Bancor (BNT): Smart Tokens, Decentralization and Keynesian Economics
Bancor (BNT) is the ‘smart’ token native to the Bancor decentralized exchange, and can be used for a variety of unique actions including token swapping, token grouping (baskets), and token creation.
Bancor launched in 2017 and raised $140 million via ICO in less than three hours. The project has been lauded and derided in equal measure, and suffered one of the worst hacks of the year in July 2018 when $13.5 million was stolen from the exchange.
Despite negative press from the incident, BNT tokens have fared better than most throughout the bearish trend of the previous few months, and its underlying technology still presents something new and interesting enough to warrant closer examination.
In a rare occurrence in the crypto world, the word Bancor is not just some phonetic mish-mash of sounds designed to stick in the mind like the next Uber or Twitter. The ‘Bancor’ is a concept proposed by British economist John Maynard Keynes as he sought to address the depression of the 1930’s. The Bancor was intended to be a supranational unit of account that was to be rolled out among cooperative nations following World War II, although such plans never came to pass.
The idea would have seen the Bancor used as a universal make-weight, tied to the currency of each nation – with the value of each unit fluctuating depending on its surrounding context. In a booming economy, Bancors would depreciate in value. While in a struggling economy, the Bancor would appreciate in value, thus helping pull the economic health of the nation back in line.
This would have helped nullify the problem of large corporations seeking out the most attractive tax havens, since value would be relative within a given nation. While Bancors could be purchased, they could not be sold, thus counteracting the actions of whales with deep pockets.
The Bancor Network
The Bancor decentralized exchange, and its accompanying smart token seek to carry out a similar, although not identical task to the one instigated by Keynes in the 1940’s.
On the Bancor network, whales have relatively little say in the price of a given token, since the value of the BNT token is determined by a mathematical formula instead of typical market forces.
BNT tokens are weighted according to how much ETH is held in reserve. Every time Bancor is bought, ETH goes into the reserve and BNT increases in value. When BNT is sold, that ETH is swapped out of the reserves, and the corresponding amount of BNT is burned.
Many will be vehemently opposed to such Keynesian ideas, but for the uninvested observer it will be interesting to see how the Bancor experiment plays out in the crypto world.
On the Bancor decentralized exchange, ERC-20 tokens can be traded with each other without the need for any third, or even second party. Due to the ‘smart’ nature of the Bancor token, liquidity is always maintained and tokens can be traded instantly, with lower fees than the typical exchange.
Self-dubbed ‘The Currency for Currencies’, Bancor also enables direct token swaps where two currencies held in the same smart contract can be interchanged automatically, according to rates pre-determined by the smart contract.
The BNT token can also be utilized in other useful ways, including the set up of token baskets. These act like ETF’s and allow a portfolio of tokens to be stored on a single smart token. Token creation utilities are also present on Bancor, with chat-bots available to carry even the most naive user through the token creation process.
When Bancor was hacked in July, $23.5 million was stolen and wallets were frozen in an attempt to halt the theft. Eventually $10 million of that sum was recovered, but the lasting effect was one of confusion – how can wallets be frozen on a decentralized exchange? Furthermore, how can a truly decentralized exchanged get hacked?
To give Bancor its due, in these nascent stages of blockchain and crypto development, the concept of decentralization is still one that’s being worked out. But ultimately, the reputation of the platform took a slight hit following the response to the hack – although the same would have occurred if they had just allowed the whole $23.5 million to be stolen anway.
Bancor (BNT) has actually fared better than many altcoins over the past month. As we come towards the end of August, only 26% losses have been felt by BNT in the last thirty days compared to Ethereum’s 37% losses over the same period.
BNT is looking good for the week leading up to August 22nd, with 3.5% gains over the last seven days. Compare this to Ethereum’s 3.6% losses over the same period, and we see that Bancor is looking fairly healthy for an altcoin in a bear market.
Featured image courtesy of Shutterstock.