The "Liquidity Barrier”
Liquidity is the lifeblood of an effective currency. New tokens uniformly suffer from a barrier to liquidity, leaving holders stuck and discouraging adoption to begin with. Today, tokens must battle to be listed in exchanges and achieve relevant trade volumes to match buyers and sellers through a classic bid/ask order book. These exchanges are distributed throughout the world with various market depths and restrictions, and are vulnerable to security and regulatory risks. In order to demonstrate potential future demand, teams may devote disproportionate resources to “hyping” a token, which can lead to spikes and crashes when subsequent development and adoption timelines don't match up. Liquidity is the number one challenge for a newly issued token and must be planned for in advance.
Bancor’s Solution
The Bancor Protocol™ enables continuous liquidity for tokens on smart contract blockchains such as Ethereum. These Smart Tokens™ are convertible for any token in the network, at a predictably calculated rate, directly on-chain using popular Web3 wallets. Users can always buy and sell any token in the Bancor Network™ with no dependency on exchanges, market makers or trade volume. Conversions do not require matching two parties to exchange, nor depositing tokens with another party. This asynchronous conversion protocol allows even lightly traded tokens to be easily convertible, so token creators can focus on their product.
How it Works
Smart Tokens™ reference Connector tokens in their contracts, and can be bought with, or sold for these Connectors. A Smart Token’s™ supply is dynamic to demand, meaning that new tokens are created when purchased with a Connector, and destroyed when sold for a Connector. Connector balances are used to formulaically determine prices by maintaining a constant ratio between the Smart Token’s™ supply and the Connector balance. This ratio is a Connector’s “Weight”. By maintaining the creator-configured Connector Weight, a Smart Token’s™ price rises when it is purchased and falls when it is sold, reflecting real demand. The greater the Weight of a Connector, the less sensitive the price is to changes in supply. Read more about how it works on Bancor White Paper.
Check out the tokens that are now available in the Bancor Web App and join one of Bancor’s or partners’ bounty programs if you’d like to contribute to improving the product and ecosystem.
Planning a token sale? Have an existing token? Get in touch with us to learn more about how the Bancor Protocol solves the liquidity challenge for all through an autonomous, decentralized network.
Email [email protected] to get started.
Liquidity now!
The Bancor team