ICO Pre-Analysis: Bancor Protocol
A reader requested we look into the Bancor Protcol and related upcoming ICO, which is going to be based on Ethereum, as more and more new projects are. Ethereum, for what it’s worth, recently shot up over around $200 in value. This is no small feat for a coin which has experienced some serious problems, resulting in a major fork, early on. Nevertheless, they weathered the storm, and now projects like Bancor, Aragon, and others have attached their sails to those of Ethereum.
Bancor Protocol introduces the “smart token.” The essence of the smart token predicates on the idea that it does not actually need to be on the blockchain in order to become liquid. It is composed of units of another token or Ether which can then be used rather than having to trade tokens.
When smart tokens are purchased (in any of their reserve currencies) the payment for the purchase is added to the reserve balance, and based on the calculated price, new smart tokens are issued to the buyer. Due to the calculation above, a purchase of a smart token with a less than 100% CRR will cause its price to increase, since both the reserve balance and the supply are increasing, while the latter is multiplied by a fraction.
So Bancor is more of a new way of transacting and holding potentially volatile assets, rather than a typical token with a purpose, or platform with a token. We will withhold judgement on the ICO itself until they’ve released more details on the economics of the situation there, but we wanted to give an overview of Bancor as we understand it currently:
- Ethereum-based, so backed by lots of bullishness around the financial and financial technology sectors.
- Novel idea re: “smart tokens,” could find utility not currently in plain sight, a great innovation will probably see some adoption.
- A con to this is, of course, that smart tokens themselves get usurped into some bigger platform, like Ethereum itself.
- Whitepaper lists several use cases, and more can be seen in the future, regarding micropayments and price-adjusting tokens.
- Also has novel method of price discovery for tokens.
- Platform will serve small and large actors in the cryptocurrency realm, as well as the traditional financial realm both through them and directly.
Ambitious projects like this deserve a lot of attention, so we will be doing our research for the main article while waiting for Bancor themselves to make public the details of their upcoming token sale. What we do know is that novel technology is not always the best indicator of a thing’s value in the cryptocurrency and token market – and this is partly because good technology can simply be integrated by competing platforms, sometimes with relative ease.