The Bancor Protocol (BNT)

What is The Bancor Protocol

The Bancor protocol enables built-in price discovery and a liquidity mechanism for tokens on smart-contract blockchains. These “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 smart-contract, at a continuously calculated price, according to a formula which balances buy and sell volumes.

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 World War.

The Bancor Protocol Ecosystem

Different parties can take take on different roles in the Bancor network ecosystem. The primary forms of participation are as follows:

A Solution to the Coincidence of Wants Problem

The coincidence-of-wants problem , in the current exchange model, creates a situation where assets are required to be traded at a certain minimal volume, or face a liquidity risk . The cause for this limitation is that the chance of finding a second party with opposite wants to exchange with, correlates to the asset’s trading activity level. Smart tokens solve this problem through the use of reserve tokens which embed market depth directly into the smart token’s contract.

Smart tokens are a technological solution to the coincidence-of-wants problem for asset exchange, rather than a labor-based solution as used in traditional (or decentralized) exchanges. The current laborers in asset exchange are the professional market-makers who provide liquidity and facilitate collaborative price discovery. In the domains of information exchange and trade, the technologies of writing and currency replaced labor-intensive solutions (speaking and barter) with technological ones, creating mass efficiencies for societies and unlocking collaboration on a global and intergenerational level. The Bancor protocol proposes to similarly advance the domain of asset exchange by replacing the need for labor, with a technological solution to the existing coincidence-of-wants problem.