Bancor Review for 2022
With the fluid nature of cryptocurrencies, the crypto eco system has developed an outstanding diversity of trading activities — including instant Bitcoin purchases, futures, and dApp token swaps. Although there is still a common misconception in associating the entire field exclusively with Bitcoin (BTC) among the general population, more and more people are interested in discovering altcoins.
Interestingly enough, the very first moment you start exploring the marketplaces, you’ll notice that some of them differ on a fundamental level. That is to say, some types of crypto exchanges operate on the traditional buy-and-sale model while others closely follow the basic crypto principles of decentralized, immutable, and anonymous trading.
The crypto exchange on our today’s menu — Bancor — is a next-gen DeFi protocol rather than what we call the commercial approach in trading cryptocurrencies. For this very reason, we’ll kick things off by explaining the difference between centralized and decentralized cryptocurrency exchanges. Afterwards, we’ll focus our attention on Bancor so you can decide whether its trading model suits your crypto trading habits.
Centralized vs. Decentralized Crypto Exchanges
Centralized Crypto Exchanges
Based on market cap figures, centralized crypto exchanges (CEXs) are the backbone of today’s crypto industry even though they run opposite to the principles of decentralized blockchain technology. In a nutshell, CEXs are digital platforms that facilitate purchases and sales of BTC and a selected number of altcoins in exchange for fiat currency or another cryptocurrency.
Even though the categorization as a centralized exchange covers a broad range of subfields in the crypto industry, it seems that the majority of CEXs tend to adjust the complexity of their services to the skills of an average crypto enthusiast. Thus, we can say that, in general, centralized exchanges operate as regulated financial transmitters that have an intermediary role and full control over the entire transaction flow between you and your trading counterpart. In order to qualify for using their trading services, it’s necessary to undergo a full KYC verification and pay all fees arising from your trade (trading, deposit, withdrawal, and/or transaction fees).
Decentralized Crypto Exchanges
What can we conclude so far?
Even though CEXs deal with transactions of non-physical products, they don’t differ in any other aspect from traditional trading platforms that provide merchandise services. Decentralized exchanges, on the other hand, try to break that cycle of human-controlled trading. They utilize self-executing contracts to trigger the transaction without involving a centralized regulator to act as an intermediary. DEXs allow users to maintain full control over the storage of their funds and don’t require any form of identification from them. On that account, DEXs don’t accept fiat payments and you need to “be fluent in crypto” to navigate these P2P (peer-to-peer) platforms.
Remember that there are several factors that define a fully decentralised crypto exchange including crypto deposits, order matching, and broadcasting, smart-contract settlement, and cross-border availability.
Now let’s see how Bancor —as an AMM (automated market maker) protocol — functions in this decentralized ecosystem.
About the Bancor Network
Bancor is considered the first decentralized liquidity network that allows automatic conversion from one token into another through its native token — the Bancor Network Token (BTN). The token serves as an “embedded converter” that enables an exchange to any supported token directly from the user’s wallet.
Bancor was founded in 2016 by a team of experts under the umbrella of the Bancor Foundation, which is headquartered in Zug, Switzerland and has its own R&D Center in Israel. The development team was led by Guy Benartzi, Galia Benartzi, and Eyal Hertzog.
In 2017, the Bancor team organized an Initial Coin Offering (ICO) where they raised over 153 million USD from over 10,000 interested investors.
The name Bancor was given in memory of John Maynard Keyes who came up with the term Bancor to refer to a supra-national currency in his presentation during the International Trade of Balance at the Bretton Woods conference in 1944.
How Does the Bancor Network Work?
Bancor is an open-source DEX that features an exceptionally user-friendly interface where you can swap tokens seamlessly. It can be accessed either through their official website (https://bancor.network/) or you can download their state-of-the-art, versatile mobile app that is available on both Android and iOS.
The exchange is built on top of EOS and Ethereum blockchains. Its inter-blockchain aggregation allows direct interaction between users’ private wallets and smart contracts and what’s more, open access to over 8,700 trading pairs.
Given the fact that the best-centralized exchanges for altcoins like Binance can list up to 400-500 trading pairs, you’ll certainly wonder how it’s possible for a single DEX to provide such high liquidity. Which brings us to…
Well, Bancor solves the liquidity issue by encouraging crypto traders to contribute to the exchange’s liquidity in exchange for a share of the trading fees. Bancor doesn’t use buyer-and-seller matching. Instead, you can swap smart tokens without a counterparty as long as you find a liquidity pool that has it.
This process is enabled by the BNT token — the native ERC20 token that serves as an intermediary between blockchain and cross-chain liquidity pools. To explain, if you want to exchange some Ether (ETH) for Basic Attention Token (BAT), your trade will be automatically executed in two parts: ETH to BNT and then BNT to BAT. BNT will act as an intermediary for any token supported by the Bancor Network exchange. Note the prices are re-calculated automatically on a regular basis with the Bancor Formula, depending on the balance between a smart token and its connector.
The important thing is that you don’t have to possess BNT to make a trade, but you must have it in case you want to create a new pool or add coins to an already existing one. When you contribute to the exchange’s liquidity, you get a corresponding amount of pool tokens. Then, the received tokens will track the amount of provided liquidity against the entire pool. Eventually, part of that amount will be used for the distribution of trading fee incentives.
The Bancor vortex (vBNT) is a kind of auxiliary token that allows you to stake BNT tokens in any of the existing Bancor pools. You can sell or exchange vBNT with other tokens, or you can use it as leverage for network liquidity in order to earn more incentives. You do need vBNT to access a staking pool on Bancor, a pool that’s already been whitelisted. Moreover, the vBNT token will allow you to vote for Bancor’s governance and leverage vBNT with a token conversion that supports any other EOS or ERC20-compatible tokens.
Bancor Network Fees
The cost-efficiency of a certain exchange is measured in regard to the proportion of trading fees and deposit/withdrawal fees.
The Bancor Network doesn’t incur any trading fees regardless of whether you list or convert tokens on the network, which gives the exchange a highly competitive edge in the industry.
In this context, you should know that on such AMM protocols, there is no difference between the buy and sell price known as a spread. Moreover, even the low cost that arises from the transaction is covered by the protocol, which is non-profit by design.
Earlier in this review, we mentioned that swaps are done directly from users’ wallets so transferring fees aren’t applicable on Bancor since you technically make no deposits or withdrawals when trading on the exchange.
Despite declaring itself a truly decentralized crypto exchange, Bancor has recently enabled fiat payments using a credit card in partnership with Simplex — a third-party payment provider that allows instant crypto purchases.
However, Simplex is an external facility so the free-of-charge policy won’t apply if you want to buy some Ethereum with fiat, for example. Simplex incurs a commission of 3.5% per transaction and a fixed fee of $10 for enabling the purchase, which is transparent pricing for outsourcing.
Bancor Network Security
For the most part, decentralized exchanges are considered a more secure alternative compared to CEXs, which usually come with a built-in crypto wallet and hence, full ownership of your private keys.
DEXs don’t act as custodians of your virtual assets, which means that they don’t keep any record of your transactions and private keys on their servers. Thereby, in case of a cyber attack, hackers won’t be able to trace your capital. Furthermore, DEXs servers aren’t concentrated in one location as is the case with most of the CEXs, which run on their own private servers. This implies that there is a lower risk of downtime and more importantly, no risk of loss caused by a hack attack as any malicious interruption of a single server won’t affect the performance of the rest.
However, Bancor was a victim of a hacker attack in 2018 and even though no users’ funds were compromised in the attack, the exchange suffered a loss of $23.5 million in Ethereum and other less known currencies. The unfortunate event was caused by a security breach of a crypto wallet on Bancor’s network after which, the Bancor team decided to freeze BNT in an attempt to minimize the damage. This led to a series of public criticism, headed by Charlie Lee, the creator of Litecoin, who accused Bancor of not being a fully decentralized exchange.
The Future of Bancor
The Bancor team is all set to expand the scope of its services, starting with the release of Bancor V2 and Bancor V2.1 and the implementation of gasless voting through Snapchat in April 2021. Bancor has announced that the team will work on achieving a few great new features for the protocol:
- Granting access to a greater number of virtual currencies on their protocol by reducing whitelisting barriers;
- Lowering the prices for new token projects that want to join the platform;
- Developing new financial tools to ensure higher LP returns and smooth returns management;
- New analytic and charting tools to respond to specific needs and provide deeper market insights to both crypto-savvy individuals and institutional traders.
Frequently Asked Questions
Does Bancor show the current range of my liquidity pool position?
You can find this data under the Protection tab on your homepage. Go to the right-hand side, where you can also find a countdown timer for the full elimination of temporary loss. Once you get to the liquidity pool positions, you’ll see that each of them comes with a separate coverage based on its time of deposit. Even when it comes to the same trading pairs, there is no correlation between different liquidity positions.
What crypto wallets can I use on Bancor?
Bancor has also launched a software wallet app — featuring both a desktop and mobile app — that enables seamless integration with the protocol. It’s available for iOS, Android, Windows, OSX and Ubuntu operational systems and you can log in with your Gmail, Facebook, or mobile phone number. In the long run, however, it’s better to acquire a hardware wallet as it keeps your funds offline and doesn’t require a connection with your PC after completing the transactions.
A Few Words Before You Go…
The Bancor protocol is noteworthy in many aspects, but a lot of its merits are because it delivers solutions for low liquidity on DEXs. It was the first protocol of its kind to create the space for simple token-to-token swaps by automating liquidity.
The trading platform of Bancor may appear challenging at first, particularly for novices. However, it’s neatly structured and intuitive enough so that you won’t need much time to master it despite the lack of trading experience and tech skills.
You should know that Bancor Network has been subject to criticism by many crypto professionals for not being inherently decentralized. Such claims stem from the corporate-run management of the platform, the exchange’s wallet (even though it doesn’t keep your private keys), and the fact that they froze BNT amid a security breach.
However, if the decentralized approach for trading cryptocurrencies feels like your thing, it won’t be a bad idea to go for a DEX like Bancor that spares no efforts in improving the basic features in the direction of the latest crypto trends.