Once a disruptor, creating an entirely new market category, Bancor is now playing the catch up game. Due to a number of brilliant marketing decisions by Uniswap – namely giving new and promising ICO tokens free access to the liquidity pools and a generous airdrop to market participants – the hype train has been going their direction, leaving Bancor behind.
Not only did Bancor not give up, but the addition of impermanent loss protection and single-sided exposure have once again shaken up the market. The addition of liquidity mining was also a monumental success – driving Bancor liquidity from $20,000,000 in locked value all the way up to more than $300,000,000 today – just in the span of a quarter.
One overlooked component of Bancor’s ecosystem has been community governance. Stakers of the native BNT token have the opportunity to make big decisions regarding the use of funds by the decentralised exchange – for example which tokens get to benefit from liquidity mining incentives.
And a vote initiated on January 26 has now reached a decision to strategically extend the initial liquidity mining incentive which brought a massive amount of liquidity to the network. Amongst the beneficiaries are the Chainlink, Ethereum, Wrapped BTC, USDT, USDC, and DAI pools – strategically chosen to “steal” liquidity from Bancor’s big competitors.
And as it stands, those pools happen to offer what’s arguably the most attractive combination of high yields and security on the market. Chainlink yields are notoriously low in DeFi competitors, while BNT rewards for Bancor stakers are upwards of 12%. Meanwhile stablecoin yields are nearing 100% – all backed by impermanent loss protection.
And while the proposal seems alluring, there is a downside for small-time players – most of the pools are already working at full capacity, and the only way to open a new slot for a yield farming enthusiast is increasing the amount of staked BNT. This in turn increases interest in the token, driving its price up, and as a result – the yields are getting even higher. Even if the BNT is to be provided, the gas fees are enough to discourage any small investor (at least until ETH 2.0 is running at full capacity).
While this strategy is unlikely to prove sustainable over the long run, the 15-fold increase in liquidity means that its initiation was well worth it. The 30-day extension is only put in place to sustain the impressive numbers, while a more efficient solution is being prepared. Citing Michal Herzyk:
We needed to extend rewards just for 30 days, because we are working on an innovative solution for the overall ecosystem, we hope we will be able to deliver it in the next 30 days, so than, the program will have the be adjusted and changed to the new solution.
Unfortunately, given the fierce competition, Bancor is no longer in a position to announce their plans well in advance, as this puts them in a competitive disadvantage. But based on their previous updates, the community expects nothing short of fascinating innovation.