As we continue to watch the DEX ecosystem flourish, it’s no surprise that many are shipping exciting new features that benefit DeFi power users.
Today we are thrilled to announce Bancor Protocol’s 2nd major version — #BancorV2.
Full specs will be shared leading up to V2's planned release in Q2 2020.
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— Bancor (@Bancor) April 29, 2020
This week, Bancor – a DEX known for tokenized bonding curves – announced plans to optimize their Ethereum-based product with a suite of new features including a new AMM, mitigated slippage and the elimination of impermanent loss.
While the DEX upgrades are not set to ship until some point in Q2 2020, this comes as exciting news in the wider landscape of enhanced passive income opportunities and usage – namely through developments like Uniswap V2 and Katalyst.
What’s to Know?
For anyone who has provided liquidity to Uniswap, you’ve probably experienced impermanent loss resulting from one token in the pool outperforming the other. In many cases, this means that those who provide liquidity actually earn less in trading fees than they would have by simply just by holding the underlying token.
With Bancor V2, this is eliminated thanks to the ability to add liquidity directly with one token – similar to the model we’ve seen with projects like Balancer.
“Bancor V2 eliminates the risk of impermanent loss for any ERC20 token by enabling the creation of AMMs with pegged liquidity reserves. This type of AMM holds the relative value of its reserves constant using prices from Chainlink’s secure and reliable oracles.”
Best exemplified by the sETH/ETH pool, BancorV2 allows users to supply any token of their choosing with no impermanent loss, as opposed to the 50% token, 50% ETH entry point with Uniswap which only mitigates said loses on pools with 1:1 pegs.
“Bancor V2 gives users the option to provide liquidity with 100% exposure to a single ERC20 token. Liquidity providers no longer need to hold a separate reserve token. They can select their exposure to any token in the AMM, from 0–100%.
This is incredibly powerful as Uniswap liquidity has been historically limited in large sums due to the possibility of impermanent loss. Theoretically, this should attract more capital which results in better trades to the end-user.
Outside of this new AMM, Bancor V2 is changing its bonding curves to mitigate slippage and offer better price spreads. This is done by utilizing more pooled capital within a given range of conversion prices – directly allowing LPs to earn fees across more trading pools with less capital.
Lastly, BancorV2 will allow LPs to lend their staked tokens, effectively earning a passive return on top of any trading fees that come through a given market pair. This is a pretty new concept, perhaps best exemplified by Aave and their newly added feature to use Uniswap LP tokens as collateral for crypto loans.
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— Aave (@AaveAave) April 28, 2020
Why Should I Care?
All and all, it’s clear that Bancor is making is a strong push to offer attractive returns to capital providers. With the combination of single token pooling, enhanced curve mechanics, and integrated lending, it will be interesting to see if they can carve out a deeper portion of the vibrant DEX landscape.
With all of these features playing into the evolving Yield Hacking opportunities to DeFi power users, it’s fascinating to see so many different ways to put capital to work in DeFi.
Seeing as the launch of BancorV2 is still a few months out, we’ll be sure to cover their launch and give users a first-hand look at what the new and improved looks like from a trading perspective as soon as we have any visibility.
In the meantime, stay up on all things Bancor via their official Twitter account.
Cooper is the Editor of DeFi Rate. He is an ambassador of Set Protocol and an active contributor to MetaCartel where he seeks to find emerging consumer-facing applications that propel the Ethereum ecosystem. He often works with projects as the Director of Fitzner Blockchain Consulting where he coauthors the weekly publication Token Tuesdays.
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