With New AMM Model and No BNT Printing, Bancor Protocol Recovery Ramps Up

After a vulnerability was uncovered in Bancor in mid-June, the Bancor DAO voted to pause distribution of its protocol token, BNT, which suspended one of its core features, Impermanent Loss Protection. Since then, Bancor has been working on its recovery plan including key changes to the protocol’s tokenomics, BNT burning and a revamp of its automated market-maker (AMM) model.

These changes are aimed at rebuilding the protocol’s health as well as restoring its market share and token reserves – which reached over $2B in 2021. With the ongoing recovery now full steam ahead, Bancor is a key DeFi protocol to watch.

The Mechanisms in place to promote recovery of the Bancor protocol

1. Burning 10% of the BNT Supply

One of the leading mechanisms that recently passed the Bancor DAO vote is a proposal to burn one million BNT tokens that will be collected in Bancor v.3. On September 25th, Bancor DAO introduced a proposal for the one-time burn to destroy BNT tokens collected as fees on the protocol. On September 28th, the proposal was successfully voted in with 97.96% of the voters voting for the proposal. 

A separate proposal seeks to burn around 21.9 million BNT (~$10.3 million), an equivalent of 10% of total circulating BNT tokens. 

This proposal would also migrate liquidity from Bancor’s previous version (v2.1) to reduce the protocol’s current deficit, incurred from the June vulnerability.

2. The vBNT burn schedule

To help rebalance the token reserves on the protocol, the DAO also approved proposals to increase the rate at which fees are used to buy BNT and burn the vBNT governance token. As of July 20th, 90% of the total fees on Bancor v.3 are being used to buy BNT, while 100% of the fees on Bancor v. 2.1 are being used to buy BNT and burn vBNT.

Image showing the number of vBNT burnt on Bancor v2.1 (Source: Bancor) 

3. Liquidity & Fee Optimizations 

Almanak, a revenue optimization & risk management platform for DeFi & Gaming, has proposed in Bancor governance regular fee and liquidity recommendations.

Almanak is proposing to optimize the protocol through agent-based simulations, in order to help the protocol reduce its deficit and generate more revenue. See details in the proposal.

4. Introducing a new Automated Market Maker (AMM)

While the BNT and vBNT burn schedules aim to help the greater recovery effort of Bancor, the protocol also announced its plans to introduce a new AMM model. The new model will be announced following a patent filing, which is also aimed at restoring reserves and positioning the Bancor protocol for long-term sustainability.  

Conclusion

Despite the challenges that Bancor has faced over the past few months, the mechanisms in place could help the protocol see a stronger, better, and healthier liquidity model. Burn rate schedules for BNT and vBNT could help to naturally restore its reserves while the new AMM model, once announced, could help Bancor regain market share and continue on its mission to reinvent DeFi liquidity and trading.