Bancor is a new open-sourced protocol that enables the creation of a new type of cryptocurrency called a smart token, which can hold and trade other cryptocurrencies in reserve – a method of transferring between any cryptocurrency. Designed to bring full liquidity to cryptocurrencies, Bancor aims to bring blockchain and cryptocurrencies into the global financial system and everyday use.
Bernard Liaetar, co-architect of the Euro, remarked: “Bancor creates liquidity and allows for automatic price discovery without requiring a counterparty, which is a breakthrough”.
According to the whitepaper, the Bancor protocol enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains. The ‘smart tokens’ automate holding other tokens in reserve, and enable the instant purchase or liquidation of the smart token in exchange for one of its reserve tokens, directly through the smart token’s contract, at a continuously calculated price, according to a formula which balances buy and sell volumes. This makes the token an instant exchange medium for any other token.
Using the current system, small-scale currencies are not on par with larger ones as they lack the volume of trading to achieve market-liquidity. In order for currency on a scale such as local community currencies or loyalty points to be linked to other currencies, there is a need for a method to provide a medium of exchange that allows for the difference in scale. The Bancor solution uses the automation and immutability of smart contracts on a blockchain to enable this.
As stated in its whitepaper, the Bancor protocol ‘standardizes smart tokens, enabling asynchronous price discovery and continuous liquidity for cryptocurrencies using constant ratios of reserve tokens held through smart contracts, acting as automated market makers. The Bancor protocol enables the creation of hierarchical monetary systems with no liquidity risk. The BNT will be used to establish the first decentralized interconnected currency exchange system which does not rely on matching bid and ask orders, thus remaining liquid irrespective of its trading volume. This system proposes the first technological solution for the Coincidence of Wants Problem in asset exchange, enabling the long tail of user-generated currencies to emerge.’
Bancor is running in live beta app.bancor.network with over 3000 users, where it is distributing real, tradable, ERC20 tokens for its bounty program. On June 12 at 10:00 GMT, Bancor will be launching its crowdsale and creating the Bancor Network Token, a fully functional smart token which will serve as the default reserve token for every other smart token on the Bancor network, making every currency on the network inter-tradable.