Bancor launches its V3 with key upgrades to revamp the protocol
Bancor 3 will feature some important updates that will address some of its previous issues.
AMMs have been an important innovation in DeFi & Bancor was one of the pioneers of the AMM space. It has been addressing some major issues in liquidity providing and its recent upgrade is looking to open up a world of possibilities in this space.
Let's dive in.
Background
Launched in 2017, Bancor was the first automated market maker (AMM) built on Ethereum. It revamped its AMM design with the launch of V2 in 2020 which unveiled a very important feature, Impermanent loss protection. The protocol currently has a $1.63B total value locked.
Bancor has a really innovative AMM model where users can “stake and forget” their tokens without any risk of impermanent loss. This was a calculated decision that paid off well, generating over $250 million in earnings for depositors last year.
Bancor had differentiated itself from the rest of the AMMs in the space, yet it somehow lagged behind its competitors till now. The latest upgrade is aiming to bring in a radical design that might help the protocol regain its dominance.
OmniPool
High gas cost was a major hindrance for new users on the protocol. Omnipool is an important feature in this as it promises to cut these costs for traders in half. In version 3, there will be a single pool to stake $BNT & earn yield from the entire network.
The previous method of offering yield required transfers via $BNT, creating an extra transaction and added gas costs compared with competing DEXs. Omnipool aims to eliminate this extra “hop” thus reducing gas costs in the process.
Infinity pools
This brings us to the next feature called infinity pools which look into lifting deposit limits for the users. Enabling this can help expand the TVL which was earlier constrained. With Infinity Pools, anyone can contribute as much as they like without worrying about the capacity.
Dual Sided Rewards
Another notable update in Bancor 3 will be the dual-sided rewards which will allow third-party token projects to offer incentives on their pools without any impermanent loss. In this way, they'll earn more BNT & more of the token they’re staking, free from the risk of IL.
IL Protection
Impermanent loss (IL) occurs on AMMs when the prices of two assets in a liquidity pool diverge with one side going strongly up or down in value. Bancor 3 aims to offer instant IL Protection. Users will no longer need to wait for the initial 100days, like earlier, for insurance.
Auto compounding rewards
The fact that version 3 is cutting the cost of gas fees considerably is evident from its proposed features. One of which, called auto compounding rewards, eliminates gas-intensive manual re-staking. Both swap fees and rewards will be automatically re-added to the pool.
Liquidity Direction
In Bancor 3, the BancorDAO can vote to shrink the protocol-owned BNT in any pool if the pool is underperforming and direct the BNT liquidity to more profitable pools. By doing this, the DAO can more effectively manage risk and optimize protocol fees earned by the protocol.
Layer 2 support
Apart from these, Bancor 3 will add a number of other game-changing features to the protocol. The upgrade will be rolled out in three distinct phases called Dawn, Sunrise and Daylight. The features mentioned above of Bancor 3 are part of the upgrade’s first phase.
Conclusion
Bancor had been overshadowed by its competitors for some time. With its latest upgrades & recent traction, it may finally get its time in the light as it offers to deliver a competitive product with features that will add to both the LP side & trading functionality.
Endnote
For more interesting crypto developments and updates, subscribe to our daily newsletter.
#CryptoMatters