The Tie Research
Bancor v3: A Look into the Future
By Gustavo Lobo
April 18, 2023
- Bancor can now provide full Impermanent Loss Protection from the moment an LP makes their deposit, compared to 100 days prior.
- There is now acooling period, where LPs will have to wait seven days before withdrawing their funds. This reduces the amount of wait time by 93% compared to V2.1
- They’ve introduced an exit fee for their pools for the first time. The fee itself is nominal, sitting at .25%
- When a user decides to LP on Bancor they’re now issued a PT (Pool Token) with the prefix of ‘bn.’ This means if our friend Joe were to stake LINK, he would receive bnLINK in return. The newly minted PT represents the fully protected value of Joe's deposit(including the fees generated on the position).
- Unlike in v2.1, Pool Tokens in Bancor 3 are not linked to the value of the reserve balance. The valuation of the Pool Token is sourced through a separate ledger, called the Staking Ledger, which tracks and records amassed fees/rewards. Instead of owning a share of the liquidity pool, stakers possess a portion of this ledger.
- The (PT) serves as a yield-bearing token, so its value should always be greater than the underlying staked amount.
- Pool Tokens are denominated in the deposited token (e.g., bnLINK). This makes them an ideal form of collateral, as the value of the PT is consistently increasing due to the distribution of rewards & fees. While nothing has been decided yet, Bancor has stated that their Pool Tokens meet the requirements to be used as collateral on Aave. It will be interesting to see the different strategies created around this lending/borrowing market.
- The ease of use of this system creates a marketable environment for retail investors to participate in. All a user has to do is hold their pool token, and they’re automatically taking part in the rewards program.
- Reward programs are highly customizable, and can be done directly on Bancor’s platform without the need for a protocol to spend money/time on outside resources.
- Even as they’re being distributed among stakers, rewards are immediately used as liquidity. This results in an efficient way to automate the process of building liquidity.
- The auto-compounding program is ideal only for cases where the staked token is the same as the reward token.
- A modified version of the industry-standard rewards contract is available for situations where the staked TKN and reward TKN are different assets. In this case, auto-compounding must be done manually by stakers.
- An external protection balance gets funded by the protocol. These funds will be used to reimburse stakers experiencing IL.
- The external protection balance cannot be withdrawn, but it can be replenished.
- Superfluid liquidity
- Trading liquidity
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