You've probably heard about the Bancor ICO, which managed to raise $153 million in 2.5 hours.
- But why did so many people invest so much money in this project?
- What is the value they saw?
1. It serves a real need
So what is Bancor? It is a technology that democratises the issuance of digital currency. That means people like you and me, and every other non-technical person out there, will be able to create their own currency and use it freely.
Who would want to issue their own currency? Lots of people want to do it, and have been doing it already. But Bancor will allow even the non-technical to do it. I'll do another piece with use cases and link it here.
2. It captures the long tail of the market
Remember before YouTube? Who was publishing video? The TV stations, right?. They had writers, anchors, producers, videographers, editors, etc. Those were, and still are, the big players. You can compare them to Bitcoin, Ethereum, Ripple, etc. in the cryptocurrency world.
But when YouTube came to the scene, everyone suddenly was able to create and publish video content to the world. Everybody could start a channel. And nowadays everybody can even broadcast live to a global audience. These are the small players.
The long tail means that the small players' cumulative views are orders of magnitude higher than the big players'.
So the market is in the long tail. Bancor by being a platform aims to capture that long tail of digital currencies.
3. Their technological solution is genius
If so many people create their own currency, it's safe to say that the vast majority will be really small tokens, used in restricted communities.
That poses a new problem...
Many of the tokens will have zero liquidity at a particular time, which means that if only a few people use coin X, and I have coin X and want to sell it, I might not find anybody to buy it. This disincentivizes token creation and lowers a token's value.
Would you buy a token that you would get stuck with?
So the Bancor team figured out a way to liquidate a token without the need to find a counterparty to buy it. It is done through a smart contract on the Ethereum network, that holds a reserve at all times. That reserve is in a different currency.
When you want to buy token X with ETH you send the ETH to the smart contract, which keeps it in reserve and issues you the X token. When you want to sell token X for ETH, you send it to that same smart contract, which liquidates it and returns ETH to you.
Based on these buy & sell dynamics, the price of X would rise or fall similarly to the way it would behave on an open exchange.
So bancor solved the liquidity problem for the small tokens in the long tail. Even foreseeing this problem is genius, let alone solving it.
4. Great premise for a network effect
There have been a lot of voices criticising Bancor's use of a new token, the BNT, as the reserve for tokens created on their platform. "Why not just use ETH?" people are asking.
They could have used ETH to serve the same function. But so could every other Dapp on Ethereum. So why don't they?
Because the use of their currency brings value to their project and investors. And you need happy investors to fuel the project.
The more smart tokens that use BNT tokens in reserve (which will be the default setting), the more valuable and more in-demand the BNT token becomes. As the value of BNT rises, so too does the value of every smart token holding BNT in reserve. This is called the network effect.
5. They have the money to fund the development
Believing a project will fail because it has some flaws, is really short sighted. Of course it has flaws, it's pioneering tech!
But don't forget the team has more than ETH 300K to fund the project. That is a lot of leeway.
6. Some of the best and most clearly written Solidity code
Nick Johnson - Core developer for the Ethereum Foundation had this to say about an article criticising Bancor:
"While I disagree with a lot of what's written there, the one point that struck me as legitimately unfair was the criticism of the quality of the code. I don't know what code they were reading, but the Bancor code I audited is some of the best and most clearly written Solidity code I've seen."
7. Good branding
A lot of dapps are coming out... And most of them have really bad design, bad copy and bad overall branding. Bancor is one of the few that have it together.
Good name, based on a real historic concept. Professional design language that creates trust. Clear articulation of the technology, that makes it easy to understand, despite its high level of complexity.
8. Experienced team
The team behind Bancor is built of serial consumer Internet technology entrepreneurs with decades of experience working together, raising venture capital, growing companies to Internet scale, bringing products to market, reaching critical mass, mergers and acquisitions, and even a few wind downs.
Some of their companies included Contact Networks (one of the first social networks), MetaCafe (the largest user-generated video sharing site before YouTube with over 50 million active users), Mytopia (the first developer of multiplayer games for PDAs and Smartphones), Particle Code (a cross-platform development environment for mobile and web applications) and AppCoin (a pioneer in digital community currencies with over a million real item transactions logged.)