M+ in BNT rewards paid out to LPs so far; over 85% of rewards re-staked to the protocol
- Bancor Vortex: borrow against staked BNT and provide leveraged liquidity (phase 1); vBNT fee-burning (phase 2)
- Scaling Bancor v2.1: cap increases & streamlined token whitelisting
- Joint liquidity mining: allow token projects to deploy non-BNT liquidity mining with single-sided re-staking
- Bancor.network redesign (coming soon): limit orders, new trader features & one-click LP token migration from other AMMs
- New APIs: real-time pricing, volume, revenue data
- Layer 2: Arbitrum testnet contracts deployed w/ front-end demo
- Cross-chain: Cross-chain bridge to Polkadot & other chains
- Nexus Mutual “shield” mining launched
- Top secret new pool design (delet)
Industry View
The data suggests Bancor is gaining traction with users who want to stay long on their tokens and avoid impermanent loss while providing liquidity. This “HODL + LP” strategy aims to earn higher returns from swap fees and liquidity mining rewards for liquidity providers and the protocol’s owners, BNT token holders.
After accounting for impermanent loss compensation, BNT holders earn around 25% of total swap fees. This is approximately 50X higher than other AMM protocols: SUSHI holders, for example, earn 0.05% of swap fees, while UNI holders currently earn 0% of swap fees.
The design of Bancor v2.1 is driven by our conviction that those who support the system, the LPs, are entitled to 100% of its profits. Protection from IL alleviates the risk, and creates a positive environment for both BNT and non-BNT communities. None of the trade revenue is diverted to symbolic owners; only the workers are paid.
Competing token models ask LPs to shoulder the risk without protection, and then force them to share their earnings with non-participants. In our view, this approach is not designed with the best interests of LPs at heart, and ultimately fails to properly incentivize the members of the ecosystem that matter most.
Protocol Updates
BNT Rewards Are Live
BNT liquidity mining launched 2 weeks ago in the bancor.network front-end. Liquidity providers can now track & re-stake BNT rewards to compound yield and circulate liquidity back into the network. Since the release, we’ve seen:
- 2X increase in TVL (now $550m+)
- $23M+ in BNT rewards paid to liquidity providers
- 85% of redeemed BNT rewards re-staked to the protocol
- More capacity for single-sided non-BNT liquidity to enter the system
The high rate of re-staked rewards stands in contrast to the “farm & dump’’ activity that commonly occurs in yield farming programs. Since Bancor offers single-sided pools, LPs can re-stake rewards and compound yield without having to sell BNT or add more tokens. This allows users to re-stake and compound yield with less friction, and opens the door to auto-compounding of rewards. In addition, BNT sell pressure is tempered, and the added BNT rewards grow the protocol’s capacity to accept and protect non-BNT stakes.
Learn how to stake your BNT rewards & compound yield
A note on gas: Like most DeFi protocols, we’re working to address rising Ethereum network gas costs in recent weeks, which can make re-staking costly for LPs. These efforts include optimizing state updates on rewards pools, as well as our ongoing work on a Layer 2 deployment (more below).
Bancor Vortex
The Bancor DAO has approved the Bancor Vortex. Vortex will give users the ability to borrow against their staked BNT via the vBNT/BNT pool. The second phase of Vortex will permit the protocol to burn a percentage of swap fees for vBNT, transforming it into a scarce resource.
vBNT is the governance token of Bancor. It is generated by users who stake BNT in any whitelisted pool and represents their % ownership of the pool. This makes vBNT similar to an LP token, except you can also use it to vote in Bancor governance. With the release of Vortex, you’ll also be able to use vBNT to borrow against your staked liquidity by swapping your vBNT for any token in the network.
Watch this explainer to learn more:
More details:
Phase 1 (Wind-Up): Pending governance, whitelisting of the vBNT/BNT pool will make it available for single-sided vBNT staking with IL protection. Users will then be able to stake their vBNT in the pool and earn swap fees, or utilize the pool as a source of credit by swapping their vBNT for any asset on the network, including more BNT. The result is a bonding curve-enabled loan structure, free from the risk of liquidation.
Phase 2 (Full Vortex): A small protocol-wide fee will be introduced and used exclusively to buy vBNT from the pool and burn it. This update effectively charges non-BNT liquidity providers for impermanent loss insurance, and creates new incentives to hold and stake BNT to further increase network liquidity.
Scaling Bancor v2.1
Cap Increases
Bancor v2.1 continues to expand, with the DAO supervising protocol risk and executing proposals that allow for increased network capacity.
Increased limits on the ETH and LINK pools have proven successful, and voting is underway on a new BIP to increase caps on the following pools: ETH, LINK, WBTC, YFI, REN, renBTC, OCEAN, AAVE and SNX.
Why do caps exist? The protocol invests BNT into whitelisted pools to support single-sided, non-BNT deposits (e.g., $100K LINK triggers $100K BNT minted by the protocol into the LINK pool). Protocol-supplied BNT generally remains in the pool earning fees for the protocol until the BNT and its accrued fees are burned. Each pool has a limit on the amount of BNT that can be provided by the protocol for this purpose (“co-investment limit”). When this limit is reached, BNT must be provided by users in order for the pool to expand, or governance can vote to increase the limit.
- Read the January 2020 protocol health report
- V2.1 protection data on Dune analytics
- View pools on bancor.network
Streamlined Whitelisting
Whitelisting hot, new DeFi tokens to Bancor’s single-sided, IL-free solution is imperative to the protocol’s continued success. However, the requirement that new projects provide BNT as the counterpart asset in their pair has proven to be a barrier for seamless onboarding.
We’re actively working on an improved onboarding mechanism for projects to create pools by providing ETH (or any token) to collateralize their pools, before eventually transitioning to a standard V2.1 pool. 50/50 pools can be created with any two tokens, and with both sides of the pool protected from IL. Once certain metrics are achieved, the pool can be updated by the DAO to receive IL insurance and more single-sided capacity, and to gradually transform into a whitelisted pool with BNT as the base asset. This will allow Bancor to better serve tokens through the entire lifecycle of their growth, and remove friction from listing new tokens (which tend to be volatile and have a higher risk of IL).
Joint Liquidity Mining
Token projects will soon be able to deploy non-BNT liquidity mining on Bancor pools, on top of existing BNT rewards. LPs will be eligible to earn double rewards and track earnings from each program, as well as re-stake their BNT or non-BNT rewards to compound yield.
Since LPs on Bancor are not exposed to impermanent loss, liquidity mining rewards are pure profit. Token projects can therefore offer higher yield for LPs with fewer funds, making rewards programs on Bancor more sustainable and attractive for sponsors and recipients.
Bancor.network redesign
Bancor has invested heavily in building the world’s most advanced AMM system, offering features that can’t be found anywhere else. The system is now superbly prepared to exhibit our rich smart-contract functionality in the bancor.network UI. We have made several key hires to completely redesign bancor.network, with the new site expected in the next 1–2 months.
While our LP features will continue to evolve, we have also renewed our focus on improving the user experience for traders. This will include better analytics, charting tools and faster execution times. In addition, two heavily requested features are currently being built: limit orders and one-click migration of LP tokens from other AMMs.
New APIs
We’ve completed a new scalable and flexible backend that tracks and supports all pools in the Bancor Network, providing real-time information on liquidity, volume, revenue, rewards & more. This data will power new functionality and analytics on bancor.network, and any interface that wishes to integrate them.
Crucially, we’re working with third-party analytics providers, including CMC, CoinGecko, Cryptofees.info, Zapper & others, to integrate our new APIs and improve the accuracy of Bancor data.
- Check out the API docs
- Access 24/7 dev support on Bancor Developer Telegram channel
Nexus Mutual Shield Mining
The Bancor Foundation is participating in the Nexus Mutual “Shield Mining” program — which aims to create less expensive smart contract cover for Bancor liquidity providers. Smart contract cover protects Bancor LPs against smart contract bugs and direct attacks on the network.
Bancor is initially providing 25,000 BNT to NXM holders who stake their tokens on Nexus to provide smart contract cover for Bancor LPs.
In tandem, wNXM is proposed for BNT liquidity mining rewards (read the proposal). By activating mining on the wNXM pool on Bancor, NXM shield miners will have additional incentive to HODL their BNT shield mining rewards & stake them in the wNXM pool on Bancor.
Layer 2
Congestion on Ethereum has made integration with Layer 2 technologies more urgent than ever. We are working closely with the Offchain Labs team and readying Bancor’s contracts for Arbitrum’s mainnet launch. Bancor contracts are currently live on Arbitrum’s public testnet, and a demo front-end has been deployed. Stay tuned for more!
Cross-chain
Work is under way on a cross-chain bridge to Polkadot. We are working with LiquidApps on the deployment and targeting a testnet deployment in Q1. The bridge can be adapted to connect Bancor to any blockchain.
Unlike existing cross-chain bridges where nodes can cost thousands or millions of dollars to run, our implementation will utilize lightweights nodes which can run in a simple web browser. This slashes the costs and set-up time for bridge operators, who stake BNT as bonding collateral, and may be compensated for verifying transactions in BNT.
Top secret pool design
We can’t share much at this stage, other than we’re working on a new pool design that is in the final stages of research, and entering development soon. The design is intended to reduce the complexity of our contracts, which translates to a lessened gas burden for users. Among other advantages, the design could also support “liquidity amplification” (ultra-low slippage) on pools with volatile tokens and greatly increase the capital efficiency of the system.
Around the Community
- New Bancor Explainer Video:
- The St. Louis Fed credits Bancor as the earliest implementation of automated market makers
- Follow BancorVortex on Twitter to track Bancor protocol stats.
- Join BancorAlerts on Telegram to see new stakes as they enter the system
- Tweetstorms on Bancor
- Cointelegraph covers Bancor v2.1 progress
