A quick look at Bancor V3 new features: real-time impermanent loss protection and separate BNT liquidity pool, etc.

Bancor will launch the first phase of V3 in January next year, providing instant full impermanent loss protection without the need for collateral for 100 days. It will also establish a separate BNT pool, allowing BNT stakers to earn rewards from the entire network and enabling direct trading without BNT. Additionally, automatic compounding and dual rewards will be introduced.

By Karen

Last week, a report on impermanent loss in Uniswap V3 showed that 80% of the funds in Uniswap V3 suffer more impermanent loss than trading fee income, and half of LP users' net income is less than that of HODLers. Evidently, effectively mitigating impermanent loss in AMM has become a major challenge that needs to be addressed.

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As the earliest proponent of AMM, Bancor has been continuously optimizing its model design. The V1 version launched in 2017 required all pools to use BNT as the trading pair asset. Taking into account factors such as impermanent loss (IL), the V2.1 version introduced in the second half of last year allowed users to stake single-sided assets and receive 100% impermanent loss protection under certain conditions.

The upcoming V3 version of Bancor will bring more new features, such as the ability to receive 100% impermanent loss protection on the same day of staking, a separate BNT pool (BNT Omnipool), automatic compound rewards, dual rewards, third-party impermanent loss protection, LP token composability, simplification of contracts to reduce gas costs, and the ability to deploy protocols on Layer2.

Specifically, Bancor will launch the V3 version in three stages: Dawn, Sunrise, and Daylight. The first stage is expected to go live in January 2022, with the second and third stages scheduled for February and March next year.

Impermanent Loss Protection: Instant IL Protection + Third-Party Support

Instant 100% protection against impermanent loss is the most crucial feature introduced in Bancor V3. In Bancor V2.1, users could enjoy impermanent loss protection in whitelisted token pools, but the protection ratio within the first 30 days of staking was 0%, increasing to 30% on day 30, and gradually increasing thereafter by 1% daily. It would take staking for 100 days to enjoy 100% impermanent loss protection.

In V2.1, users needed to stake for 100 days to receive full impermanent loss protection, and it was only supported for whitelisted tokens. Bancor V3, however, allows users to get 100% impermanent loss protection on the day of staking, minimizing impermanent loss to the fullest extent.

Additionally, Bancor's current impermanent loss protection first uses fees acquired from the protocol's liquidity to act as the primary defense. If the impermanent loss exceeds the fees, newly minted BNT will cover the loss, setting up impermanent loss protection for whitelisted token pools. In V3, third-party projects can also provide impermanent loss protection for their token liquidity providers, sharing the impermanent loss burden with Bancor, thus supporting more impermanent loss protection pools.

Independent BNT Aggregation Pool: Trading Bypass BNT

In Bancor V2.1, one side of each pool was BNT. In V3, there is a separate BNT aggregation pool called the "BNT Omnipool" for users to stake BNT and earn rewards. BNT holders no longer need to decide on which pool to stake in; instead, they can directly stake in a single pool to earn rewards from the entire network. This feature will allow the protocol to skip BNT in token-to-token trades. This optimization becomes apparent when converting ETH to other ERC-20 tokens.

Furthermore, in the current version, while users could provide single-sided liquidity, when the BNT provided by the protocol on the other side reaches a set limit, users must provide BNT to expand the pool. In V3, there are no deposit limits. Specifically, the concept of trading liquidity and superfluid liquidity will be introduced, where trading liquidity is used for market-making, and superfluid liquidity can be used for various fee strategies like native and other strategies. The scale of trading liquidity is still determined by the DAO, and tokens beyond the trading liquidity can be used for superfluidity strategies, accumulating additional value for stakers.

Reward Upgrades: Automatic Compound Interest + Dual Rewards

Automatic compounding of trading fees and liquidity mining rewards is another significant feature of Bancor V3, as in previous versions, users could only manually add rewards to the pool.

In addition to BNT, Bancor V3's liquidity mining rewards also allow third-party projects to provide rewards in relevant pools. Therefore, liquidity providers can earn trading fees and dual token rewards, all of which can automatically compound.

Other

The composability of LP tokens is also a notable feature of the V3 version, allowing users to earn additional rewards by using LP tokens in other DeFi protocols, or Bancor can automatically earn rewards for users in other DeFi protocols. Additionally, Bancor has significantly simplified V3 contracts, reducing gas costs for trading, storage, and unstaking, and enabling protocol deployment directly on Layer2.

Conclusion

In summary, in terms of impermanent loss protection, Bancor V3 provides instant full protection for whitelisted pools on the day users stake, and allows third-party projects to share impermanent loss, extending this protection mechanism to more pools. On the other hand, the addition of the independent BNT aggregation pool, automatic compounding, and dual rewards may attract more liquidity, helping liquidity providers earn more rewards.

For more information, please refer to Bancor V3's official article.