Bancor reveals features of its protocol’s third version
Bancor, a blockchain protocol that allows users to convert tokens directly instead of exchanging them on cryptocurrency platforms, has revealed the first details of its third version.
Bancor’s latest version, dubbed “Bancor 3,” offers several key features to liquidity providers, including dual-sided rewards and full impermanent loss protection.
The upgraded protocol helps increase trading volume and make it easier for users to earn on their favorite tokens. With the interests of both traders and liquidity providers in mind, the new iteration takes the “set and forget” staking product a step further.
Bancor revealed that it would introduce a new feature called “Omnipool” that allows for all trades on the network to occur in a single transaction. While the impermanent loss management was a major focus of the v2.1 upgrade, this has required trades to be processed via BNT. As a result, the second iteration created an extra transaction and added gas costs compared with competing DEXs.
Omnipool solves pain points associated with gas costs and enables Bancor to attract more trading fees with the same level of liquidity, making the protocol more capital efficient.
As part of Bancor 3 framework, the project enacted ‘Infinity Pools’ for liquidity providers to incentivize long-term staking. More specifically, there are no longer deposit limits on Bancor liquidity pools (previously, users had to wait for space to open up in a pool before being able to deposit their tokens, constraining the protocol’s growth).
Instant impermanent loss protection
Under the Infinity Pools, Bancor 3 introduces two novel concepts, “trading liquidity” and “superfluid liquidity”. Trading liquidity is used for market-making, the company notes, while superfluid liquidity can be used in fee-earning strategies that are both native and external to the protocol.
Interestingly, impermanent loss management remains a major focus for Bancor developers. While the fee earnings were more than the cost required for impermanent loss compensation, Bancor 3 will offer full impermanent loss protection from day one. On top of that, token projects can offer rewards on their pools, so depositors can benefit from dual-sided rewards, earning more BNT and more of the token they’re staking.
This further validates the V2 approach, which uses economic incentives to cover the cost of impermanent loss, a phenomenon caused by the constantly rebalancing LPs portfolios.
In addition, both the trading fees and rewards are now automatically re-added to the pool, allowing users to earn even more while doing less.
A notable development in the recent upgrade is BancorDAO’s ability to vote to shrink the protocol-owned BNT in any under-performing pool, and direct the BNT liquidity to more profitable pools.
Lastly, Bancor 3 will feature a number of other features including multichain and L2 support, integration of Chainlink Keepers to facilitate more efficient token burning, a revamped front-end, third-party impermanent loss protection, and single-click migration with other DeFi protocols.
Commenting on the potential impact of Bancor 3, Nate Hindman, head of growth at Bancor said: “Across the industry, the issue of impermanent loss threatens to undermine the core tenets of DeFi by making liquidity pools unusable by ordinary users, and accessible to only the most sophisticated and wealthy users. We must prevent DeFi from becoming a playground for the rich and connected to extract value from protocols and dump on everyone else — and this starts with fixing liquidity pools.”
Hindman added: “Bancor 3 marks a new day for DeFi — one in which people and projects retake DeFi’s core building block to bring community-sourced liquidity to masses.”