With Bancor3 about to launch, I thought I would give the coop an overview of the protocol and how it interacts with the coop. Note: I’m a $BNT holder and have been participating in their governance and snapshots for a few months.
What is Bancor v2.1?
Bancor is an AMM living on Ethererum L1. It has the unique feature that users can deposit single-sided liqudiity and will be protected from divergence loss (IL). This is done by the protocol mining $BNT as the other side of the pair and using a combination of LP fees due on the $BNT and socialised insurance across different pools.
Bancor IL protection only supports governance whitelisted tokens and combined with liquidity mining they have built market-dominating liquidity for some tokens:
|Bancor AUM||$217 M||$11 M||$3 M||$3 M||$17 M|
|0.5% price impact trade size||$650 k||$30 k||$ 8k||$8 K||$45 K|
|Deepest AMM pool||Uni v3||Uni v3||Uni v2||Uni v2||Uni v3|
|0.5% price impact trade size||$196 K||$13 K||$2 K||$0.8 K||$11 K|
$BNT is currently #128 on coingeco at $650 Mcap (less than $YFI, $SUSHI and $1INCH, but above $0x, $DyDX and $ENS).
The downside of Bancor v2.1 for our products.
- Our products rebalance via ETH, so any trade on Bancor would have to be 2 hops (and so 2 LP fee’s and price impact to consider)
- It’s not easy to specify receipt of a specific quantity of a token on v2.1. This screws with the logic within the automated Rebalance trades.
To date, we have not integrated Bancor liquidity in any products.
If Bancor is so Big in DeFi, why isn’t $BNT in DPI or GMI?
I can’t speak for the methodologists.
However, while $BNT has massive on-chain liquidity, it’s virtually all in Bancor pools and so inaccessible to sector product rebalances…(Uni v2 has $330 K liquidity ion the BNT:ETH pair)
What does the coop have listed on Bancor?
- $INDEX is listed with a 0.2% LP fee. The current pool is small ($100 K AUM) so it only really attracts on-chain arbs (I’m in the pool and income has been 0.66% over 152 days ~ 1.5% single sided APY).
- The whitelisting criteria for Bancor 2.1 excludes our tokens “… tokens with elastic supply aren’t currently supported”
What is Bancor3?
Bancor3 is a complete rewrite of the code. It should solve a number fo issues with v2.1:
- High gas costs
- limited composability
- Caps on pools for each whitelisted token.
Based on the recent Bancor community call: Telegram: Contact @bancortraders
- 1st audit expected w/c 4th April
- Capped main net Beta after that
- $1M public bug bounty running in parallel
- 2nd audit starting in parallel
- If all goes well, full B3 launch may be w/c 22nd May
What new opportunities does Bancor3 hold for INDEXcoop?
- LP fees for $INDEX will increase to 0.5%, so more income for INDEX stakers.
- Issue of $bnINDEX liquidity tokens may allow LP’s to be included in INDEX snapshots (Uni /Sushi LP’s (???) are currently included in snapshots)
- Issue of $bnINDEX could allow the inclusion of tokens in DSM for contributors.
- Liquidity pod can direct $INDEX to bancor to have more passive IDNEX liquidity without allocating any ETH.
- Different smart contracts MAY allow our rebalances to use the Bancor liquidity and so lower the cost of rebalances/allow other tokens to be added to products.
- If we can rebalance sector products via B3, it also allows a route for low liquidity tokens to become eligible for inclusion (Whitelist, a single-sided deposit of underlying treasury token into Bancor, coop product uses Bancor liquidity for issuance / rebalance).
- Revised whitelisting (BIP-19 in draft) MAY allow some of our products (e.g. sector products) to be listed for single-sided deposits.
Note, one potential downside of Bancor is that they are looking at raising LP fees on some tokens, so rebalancing using Bancor may become more expensive…