Liquidity Increases by 60% Daily! Veteran Market Maker Bancor Launches Mining Program, Token Inflation Raises Concerns
The veteran Automated Market Maker (AMM) platform Bancor has announced the launch of a liquidity mining program in hopes of attracting new funds to provide liquidity and incentivize users to become long-term contributors, rather than hot money in and out.
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Unilateral Market Mining for a Year and a Half
According to the official announcement, liquidity rewards will be provided in 8 pools in the first round of proposals, with rewards divided based on market capitalization. The large market value pools include:
ETH, WBTC, USDT, USDC, DAI, LINK
Medium market value pools include:
The large market value pools release 100,000 to 200,000 BNT tokens per week, while the medium market value pools release 10,000 to 20,000 BNT. Bancor claims a minimum annual return of 20% and a maximum of 3000%. Other key points are as follows:
- Regardless of when the proposal is approved, BNT rewards will start counting from November 16th.
- Two new token pools will be added each week, with mining rewards lasting for 12 weeks per pool, and the same token can be proposed repeatedly.
- The liquidity mining plan is expected to last for a year and a half (72 weeks).
- In each pool, liquidity providers on the BNT side will receive 70% of the rewards, while the token pair (ERC20) will receive 30%.
Users should note that only liquidity provided to the above-mentioned pools with a blue shield whitelist is eligible for the reward program.
Reward Multiplication Mechanism
To mitigate the selling pressure that liquidity mining may bring to BNT, Bancor has introduced a Bonus Rewards Multiplier (BRM) mechanism. Liquidity providers can claim rewards weekly and transfer them to their wallets; at this point, the reward multiplier resets to 1x. If rewards are not claimed or reinvested in the pool, the multiplier accumulates, allowing for compounding effects.
The reward mechanism is as follows:
- Starts at 1x and increases by 0.25x per week.
- Maximum multiplier is 2x.
- For example, if one originally earns 100 BNT per week, after 4 weeks, they can claim 100 * 4 weeks * 2x = 800 BNT at once.
As Bancor released this announcement, it coincided with the top decentralized exchange Uniswap suspending liquidity mining. Since the rise of AMM automated market makers this year, impermanent loss has become a challenging issue. Bancor emphasizes that this mining plan allows users to experience their unique advantages, including "unilateral markets" and "impermanent loss insurance."
While Bancor has found ways to extend the lock-up period of rewards, it also means that more BNT may be issued to pay for the multiplied rewards. In the worst-case scenario, an additional 28 million BNT may be issued, representing nearly a 40% inflation rate, as the current total supply of BNT is 75.48 million. So far, platform liquidity has increased from $20 million to $32.5 million, and BNT has risen by 11.25%.