The Bancor Protocol is a proposed standard for the creation of Smart Tokens, a new category of intrinsically tradable cryptocurrencies that know how to provide their own liquidity and price discovery, without relying on an exchange. Starting on the Ethereum public blockchain, Bancor Protocol enables built-in price discovery and an automatic liquidity mechanism for Smart Tokens, without the need for matching two parties in an exchange.
Crypto Insider reached out to Bancor CEO Guy Benartzi to find out more.
“Bancor protocol create a new generation of cryptocurrencies called Smart tokens,” Benartzi explained to Crypto Insider. “These new tokens know to provide their own liquidity and price discovery, without relying on an exchange. This is critical as the liquidity barrier is one of the biggest challenges facing the growth of cryptocurrencies and Bancor has solved this challenge.”
The Bancor whitepaper explains that the Bancor protocol is named in honor of the Keynesian proposal to introduce a supranational reserve currency called Bancor to systematize international currency conversion after WWII. Bancor smart tokens hold one or more other tokens in reserve, and enable any party to instantly purchase or liquidate the smart token in exchange for one of its reserve tokens, directly through the smart token’s contract. The whitepaper illustrates the concept of smart tokens, which can be elusive at first, with use cases and price calculations.
The Bprotocol Foundation, established in Switzerland in 2017 to promote the development and adoption of the Bancor protocol, is supported by LocalCoin Ltd., a company currently working full time on developing software for the Bancor protocol. Galia Benartzi, co-founder of Bancor and responsible for business development at LocalCoin, recently presented Bancor at Launch, gave a TEDx Talk, and wrote an opinion piece for CoinDesk.
Bancor recently announced the addition of mathematician Meni Rosenfeld to its advisory board. Rosenfeld founded Israel’s first Bitcoin exchange service in 2011 while researching mathematical aspects of blockchain systems, and became chairman of the Israeli Bitcoin Association in 2013. Bancor also announced an upcoming partnership with TokenCard, a smart contract powered debit card, which will allow smart tokens to be spent with TokenCards.
“Bancor protocol provides a solution to the Coincidence of Wants Problem in economics, which states that it is very difficult to match people with opposite wants in real-time,” Benartzi told Crypto Insider. “Think about the challenges involved in barter and the difficulty finding the perfect coincidence of opposite needs. To address this we invented money, but currency trading (including stocks) still works like barter, you need to find an opposite match. With the invention of smart contracts, decentralized immutable software code that can hold programmable money, Bancor was able to solve the same problem for asset exchange that money solved for barter”
“With the invention of the Smart token, we no longer need to rely on speculators to provide the liquidity for currencies,” continued Benartzi. “Smart tokens have a built-in market-maker that ensures they are always liquid and can always be traded for other assets. Using a type of smart token called a “token changer”, Bancor has created a new type of decentralized exchange, that does not suffer from the liquidity barrier of current projects.”
A Bancor crowdfunding round, whose terms are expected to be announced soon, will start on May 30, 2017.
Image from Wikimedia Commons.