Talk to Nate Hindman from Bancor Team, know more about Bancor v2

AMA Q&A Part

Q1: According to LinkedIn, you joined the Bancor Team in January 2018. Prior to this, you had been engaged in marketing and sales related work for many years. What attracted you to join the Bancor team? How have the members of the Bancor team changed over the last 3 years?

Nate Hindman:

I studied economics and started my career as a journalist in the U.S. covering new financial technologies. Afterwards, I decided to learn some programming, launched and worked in a couple mobile Internet startups.

Q2: Bancor was actually the pioneer of the AMM model, and it attracted a lot of followers. However, over the past year or so, the market share has been gradually overtaken by other project teams, such as Uniswap. As a team member who witnessed the change, what do you think led to the change? What opportunities did the Bancor team fail to seize during the competition?

Nate Hindman:

As you probably know, Liquidity is the King in AMM-based DEX protocols. The more tokens locked in the protocol, the cheaper the swaps, and the more trade volume (and fees) generated.

Q3: Bancor raised a record $153 million in 2017, with half the BNT in circulation. In August, ParaFi Capital invested in Bancor through BNT tokens. What were the main USES of the $153 million raised? Why did it restart a new round of financing in August? What is the exact amount?

Nate Hindman:

The funds raised by the Bancor Protocol Foundation in 2017 continue to be used as grants to the core developer team and to numerous teams around the globe to develop the protocol. If you are interested in building on Bancor Protocol, we encourage you to contact us. The easiest way to get in touch is through our Telegram or Bancor’s WeChat.

Q4: In July, Bancor proposed a solution to AMM’s impermanent loss, but after three months of inaction, it suddenly came up with a new solution, one that had nothing to do with the previous version. Why did this change happen?

Nate Hindman:

Bancor piloted a dynamic weighting system earlier this year that utilized oracles in order to mitigate impermanent loss risk. The strategy was quickly adopted by several newer AMM protocols (including DODO and CoFix). However, we soon found (and have since seen other developers discover) that adjusting weights based on a price feed actually increases the risk of IL in certain market conditions, due to arbitrageurs moving faster than any price feed can update the pool.

Q5: What are the advantages of the current Bancor V2 protocol over other protocols in terms of solving the impermanent loss? How is it going? What are the potential risks for liquidity providers? Can you give me some example?

Nate Hindman:

To our knowledge, Bancor v2.1 is the only true solution to impermanent loss. As mentioned above, other solutions we’ve seen can actually expose you to more impermanent loss in certain market conditions.

Q6: An important aspect of the success of a protocol is the value capture of native token. Compared with the value capture of other DEX protocols, what are the advantages of Bancor V2 token in value capture?

Nate Hindman:

V2.1 turns BNT into a Cash Flow Token, since the protocol now generates revenue off BNT it co-invests alongside LPs. Fees from these co-investments are effectively buybacks which benefit all BNT holders. In a way, we’ve figured out a way to generate value accrual to BNT without siphoning money from LPs. Something other AMM solutions are struggling to do with their own protocol tokens.

Q7: In June, the BancorNetwork V0.6 contract was found to be vulnerable. In 2018, Bancor’s contract breach led to substantial capital losses. What does the Bancor team think about smart contract security? What actions are currently being taken to address vulnerability related issues?

Nate Hindman:

We’ve greatly expanded both our internal security team and our budget for regular audits. Bancor v2 has undergone 4 seperate audits, including audits by Consensys Due Diligence, Certik and Peckshield, as well as by a leading independent auditor. You can find those audits in the security section of our docs. In addition, we have supported third-party integrations with smart contract insurance providers like Nexus Mutual, as well as an ongoing public bug bounty to identify such issues.

Q8: Community governance is very important to a decentralized protocol. What does Bancor plan look like on the road to community governance? How to expand the community?How to achieve deep user involvement in project governance?

Nate Hindman

Bancor formally launched its on-chain governance portal in September and since then we have seen a large amount of engagement by the community with numerous Bancor Improvement Proposals being discussed and voted on via https://gov.bancor.network/

Q9: Some time ago, the YFI community proposed to invest some of the value captured in tokens into the future growth of the community, rather than simply destroy or buy back. How does Bancor think about investing in the community?

Nate Hindman:

Yes, we are actively exploring a community treasury funded via protocol revenue, through which governance participants can vote on funding grants and other activities.

Q10: In the next two years, what goals do Bancor want to achieve in terms of team building, project development, community governance, algorithm research, market size, etc.?

Nate Hindman:

Bancor has a thrilling year ahead of it, but the most immediate item on Bancor’s roadmap is to:
1) expand the current caps on pools to allow for far more liquidity to enter the system; and
2) launch Bancor’s liquidity mining, which will distribute BNT staking rewards to qualifying liquidity pools on the network.

Questions from Chinese Community:

Q1:Will you corporate with Nexus Mutual, do some marketing events like Shiled Mining?

Nate:We currently have an integration with Nexus Mutual — you can take out smart contract insurance on your current stakes. You also think about our existing solution as “mining” protection — the longer you stay in the pool, the more you are protected against impermanent, until 100 days when you are fully protected thereafter.

Q2:What if current coverage could not cover loss?

Nate: it could, but this is offset by the fact that fees are always being burned for BNT. When fees collected from protocol BNT are greater than the cost of impermanent loss protection, the protocol profits.

Q3: Bancor V2 is now behind its competitors in user numbers and transaction volume. How can Bancor attract more users in the future, like some new incentive mechanism?

Nate:Protocol incentives will help, and we will do this with BNT liquidity mining. We also believe the value of our impermanent loss protection & single-asset exposure is something very unique and will generate a lot of liquidity on the network.

Q4: AMM has been criticized for requiring a lot of liquidity to reach the same slide point as order book based exchanges. Can AMM be combined with order book based exchanges? What does Bancor V2 do?

Nate: AMMs may require more liquidity than order books but the key innovation is ANYONE can provide that liquidity. Order books can’t compete with that and it’s why AMM-based decentralized exchanges are beating order book-based DEXs by a lot.

Q5:Since Bancor v2.1 don’t use amplification (v2.0) to lower slippage, what is the different approach to reach capital efficiency? Do you have any schedule?

Nate: We are working on ways to add liquidity amplification to certain pairs on Bancor. It is easier to stablecoin pairs.

Q6: Could Bancor add pair permissionless like uniswap in the future? When?

Nate: Bancor is already permissionless. It has been permissionless since 2017. Anyone can create a pair. Just go to bancor.network -> swap -> “create a pool”.

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