Developers created the Bancor blockchain to help provide liquidity for token swaps. It does this by providing economic incentives (money) to users who lock up their crypto in pools. The incentives come in the form of fees paid by traders who buy and sell the locked-up tokens.
All of this happens automatically via smart contracts, without any financial institution managing the system. Cross-chain conversion is what’s known as an automated market maker (AMM), a cornerstone of the decentralized finance (DeFi) ecosystem. AMMs like Bancor aim to make more niche altcoins that have smaller market caps more liquid by making it lucrative for users to sustain pools of tokens, and allowing for the swaps to take place without relying on a large exchange.
Bancor has one feature other DeFi platforms do not – interoperability. Bancor works across both the EOS and Ethereum blockchains, whereas most DeFi protocols only work on Ethereum or another, similar smart contract platform.
Having launched in 2017 when DeFi was still new, Bancor is one of the more established AMMs. Other types of cryptocurrencies and platforms that leverage more than one crypto or blockchain were less common back then.
Here in this guide to crypto, we’ll explore how the Bancor cryptocurrency works.
History of the Bancor Network Token (BNT) Crypto
In 2017, the Bancor project raised $153 million in a token sale, managed by Bprotocol Foundation, a Swiss non-profit organization. Participants of the token sale received half the tokens, while the other half went to the founders of the project, Galia and Guy Benartzi. Silicon Valley venture capitalist Tim Draper is also an investor in the project.
How Does BNT Work?
Bancor automates its service by incentivizing users to deposit crypto into pools. A pool has two components – a token trading pair and a reserve of the BNT crypto.
Users deposit coins into a pool and receive new pool tokens in exchange. These pool tokens allow the user to get back their original funds they’ve locked away in the protocol.
BNT crypto serves as an intermediary between the trades of each token. In other words, the first token converts to BNT, and then BNT is converted to the second token. Because the process happens through a smart contract, some people refer to BNT as a “smart token.”
These automated features of the network may appeal to some traders as a security feature, since the crypto market is still largely unregulated.
Bancor also allows users to lock in one token at a time as opposed to a pair. Other AMMs sometimes require users to lock up pairs of tokens in certain proportions to each other. In a Bancor liquidity pool, users have the option to deposit ETH or DAI, for example. Some alternatives to Bancor would require a deposit of both ETH and DAI.
It’s worth noting that users also have to deposit BNT into the Bancor pool of their choice.
Using liquidity pools and the BNT token in this manner differentiates Bancor from some other decentralized applications, which require each trade order to match with another order. Instead of having to wait for a buyer or seller, Bancor users can access liquidity right away, thanks to the BNT smart token.
Developers overhauled the platform in 2020 to make it more user-friendly.
💡 Recommended: What Is a Liquidity Pool?
The Use of Price Oracles
In order to access accurate pricing information for the coins locked into the protocol, Bancor V2 uses a solution called an “oracle.” Oracles send real-time price information from an external source into an existing blockchain.
With this price data, the pools on Bancor can automatically adjust token proportions in alignment with changes in price. Liquidity providers can then withdraw tokens of the same value they originally deposited.
BNT Coin Price
At the time of writing, BNT was the #104 cryptocurrency by market cap and trading at $4.29 per BNT. This represents an approximately 150% increase year-to-date, as the token began 2021 trading at around $1.30.
The all-time high for the BNT price was about $9.30, reached in January 2018. The all-time low was about $0.14, reached in March 2020. That kind of volatility could make a difficult coin to HODL long-term.
How to Use BNT
You can use BNT tokens to exchange one type of crypto for another without needing a third-party. This may help traders who hold low liquidity tokens that don’t have a lot of trading volume on large exchanges.
BNT holders can also earn interest by locking up their tokens in the protocol. Those who stake tokens receive a portion of the trading fees incurred by traders using the platform.
BNT Coin Storage
BNT holders can keep their coin in any crypto wallet that supports ERC-20 tokens. ERC-20 is a type of standard for tokens that run on the Ethereum network. Many utility tokens fall under this category. Popular Ethereum wallets like MyEtherWallet support storage of ERC-20 tokens like BNT.
Traders might also hold their BNT tokens on an exchanged-hosted wallet. After buying coins on an exchange, the exchange will automatically hold it in a wallet on behalf of the investor. This method of storage is only as secure as the exchange itself, and is generally not advised for large amounts of funds held over the long-term.
Recommended: Cold Wallet vs Hot Wallet: Which to Choose?
How to Buy BNT Cryptocurrency
Buying Bancor network token is similar to buying other digital assets. Doing so involves a few simple steps.
• Step 1: First, choose an exchange that supports BNT trading.
• Step 2: Sign up for an account on the chosen exchange.
• Step 3: Fund your account. Make sure the exchange supports a trading pair of the currency you deposit. For example, if the exchange only supports BTC/BNT, you will have to deposit bitcoin. If it only supports USD/BNT, you will have to deposit U.S. dollars, and so on.
• Step 4: Place a buy order for BNT. Doing so could work differently depending on the exchange. Beginner-friendly exchanges allow users to simply place an order for a certain amount of BNT and have it instantly executed at the current market price. Other exchanges require users to select an existing ask (sell) order from the order books, and buy at that price, or create a new buy order at a price of their choosing.
• Step 5: Optionally, users can then move their BNT off of an exchange, into their own crypto wallet.
• Step 6: As with all assets, traders must keep track of their transactions so that they can declare the value of their crypto holdings at tax time.
BNT can also be acquired directly through the Bancor smart contract. Users can convert any supported ERC-20 token on Bancor’s web app.
The Takeaway
BNT is a smart token that facilitates decentralized trading through an automated market maker by functioning as a reserve currency. It may be a way for some investors to bet on its technology, or to build a diversified portfolio of cryptocurrency.
Photo credit: iStock/gradyreese
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