How does Bancor disrupt DEX?
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Blue Fox Notes (ID: lanhubiji)
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
Maintain exposure to individual tokensDoes Bancor have a chance to overtake Uniswap?》
20x mobility magnification
About Bancor V2, you can refer to the previous article of Blue Fox Notes "
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（SOURCE：BANCOR）
Mitigation of impermanence loss is very attractive to liquidity providersSo how does Bancor V2 mitigate impermanence loss? Its core is the dynamic pool model, which provides the latest price through the oracle machine, and updates the proportion of the token pool according to the latest price. As shown below:》
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Regarding this aspect, you can refer to the previous article of Blue Fox Notes "
Bancor V2 "impermanent loss" debate
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Bancor V2's competitive tentacles extend to lending protocol
If the provision of liquidity will result in impermanent loss (of course, the so-called impermanent loss is actually a kind of rebalancing in itself), then what is the most extreme solution? It is to provide the liquidity of a single token. In this case, users do not have to worry about the reduction of their tokens, but can also obtain the benefits of providing liquidity.
The first picture above is from Uniswap. If users provide liquidity for the LINK-WETH pool, they need to inject 50% of LINK and 50% of WETH. The second picture is from Bancor. Users provide liquidity for the LINK-BNT pool, which can provide 100% LINK or 100% BNT. In this way, exposure to individual tokens can be maintained. For example, if a user holds LINK, they can provide liquidity for Bancor V2 and earn fees and token income at the same time.
Of course, this is essentially a bit like a crypto lending business, where users lock their tokens in a pool to gain liquidity. As shown in the figure above, users can deposit their LINK into the BNT-LINK liquidity pool to provide liquidity for the pool, so as to obtain the pool's liquidity fee income and additional BNT rewards.
Is this similar to users depositing LINK into Aave or Compound? This means that Bancor V2's competitors are not only DEX (Uniswap, Balancer), but also lending protocols such as Compound and Aave. If users deposit their tokens into the liquidity pool on Bancor V2, they can get higher returns (transaction fees + token rewards), then the user's funds will flow from lending agreements such as Aave or Compound to Bancor V2 liquidity pool. Conversely, if the income of the liquidity pool of Bancor V2 is not as good as that of Aave or Compound, then the funds will also flow in the opposite direction.From this perspective, DEX competition not only occurs between DEXs, but also between DEXs and lending agreements. From the current point of view, which team is better at iteration, better at liquidity mining, better at attracting users' attention, and better at bringing high returns to users, whichever protocol will capture greater benefits. There is a very subtle factor in this is the currency price. Currency prices are closely related to income. Therefore, whichever team is the first to discover sustainable development through liquidity mining and other models, which protocol may have the last laugh.》。
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Liquidity amplification is an important weapon of Bancor V2
According to Bancor's explanation, Bancor V2 has the function of liquidity amplification, which can achieve 20 times of liquidity amplification. Regarding the mechanism of liquidity amplification, you can refer to Blue Fox's previous article "
Bancor V2: Introducing an AMM that reduces slippage
Its liquidity pool is currently in the Beta period, and there is a temporary liquidity pool upper limit. Once the upper limit is reached, new liquidity providers cannot join temporarily. The main purpose of setting a temporary upper limit on liquidity is for safety reasons. If there is a problem, the loss is relatively controllable.
At present, the exchange of about 200ETH (worth $75,000) can be kept within 1% of the slippage. LINK is exchanged for BNT, and the exchange of 6,000 LINK (worth $50,000) is less than 1% slippage. In Uniswap, the slippage reached 19.55% (of course, this is also related to the low liquidity of the token pool itself in Uniswap). Even if LINK trades with ETH or WETH, it is also 6000 LINK, and Bancor's slippage is lower than Uniswap.
Why is it said that "liquidity amplification" is an important weapon of Bancor V2? Because except for a few tokens with good liquidity, the liquidity pool of most tokens is actually not large, including Uniswap, which currently has a total liquidity of about 160 million US dollars on Uniswap, most of which are made by A handful of token pool contributions. There are hundreds of tokens on Uniswap, of which no more than 20 have a liquidity of more than $1 million. Most of the liquidity is contributed by ETH, AMPL, USDC, DAI, and USDT. The liquidity provided by these five tokens occupies Uniswap More than 70% of liquidity. This means that the liquidity of most long-tail tokens has a lot of room for improvement.
And if Bancor V2 successfully achieves a 20-fold increase in liquidity, then this means that the transactions of most long-tail tokens will be more cost-effective on Bancor than on Uniswap. excluding coins (such as AMPL).
If this becomes a reality, it will be very important for traders, and this is an important weapon for Bancor V2 to participate in the DEX battle.
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Can Bancor break the game on DEX
At present, DEX has three chariots, Uniswap, Curve and Balancer. After these two months of rapid development, Uniswap has gradually become the largest speculative trading DEX platform, and the liquidity of some of its tokens is second to none. Balancer has gradually evolved into the largest liquidity mining platform. Various projects such as YFI, MTA, and UMA have implemented their liquidity mining on Balancer and achieved good results. Curve is undoubtedly the largest stablecoin trading platform. At the same time, driven by liquidity mining, Curve's transaction volume has repeatedly broken new highs.
Under user inertia, does Bancor V2 have a chance to achieve a breakthrough? At present, the advantages of Uniswap lie in its low transaction fees and good user experience. But this is not its biggest advantage. Its biggest advantage is that it has become the platform of choice for speculative transactions. Its brand recognition is currently the highest, and its user inertia is good. Most tokens that want to provide DEX transactions will consider Uniswap , especially which new tokens are listed on DEX. Considering the demand for speculation, many people still regard Uniswap as the first choice for DEX transactions. As long as there is a lot of speculation during the bull market, Uniswap will have a great short-term advantage. This is a very big advantage. Finally, tokens that have formed huge liquidity on Uniswap have huge inertia, such as AMPL, whose transaction volume once accounted for half of the country on Uniswap, and these network effects are difficult to migrate. If AMPL's stablecoin experiment is successful, one of the biggest beneficiaries will be Uniswap.
But these advantages are not impregnable advantages. Bancor V2 tries to compete with Uniswap in several aspects. One is the user experience. The user interface of Bancor V2 borrows heavily from the Uniswap interface, which reduces the exploration process of ordinary users, as can be seen in the following figure:
The second is that Bancor V2 is more attractive to liquidity providers. You can use a single token to participate in liquidity without worrying about impermanent losses. You can obtain BNT token income while obtaining liquidity fee income. If its overall income exceeds Uniswap, then liquidity providers will definitely perceive it at a certain point in time and migrate over.
Third, if Bancor V2 can provide lower slippage for trading users, it will also attract some users and gradually form a larger group.
