Bancor (BNT) suspends its protection against impermanent loss in the face of an unprecedented situation

Bancor temporarily suspends its protection against impermanent loss

Given market conditions, Banking decided to temporarily stop its functionality of impermanent loss protection (IPL) :

Bancor is a decentralized finance protocol (DeFi), whose added value lies precisely in this IPL. L’impermanent lossor impermanent loss, is effectively a constraint in the liquidity pools of assets whose prices evolve independently.

To keep it short, it may be that if we put A’s and B’s together, in a pool of liquidity, we get back our investment with a different value than if we had kept them separately in the portfolio. This comes from the fact that the pool is rebalancing in order to keep the same ratio between the two assets despite the backup.

This is why Bancor’s IPL allows financial compensation for this impermanent loss. Indeed, if the latter was not covered by the interest earned, the protocol would compensate it by distributing from its BNT token. Thus, we would not lose money in dollar value.

However, the great willingness of the market has allowed some players to accumulate a large number of BNT. As Bancor points out, their massive sale amplifies the phenomenon ofimpermanent lossalways generating more BNT and thus progressing a vicious circle. The platform evokes two entities, which amplify the phenomenon:

“These costs have been amplified by the recent insolvency of two large centralized entities that were the main beneficiaries of BNT liquidity mining rewards as [fournisseurs de liquidité] long-standing in Bancor V2.1. »

If any of these entities is most definitely Celsiuswe cannot determine at this time whether the second is Three Arrows Capital or not.

👉 To go further – Discover our tutorial to buy your first cryptocurrencies

What are the risks of this decision?

By temporarily disabling the ILP, Bancor specifies that if funds are withdrawn during this period, there will be no compensation in BNT. Thus, the platform initially hopes that these centralized players will stop the systematic sale of tokens.

However, this decision is a double-edged sword, as it can also lose user trust to protocol. But a third possible scenario would be even more damaging to the platform, as Matthias explains, one of our speakers on our private group, the Grille-Pain, in one of his daily posts:

“The last case is the following and it eventually leads to the end of the protocol: Bancor reactivates the ILP under pressure from users and Celsius takes the opportunity to leave the platform and the users too. »

Indeed, such a purpose could lead to insolvency as well as loss of control of BNT emission. Inflation would then be so great that its price would collapse even more violently than it has already experienced.

In its message, Bancor also informs that an unknown entity opened a large short position in parallel with the massive outflow of capital, which prompted the developers to make their decision. The price of BNT elsewhere lost more than 67% of its value between June 10 and 18:

BNT Awards

While Bancor capitalized up to 2.42 billion in Total Locked Value (TVL) in May 2021, this capital are ten times lower, one year later. Additionally, its flagship feature, now on hiatus, showed its limits in a strong corrective market. Thus, the future of the protocol is uncertain, as well as that of several players in the ecosystem.

👉 Also in the news – Solend Protocol (SLND) is crippled by the position of a whale

Source: Bancor, Trading View, Defi Llama

Newsletter 🍞

Get a crypto news recap every Sunday 👌 And that’s it.

What you need to know about affiliate links. This page presents assets, products or services relating to investments. Some links in this article are affiliated. This means that if you buy a product or register on a site from this article, our partner pays us a commission. This allows us to continue to offer you original and useful content. There is no impact on you and you can even get a bonus using our privileges.

Investments in cryptocurrencies are risky. Cryptoast is not responsible for the quality of the products or services presented on this page and could not be held responsible, directly or indirectly, for any damage or additional loss following the use of a good or service highlighted in this article. Investments related to crypto-assets are risky in nature, readers should do their own research before taking any action and only invest within the limits of their financial capabilities. This article does not constitute investment advice.

About the Author : Vincent Mayor


I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the bet to put everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
All articles by Vincent Maire.

Leave a Comment