BANCOR Protocol - Autonomous tradable cryptographic tokens on Ethereum Blockchain
What is the Bancor Protocol?
Bancor Protocol is the standard for the creation of intrinsically tradable tokens, beginning on the Ethereum blockchain. At its most basic, the Protocol is an ERC-20 compliant smart-contract, in which a new token can hold one or more other tokens in its reserve at a pre-set “Constant Reserve Ratio” (CRR). A detailed overview of the Bancor Protocol and its implications is available in the most recent Draft Whitepaper below.
WHAT IS THE BANCOR NETWORK TOKEN
Bancor is issuing its own token, the first to use the Bancor Protocol.
The Bancor Token’s symbol is BANCOR and is an ERC20-compliant token.
The BANCOR token will be the first Bancor-compatible token, holding a 20%
reserve in Ether (ETH). BANCOR tokens can always be purchased for ETH
and are exchangeable back to ETH -- through the BANCOR smart-contract.
The Bancor Protocol allows BANCOR tokens to be issued or destroyed
whenever a user buys them or exchanges them back to ETH.
BANCOR will be used as a “network token”, meaning that it will act as the
default reserve token for new Bancor-enabled tokens. This means that
BANCOR will serve as the connective tissue between all of the Bancor
Network’s newly created tokens.
Tokens in the Bancor Network effectively maintain hierarchical relationship between them. For
example, a “NewCoin” could hold BANCOR in its reserve, while BANCOR
holds ETH reserve; thus forming a three-tier hierarchy between the
tokens. If the price of ETH increases (due to growth of the Ethereum
ecosystem) then BANCOR’s price will increase (due to the constant
reserve ratio maintained between BANCOR and its reserve token, ETH.)
Similarly, an increase in the price of BANCOR will, in turn, generate an
increase in the price of NewCoin. This hierarchical model enables
BANCOR to capture the network effect value of all tokens in the Bancor Network.
Use Cases for the Protocol
The Bancor Protocol provides a simple and powerful building block for developers and non-technical users alike to create new types of monetary systems, applications, currency networks and tokens not previously possible, all through the use of token reserves and smart-contracts with the ability to automatically issue and destroy themselves according to a formula. Value can be recognized, stored and moved in ways never seen before.
Local and Group Currencies:
Bancor enables the long-tail of user-generated tokens. Tokens achieve
instant viability and continuous liquidity, regardless of trade volume.
Groups of any kind can define custom policies.
The Bancor Protocol enables the creation of token-baskets on Ethereum with
no central control, which are owned directly by their holders. A
token-basket is simply a Bancor-compatible token with multiple reserves
that sum up to a total of 100% CRR.
Bancor trading nodes can be created to hold, transfer and convert any
token to another at any time, with no bid/ask spread. Remove
counterparty risk and maintain predictable price slippage, for lower
Bancor Smart Contracts
Bancor-compatible tokens are a new type of always-liquid token, managed by a smart-contract which issues and destroys itself according to a transparent formula. Bancor contracts are written in Solidity and tested by the industry's top security auditors. The current code is available for review below.
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BANCOR PROTOCOL -Coins are Networks and Crowdsales are their Killer App
Our team has been quite bullish on Ethereum since we began building the Bancor Protocol on the platform last August. As time goes by, it becomes increasingly clear why: Ethereum may be the first blockchain with a killer app.
We are a team of seasoned network application developers, and after years in the crypto-space we’ve come to see money as a network that offers its users different applications. Social networks, for example, have seen their share of killer apps: profile page posts, news feeds, media sharing and discussion groups, to name a few. Money can be seen as an economic network, where value is transferred rather than information. Globally, this is done through different forms of money (currencies) which are interconnected through exchanges. This global network also has various popular applications, that can be generally categorized as follows:
As experienced product developers understand, in order for a product to gain traction and justify switching costs, a new solution must provide significant advantages to the end-user, relative to the existing available solutions. We usually hear of this as the 10x better rule. To understand how this might play out in blockchain vs. traditional currencies, the following table features notable blockchain and fiat solutions for the same
application categories, and lists the unique advantages each solution puts forward for the different applications of money.
The first killer app of any new technology validates it, and unfortunately, we have yet to witness a clear blockchain “killer app” (except, maybe, the buying and selling of coins, which is probably why some still believe the whole ecosystem is a pyramid scheme.) Clearly, blockchain-based solutions for the applications of giving, trading, lending and betting are advantageous only in very specific, and often controversial use cases, while also carrying material disadvantages such as added complexity, risk of a lost key, compromised guardians, extreme price fluctuations, regulatory uncertainty and limited worldwide adoption. By contrast, it is increasingly clear that blockchain solutions for financing applications have significant advantages over the available fiat-based solutions, which is why the recent momentum in ICOs should not come as a surprise, and why many view this category as the first blockchain killer app. Vinay Gupta lays a strong argument for the huge potential and profound implications of blockchain crowdfunding in this fantastic talk.
Interestingly, we are witnessing blockchain financing gaining momentum primarily on Ethereum. The reasons seem quite obvious.
First, financing involves issuing a new currency. Every share of a new company is currency which can be issued by the board of directors, under very specific terms. While Bitcoin has several competing third party layers for issuing tokens, Ethereum has a standardized solution at the blockchain level.
This leads to the second advantage, the ability to set complex terms. All money applications typically require simple, straightforward agreements to be successful. The one exception is financing engagements which require custom contracts with a variety of protections, governance structures and detailed profit-sharing models. Ethereum is currently the only available smart-contract blockchain which can easily accommodate this level of customization.
Third, smart-contracts enable a new breed of networks and applications that are token-based, crowd-financed, interoperable, decentralized and open-source. This is probably the reason why Ethereum blockchain adoption by developers is second to none. This presents an undeniable success signal that Vitalik and team should be quite proud of, as it was also an important indicator of Bitcoin’s initial momentum, and many other successful platforms we know, such as iPhone and Facebook.
Blockchain financing involves issuing transferable tokens to participants. On Ethereum, the ERC20 token standard has emerged as the most widely adopted and useful contract standard to date. We, at Bancor, are proposing a complementary standard — “Token-Changer” which defines a set of APIs for exploring convertibility, querying prices and executing token conversion through a smart-contract. We believe the Token-Changer standard is required for the future growth of blockchain financing as it establishes a clear standard for smart-contracts to act as “automated market-makers,” and streamlines token conversions for users across the entire Ethereum ecosystem. This opens an entirely new horizon of possibilities for convertibility, utility and viability of existing ERC20 tokens.
You can read our “Token-Changer” EIP228 proposal here: https://github.com/ethereum/EIPs/issues/228
We plan to use this standard for the Bancor Protocol, which provides continuous liquidity and asynchronous price-discovery for ERC20 tokens, irrespective of their trading volume and with no requirement to be listed on an exchange. You can read more about it and review the code on our website at https://bancor.network, or watch our presentation from the February EDCON in Paris.
After decades in startups, tens of financings rounds, a few acquisitions and a couple of wind-downs, we are beyond excited to be a part of the wave of innovation we expect to see unleashed by the crowd through blockchain’s first truly killer app, decentralized financing.
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Bancor - some recent media coverage
i everyone, I wanted to share some recent media coverage of Bancor.
The Bancor team just welcomed Israeli Bitcoin Association Chairman Meni Rosenfeld to its advisory board:
Bancor's Galia Benartzi wrote a piece for CoinDesk on how the 'long tail' of cryptocurrencies spells massive opportunities for society:
Galia also did a TEDx talk on how blockchain will change the world. Watch here:
Mathematician and Israeli Bitcoin Association Chairman Meni Rosenfeld Joins Bancor Protocol’s Advisory BoardMeni Rosenfeld
SWITZERLAND — April 25, 2017 — Bancor Protocol(https://bancor.network/), the standard for the creation of intrinsically tradeable cryptocurrencies or ‘Smart Tokens’, today announced the addition of mathematician and Israeli Bitcoin Association Chairman Meni Rosenfeld to its advisory board. Mr. Rosenfeld, who has studied and discussed Satoshi’s Bitcoin white paper from a mathematical perspective, closely examined the concepts presented in Bancor’s white paper.
“We’re honored to have a professional of Mr. Rosenfeld’s stature and expertise on the Bancor Protocol advisory board,” said Guy Benartzi, Co-founder of Bancor. “Meni has already been an invaluable asset as we composed our white paper and token pricing formulas, and we look forward to his guidance as we continue to build Bancor.”
Mr. Rosenfeld is a mathematics M.Sc. graduate of the Weizmann Institute of Science. After completing his studies in 2009, Mr. Rosenfeld became the head of research at SimilarWeb, where he was in charge of developing algorithms for measuring connections between websites and analyzing web traffic. He discovered Bitcoin in early 2011 and soon after founded Israel’s first Bitcoin exchange service, Bitcoil, while performing mathematical research on the algorithms that underlie the functioning of the Bitcoin and blockchain system.
Mr. Rosenfeld became chairman of the Israeli Bitcoin Association in 2013. He will advise Bancor executives as the company develops its technical solution for the liquidity challenge faced by the long tail of cryptocurrencies.
“I was skeptical at first about the merit in trying to come up with new ways to provide market liquidity. As I explored Bancor’s approach, I was pleasantly surprised to realize the value it can bring, as simple as its main ideas are,” said Meni Rosenfeld. “Bancor can offer real advantages over previously known systems, and I’d like to help it do so. This is why I accepted an advisory role and am looking forward to being an active mentor to the team and initiative.”
Media Contact: [email protected]
Company Contact: Galia Benartzi, [email protected]
About The Bancor Protocol
Bancor protocol is a standard for the creation of Smart Tokens, a new category of cryptocurrencies which are intrinsically tradable. Starting on the Ethereum public blockchain, Bancor utilizes a new method to enable built-in price discovery and an automatic liquidity mechanism for Smart Tokens, without the need for matching two parties in an exchange. The Bancor Protocol creates a new type of interconnected asset exchange ecosystem, and unlocks the long tail of user-generated currencies. To learn more, please visit:www.bancor.network/
BANCOR Protocol Smart Tokens 101
While developing the Bancor protocol we began to realize that what we are creating is essentially a new type of currency — one that is natively liquid. In keeping with industry conventions, we decided to call these currencies “smart tokens” since they are based on “smart” contracts, and since “tokens” is how the Ethereum community and literature refer to all user-generated assets that are ERC20 compliant.
The most important feature of smart tokens is that they can be purchased or liquidated (sold) at anytime, directly through their smart contract, without the need to use an exchange or even be matched to a second party to exchange with. Now that might sound like voodoo but it’s actually quite simple. Here’s how it works:
- The first thing to understand is that smart tokens are money that hold money. This means that the smart contract which operates the token “owns” units of at least one other token (smart contracts can do that). We refer to those other tokens as “reserves”, similar to how a central bank which issues a currency also owns foreign currency reserves.
- Secondly, anyone can purchase a smart token with its reserve token(s), simply by transferring the reserve token to the smart token’s contract, which in return issues the buyer new units of the smart token. This is similar to the way tokens are issued by ICO smart contracts in exchange for other tokens (such as Ether). However, with smart tokens, the reverse operation is also possible, meaning that any smart token holder can choose to liquidate units and receive a reserve token in return, effectively removing these smart token units from circulation, and all this is done directly through the smart token’s contract. The supply of a smart token increases and shrinks with demand for it.
- The third and most important thing to realize is that smart tokens set their own price, in respect to each reserve token they hold. The price automatically increases when smart tokens are purchased for the reserve token, and decreases when they are liquidated to the reserve token. The exact formulas and proofs are available in our whitepaper, but essentially price is a kind of fraction between a smart token’s reserve balance and it’s supply. Precise mathematics in the contract’s algorithms assure that a reserve can only be drained when every last unit of the smart token has been liquidated, and this is done by setting and holding a fixed reserve ratio (configured by the smart token creator, for example 10%) to the smart token’s market-cap (its supply times its price). This ratio is called the “Constant Reserve Ratio” or CRR, and each reserve token held by the smart contract has has a predefined CRR. The combined CRR of all reserve tokens must be above 0% and up to 100%.
One may wonder why this functionality is needed at all, given that liquidity and price discovery can already be obtained through the trading activity in exchanges. Is there really a need for an alternative solution?
The simple answer is “Yes”, and here’s why:
Exchanges can be viewed as “matchmakers” between parties with opposite wants. Each trade consists of two contrasting transactions, where each party is buying what the other party is selling. The need to find a party with opposite wants is the reason currencies and other assets may on occasion face what’s known as “liquidity risk”. This constraint makes it impractical for smaller scale currencies (such as community currencies, loyalty points and other useful credits) to become liquid.
In addition, liquidity providers such as traders and market makers are, naturally, seeking to maximize profits. This means that with the current exchange solution, liquidity comes at a cost.
Smart tokens will never face liquidity risk. The participation of traders and market makers in their trading becomes optional, rather than required. In fact, smart tokens can be seen as tokens that have a built-in automatic market maker for themselves, operated by their smart contract.
Deep into the process of designing the smart token concept, we started contemplating the implications of a smart token holding more than a single reserve token. What we discovered is that in such a configuration, the smart token becomes a bridge between its reserve tokens, enabling anyone to use the smart token as an intermediary token for swapping one reserve token for another, using a two-step process in which the smart token is purchased for one reserve, and immediately liquidated to the other.
The ability to hold multiple reserves enables the creation of what we’re calling “token changers” (smart tokens holding two reserves, each with a 50% CRR) and “decentralized token baskets” (smart tokens holding multiple reserves totaling a 100% CRR). However, these exciting use cases deserve their own blog post, so stay tuned for more info on those soon.
The smartest thing about smart tokens is that they can become increasingly smarter over time as new functionality is developed for the Bancor protocol. Additional smart token features that we’ll be writing about soon include Delegated Account Recovery (making it less disastrous to forget your password), and a built-in “Vault”, which cleverly mitigates the potential damage in the case of compromised accounts. These features are all intended to make smart tokens easily usable by anyone as we head towards mainstream adoption. We believe smart tokens can help make the breakthroughs of blockchain technology more approachable and relevant to all. We’d love your thoughts on how smart tokens can keep leveling up.