When Bancor successfully raised $150 million in its ICO last week, it drew a lot of criticism and questions. The critics of this ICO questioned the value that it offered to cryptocurrency ecosystem, and some of them even went on to the extent of calling its ICO success “insane.” However, now 8 months later things are starting to change. It’s looking as if Bancor has found its role in the cryptocurrency market. What’s that role? Well, it’s the role of a liquidity provider for less-known coins.
This unique role is helping Bancor win adoption. Now more than 35 coins are available for trading on the network, and more than 100 are going to be integrated with it soon. The token exchange volume has also spiked significantly, from $3 million per week in November last year to $37 million per week as of now, company’s co-founder Galia Benartzi told CoinDesk. Is this merely because of hype? Or is there really something valuable being done by this project? Let’s figure out.
The Background: What is Bancor, and how did it come into being?
Bancor project had been started with the mission of making it easier for people to launch their own coins. The project aimed to achieve that by making it possible for people to convert any particular token on its platform with its BNT token, without the requirement of any other counterparty. While on traditional exchanges you would need to sell your coins to someone else for some other coins, the Bancor network allows you to exchange your desired coins with its BNT token without the need of a buyer.
The network asks token projects to stake a certain amount of their coins in the network, and in turn purchase a certain amount of BNT coins. Both these things need to be done before a token becomes available for trade on the network. The larger the stake of any particular token on Bancor, the more liquid that coin will be.
Critics of this Tel Aviv based project argue that Etherum also provides the value that Bancor is suggesting to provide – a medium of exchange between other coins, that is. Therefore, the project doesn’t offer any Unique Value Proposition.
Does it? Well, right now it seems to do so.
Bancor’s value proposition: Providing liquidity for less known coins
Bancor’s USP of not requiring any counterparties to exchange the coins has made it a valuable liquidity provider for less known coins. The majority of coins listed on this network have thin markets, which poses a problem for their liquidity. Now with Bancor those coins have got at least one particular spot where their people can liquidate them. This can make the life easier for those tokens.
However, there’re also some coins being traded on the network whose stakes have been set up by unknown people. DragonChain, Kik and MakerDAO have confirmed that none of their team members have set up their stakes on Bancor network. Those stakes might’ve been created by someone else, probably by someone who is invested in these tokens. But regardless of who set them up, it increases the liquidity for those coins and makes Bancor more useful.