Bancor, the first decentralized finance protocol to introduce liquidity pools, has come out with a new liquidity solution with the launch of its v3, called Bancor 3.
Bancor 3 went live with a promise to offer protection against impermanent loss to liquidity providers. The new architectural changes promise to bring sustainable on-chain liquidity and make decentralized finance (DeFi) staking simpler for decentralized autonomous organizations (DAOs).
The v3 project has attracted more than 30 projects and tokens — including Polygon’s MATIC, Synthetix Network Token (SNX), Yearn.finance’s YFI, Brave’s Basic Attention Token (BAT), Flexa’s AMP and Enjin Coin (ENJ) — and several DAOs for its new protocol launch.
The single-sided staking was first introduced with Bancor v2 to protect traders against impermanent losses; however, the last version suffered from a high barrier of entry and high gas fees. With v3, Bancor promises full impermanent loss protection and minimal gas fees.
Liquidity is the backbone of the DeFi ecosystem, but many leading protocols have faced a severe crisis in maintaining a long-term liquidity mining strategy. Talking about the key architecture changes and the new liquidity solution, Mark Richardson, product architect at Bancor, told Gist Vile:
“In Bancor 3, the protocol utilizes an improved set of operations that allows the network to better manage its liabilities, resulting in a more cost-efficient method of providing impermanent loss compensation.”
Bancor 3 introduces several new architectural changes and features, including Omnipool, instant impermanent loss protection, auto-compounding rewards, dual rewards and superfluid liquidity. Omnipool is a single virtual vault for token liquidity. Richardson explained that Omnipool can use protocol-earned fees from one pool to compensate a user’s impermanent loss in another pool. This should cut down the transaction fee slippage and ensure efficiency.
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The auto-compound earning mechanism ensures that trading fees and rewards are auto-compounded with zero transaction fees simultaneously used as liquidity inside the pool from day one. This mechanism ensures dual-earning for third-party projects.