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Bancor announces new standard for token creation with instant liquidity using blockchain-based smart contracts
Bancor last week announced the Bancor Protocol, a new standard for token creation that provides cryptocurrencies instant liquidity and automatic price discovery using blockchain-based smart contracts.
While hundreds of cryptocurrencies have emerged in recent years, generating new credit as a function of their utility, many low volume tokens often struggle to achieve liquidity. The Bancor Protocol aims to solve this liquidity challenge faced by new cryptocurrencies by enabling tokens to hold one or more other tokens in a reserve.
According to the official release, Bancor introduces a new relationship between tokens and their reserves, called a Constant Reserve Ratio (CRR), which always remains fixed, above 0% and up to 100%. Bancor-compatible tokens can be purchased with any of their reserve currencies, or any other token which is convertible to their reserve currencies through the network. When a Bancor-compatible token is purchased, it is automatically issued by its smart-contract and the reserve is increased. When it’s sold, it is automatically destroyed as funds are withdrawn from the reserve. The price of a token constantly adjusts to reflect its new supply relative to the reserve currency and the Constant Reserve Ratio. Bancor-compatible tokens do not derive their value from the reserve, rather the reserve serves as a new, trustless mechanism providing liquidity and price discovery without the need to match bids and asks in real-time, as is done in the order books of traditional exchanges.
“We created Bancor with the goal of introducing a new type of standard for cryptocurrencies that would enable token creators, who generate real value, with an instantly viable token,” said Bancor CEO Guy Benartzi. “With the Bancor Protocol, new coins enjoy continuous liquidity, allowing cryptocurrency development to flourish in local communities and on a much broader scale.”
The Bancor Protocol will allow anyone to design new tokens using smart-contracts which implement the reserve system, the release said. Creators will be able to customize their token’s reserve ratio, initiate a crowdsale ICO and issue coins which benefit from instant viability, as outlined in the company’s white paper.
Bancor’s smart-contract protocol will be cross-blockchain, starting with the Ethereum blockchain. By issuing tokens backed by a reserve, a newly created ERC20 token immediately receives a conversion rate between itself and its reserve currency, making it tradeable at any given moment, regardless of the availability of buyers at that particular time. This new method of price discovery does not rely on a second party to trade with, nor on third parties to broker an exchange. Instead, it uses a transparent mathematical formula that resides on a smart-contract to provide a new, asynchronous model for price-discovery that continuously adjusts the price toward an equilibrium between the buy and sell volumes, keeping the reserve ratio constant.
The Bancor Protocol also enables the creation of new categories of cryptocurrencies, such as decentralized token baskets, by setting Bancor-compatible tokens with multiple reserves totaling a 100% Constant Reserve Ratio. As a token can always be exchanged for its reserve, Bancor enables an autonomous decentralized exchange between a token basket’s currencies, which does not require matching of buyers and sellers in order to convert one token to another. Bancor explained that this model has significant advantages, including no extra fees, no dependency on trade volume and lower counterparty risk.
The Bancor Network Token (BANCOR) will be the first currency issued using the Bancor Protocol, and will be introduced to the Ethereum and blockchain communities through a crowdsale launching May 30, 2017. This token will be used as the primary reserve currency in the Bancor ecosystem and will draw its value from the collective network effect of all Bancor-compatible tokens holding it in reserve.
The Bancor Protocol was recently awarded first place at CoinAgenda by a unanimous vote from an experienced panel of expert judges in the blockchain industry.
Bancor also won the International Blockchain Hackathon in Tel Aviv Stock Exchange from a panel of judges from Intel, HSBC, Intesa, Deutsche Bank, KPMG, CTBC, TheFloor.