【Dapp Pocket】Bancor solves 3 major pain points for automated market makers and introduces liquidity mining!

2020/12/9

Dear DeFi enthusiasts,

This week, the DeFi automated market maker (AMM) pioneer Bancor has announced numerous developments over the past month, with its Total Value Locked (TVL) growing to $95M! Let's discuss the upgrades made to Bancor V2 and V2.1, as well as its BNT liquidity mining program.

Other headlines include the official launch of Aave V2 with the introduction of collateral trading; Visa partnering with Circle to issue credit cards supporting USDC payments next year; and what collaborations can we expect in the future from Keep3r and Chainlink after their partnership?

Advertisement - Continue scrolling for more content

This week's insights feature Circle's Jeremy Allaire criticizing the digital currency regulatory bill under review in the U.S.; Aave's Marc Zeller discovering counterfeit AAVE on Google Play; and ETH developer Eric Conner surprisingly suggesting everyone to exit ETH staking?

Table of Contents

1. Our Perspective

Bancor Solves 3 Major Pain Points of Automated Market Makers and Introduces Liquidity Mining!

Automated Market Maker (AMM) Pioneer Bancor

For many friends who only recently joined the DeFi community, Bancor may not be as familiar as Uniswap. However, it is actually the first automated market maker (AMM) on Ethereum, launched as early as January 2017, and completed a $150 million fundraising through its BNT token ICO.

What Innovations Does Bancor V2 Bring?

As the creator of AMM, they are well aware of the inherent pain points of AMM: Impermanent Loss (IL), high Price Slippage, and the inability to provide one-sided liquidity, Bancor V2 proposes solutions to these issues. Additionally, they have launched BNT liquidity mining!

Reducing Impermanent Loss (IL)

Traditional AMMs use the token ratio in the pool to determine the coin price, which leads to arbitrage opportunities when the market price fluctuates. The profits from arbitrage are the impermanent losses suffered by AMM liquidity providers (LPs). Bancor V2 integrates Chainlink oracles, allowing the pool to adjust its fund weights immediately based on market prices, eliminating arbitrage opportunities and almost eradicating the root cause of IL.

Allowing One-Sided Liquidity Provision

For those who have provided liquidity in AMMs, they know that if they want to deposit ETH into an ETH/BNT pool, they actually have to split the ETH into these two tokens and deposit them according to the pool weights, potentially resulting in LPs having to reduce their ETH holdings by half. In Bancor V2, they allow users to provide one-sided liquidity through a "flexible weight mechanism." In simple terms, in traditional AMMs, if a pool has a 50/50 token weighting, it will always be 50/50. However, when an LP adds a large amount of liquidity to one side of the Bancor V2 pool, the pool will automatically increase the weight to avoid affecting the token exchange rate within the pool. For example, if the pool originally had an equal amount of BNT and ETH with a 50/50 weighting, and an LP adds more ETH liquidity, the pool balance will readjust to 50/50+y. Each BNT pool will have two different LP tokens depending on the liquidity provided.

Reducing Trade Slippage

This flexible weight mechanism not only adjusts when LPs add liquidity but also rebalances weights when traders adjust fund ratios within the pool, making V2's AMM pricing model smoother and reducing slippage issues for large trades.

Bancor V2.1 Introduces Liquidity Mining

The Bancor governance community has agreed to distribute its governance token BNT to users providing liquidity as a reward. They initially opened 8 pools, offering 200,000 BNT weekly. The governance community will vote on two tokens each week, and those pools will also receive BNT rewards. The latest vote results are YFI and REN! By staking LP tokens, users can earn rewards multiplied by up to 2 times.

Conclusion: Bancor and the Future Development of AMMs

We believe that for an AMM to develop soundly in the long term, it must have excellent slippage control, convenient liquidity provision methods, and mechanisms to fundamentally reduce IL. Unlike some other AMMs that simply reward LPs with liquidity mining incentives, Bancor has made almost every improvement from V2 to V2.1 in these directions. Although the IL control mechanism will directly reduce arbitrage trades and indirectly reduce transaction fees, Bancor's APR seems promising at the moment. In the long run, if Bancor V2 succeeds, it will make the entire DEX ecosystem healthier.

2. Highlights of the Week

✨ Headlines of the Week

Bancor's Super November: V2.1, Liquidity Mining, and Integration with Zapper

Decentralized exchange Bancor has achieved many milestones in the past month, including allowing one-sided liquidity provision, hedging against impermanent loss, launching BNT liquidity mining, and integrating with Zapper and DeBank. These advancements have increased its TVL from 15M to 85M in the past month.

Aave V2 Officially Launched with "Collateral Swap" Feature

DeFi lending platform Aave has officially launched V2. V2 features "collateral swap/trade" functionality, allowing users to trade their collateral assets to avoid liquidation crises caused by continuous asset devaluation. There is also a "composite flash loan" feature, where developers can lend multiple assets in a single flash loan transaction, providing users with higher liquidity at once.

What is Keep3r? After Yearn, What Future Collaborations with Chainlink?

Following Yearn's integration with much of the DeFi landscape last week, Keep3r also announced a collaboration with Chainlink this week. Keep3r is a decentralized job outsourcing network that allows startups to post jobs and have third parties execute smart contract calls. AC stated that Keep3r aims to serve small startups, while Chainlink is designed for large enterprises. The collaboration allows startups of all sizes to access services. Specific collaboration details include: Chainlink's node operators will help take on many jobs from Keep3r, and current Keep3r operators also have the opportunity to become Chainlink node operators.

Visa Partners with Circle to Issue Credit Cards Supporting USDC Payments Next Year

Payment giant Visa announced a partnership with USDC issuer Circle to jointly offer services for 60 million merchants and users to transact using digital currencies. Visa is expected to launch credit cards in 2021 that can be used for daily transactions and settle with USDC.

Nexus Mutual Launches New Custody Cover Service

Long-standing DeFi insurance protocol Nexus Mutual has introduced a new insurance service called "Custody Cover." This insurance guarantees compensation if users' custodial wallet providers suffer a loss of more than 10% of deposits due to a hack or if withdrawals are blocked for more than 90 days, marking DeFi's foray into CeFi. Currently, users of six custodians can purchase coverage.

3. Insights from the Industry Experts

Circle CEO Jeremy Allaire: Stablecoin Legislation Passing Would Be a Big Step for US Digital Currency Progress

Aave CMO Marc Zeller: AAVE Did Not Launch an App!

ETH Developer Eric Conner: Hey, if you want to exit ETH staking, I'd be happy to help!

4. Data Indicators

This week's data is collected from 12/1 to 12/7. TVL (Total Value Locked) indicates how many assets are stored on the platform; IPY (Interest Per Year) is the current lent funds * annual interest rate, representing the platform's annual interest income. Data source: DeFi Pulse. (Unit: million USD)

Author Information

Raizel / YouTuber "Brain Brother Chill Blockchain" promoting Bitcoin and DeFi
Thomas / DeFi enthusiast working in chip design in Boston
Anderson / Founder of Dapp Pocket, DeFi deposits > bank deposits

DEFI DEVELOPMENT