{"id":219284,"date":"2021-04-05T13:57:52","date_gmt":"2021-04-05T10:57:52","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification\/"},"modified":"2021-04-05T13:57:52","modified_gmt":"2021-04-05T10:57:52","slug":"bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification\/","title":{"rendered":"# Bancor releases no-liquidation lending with Vortex as AMMs continue diversification"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2f044d88512\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2f044d88512\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification\/#Combining_protocol_revenue_and_lending_results_in_complex_tokenomics\" >Combining protocol revenue and lending results in complex tokenomics<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification\/#Liquidity_is_no_longer_an_issue_but_volume_is_trailing_behind\" >Liquidity is no longer an issue, but volume is trailing behind<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Bancor releases no-liquidation lending with Vortex as AMMs continue diversification <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDQvMzRhZGZkNjctZjc4MC00ZWU1LWEyMDctNzc5YmM4N2UzOTM5LmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-5a136f3a>Automated market maker exchange Bancor has rolled out a <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/blog.bancor.network\/vbnt-burning-is-live-cd814c2b07fa?source=collection_home---4------0-----------------------\">new mechanism<\/a> that allows users to increase their capital efficiency while providing liquidity in its pools.<\/p>\n<p>Called Vortex, the solution allows users providing liquidity in BNT, Bancor\u2019s utility token, to borrow funds while continuing to obtain yield from swap fees.<\/p>\n<p>The Vortex mechanism reworks the existing mechanism of vBNT, a special version of the BNT token that entitles users to participate in governance. The voting token is automatically received when staking BNT into a liquidity pool, and it can be defined as Bancor\u2019s pool token.<\/p>\n<p>The Vortex proposal adds functionality to vBNT, creating an infrastructure that allows users to sell the token for the original BNT. Once vBNT is converted, users can exchange it into any other asset.<\/p>\n<p>The vBNT sale mechanism makes Vortex a no-liquidation lending platform, letting liquidity providers receive their future rewards im<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>tely, in a similar manner to Alchemix. Since their principal continues to accrue swap fees, the loan will eventually repay itself.<\/p>\n<p>The \u201cno-liquidation\u201d part of the loan comes from the fact that vBNT and BNT are essentially the same token, and the rise in price of the BNT collateral is very likely to be mirrored by vBNT. BNT staking creates vBNT at a one-to-one ratio, but the price relationship between the two is not straightforward. <\/p>\n<h2><span class=\"ez-toc-section\" id=\"Combining_protocol_revenue_and_lending_results_in_complex_tokenomics\"><\/span>Combining protocol revenue and lending results in complex tokenomics<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The vBNT token\u2019s price is derived from a BNT\/vBNT AMM pool, thus largely being defined by the market. A potential arbitrage mechanism means that vBNT is unlikely to ever be worth more than 1 BNT, as arbitrageurs could simply stake BNT, sell the vBNT and obtain more BNT than they started with. The cycle could be repeated an infinite number of times until the vBNT price returns below 1 BNT.<\/p>\n<p>At the same time, vBNT has no price floor because the arbitrage mechanism cannot work in reverse. As Mark Richardson, the creator of Vortex, explained to Cointelegraph, Bancor uses internal records to define ownership within an AMM pool. This is a significant difference from models like Uniswap\u2019s pool tokens, which are the sole marker of liquidity ownership. The vBNT could be used to redeem a BNT liquidity pool only if that address had already created one.<\/p>\n<p>To guarantee that vBNT maintains some value in the absence of a redemption mechanism, the protocol will be conducting a buyback-and-burn strategy on the token. A governance-defined portion of the protocol\u2019s fee revenue will be diverted to periodically buy and destroy vBNT from the pool with BNT, providing a constant buying pressure.<\/p>\n<p>This has the added result of creating a sink of BNT and vBNT. Since one vBNT unlocks one BNT, destroying vBNT supply creates an imbalance with the tokens contained in AMM pools. A portion of those tokens would thus remain locked in the pools forever, though this should not impact liquidity withdrawal for individual LPs due to the large excess capacity \u2014 a similar mechanic occurs with cold wallets on centralized exchanges.<\/p>\n<p>The vBNT token mechanics have a number of interesting ramifications. In addition to the ability to borrow while continuing to receive yield, liquidity providers are also able to leverage their liquidity to receive more swap fees. The price of vBNT directly affects how leveraged the system can be, as prices close to 1 BNT could support an almost infinite leverage factor. At the same time, as more LPs enter leveraged positions, the price of vBNT is likely to decrease and limit the leverage multiplier. An infinite leverage situation would extract value from the protocol, but Richardson is confident that the market-based pricing mechanism quickly makes this costly and ultimately impractical. <\/p>\n<h2><span class=\"ez-toc-section\" id=\"Liquidity_is_no_longer_an_issue_but_volume_is_trailing_behind\"><\/span>Liquidity is no longer an issue, but volume is trailing behind<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The Bancor protocol has deployed every resource it could to draw liquidity into the protocol. Between the innovations of single-sided liquidity provision and impermanent loss insurance, introduced with V2.1, it has also launched aggressive liquidity mining programs. The Vortex proposal is yet another tool that could draw liquidity in by introducing leverage on AMM pools. <\/p>\n<p>Bancor\u2019s liquidity campaign has been a demonstrable success. With $1.8 billion in total value locked, it broke into the \u201cbillion dollar TVL club\u201d to become the 8th in the decentralized exchange rankings on <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/defillama.com\/protocols\/dexes\">DeFi Llama<\/a>. While it is behind most of its direct competitors like Uniswap or SushiSwap, Bancor has grown much faster as it started the year at just $140 million in TVL.<\/p>\n<p>The growth in liquidity hasn\u2019t automatically resulted in more volume, however. Though Bancor is in the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/duneanalytics.com\/hagaetc\/dex-metrics\">top-5<\/a> by volume on Ethereum at $430 million per week, Uniswap dominates the market and attracts almost 17 times as much volume despite only having slightly more than twice the TVL. In Richardson\u2019s view, the Bancor team may have had misguided expectations in its pursuit of liquidity:<\/p>\n<blockquote><p>\u201cThere was this assumption, I would say \u2014 and we might not have even been aware that it was an assumption \u2014 that if the TVL gets high enough, it will just attract traders [&#8230;] And if everyone&#8217;s using aggregators, then that&#8217;s really good for us because we just have to offer the best product at the lowest rates and traders will just use us.\u201d<\/p><\/blockquote>\n<p>The reality turned out to be less idealistic than expected, as the team found out. \u201cIt turns out no one uses aggregators and traders hardly ever are using the pools with the best rates,\u201d Richardson added. \u201cThey just do whatever they&#8217;re going to do.\u201d\u00a0Nate Hindman, head of growth at Bancor, had his own view of why Uniswap is so dominant:<\/p>\n<blockquote><p>\u201cI think a big part of that has been this sort of \u2018Uniswap gems\u2019 movement that was a DeFi summer thing, where there&#8217;s all these new tokens that are launching pools on Uniswap. So Uniswap is the only place to get these \u2018gems.\u2019\u201d<\/p><\/blockquote>\n<p>Hindman\u2019s assessment seems to be in line with Uniswap\u2019s volume data. According to its <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/info.uniswap.org\/pairs\">statistics<\/a>, the volume distribution is heavily skewed toward smaller tokens. Pairs between Ether, Bitcoin and stablecoins take about 25% of the total volume, while the rest of the list is populated largely by low-capitalization tokens that are hard to access on other platforms.<\/p>\n<p>As Hindman revealed, capturing the \u201clong tail of tokens\u201d will be Bancor\u2019s next major objective. One potential proposal for that is the Origin Pool, which allows creating \u201csynthetic\u201d pools paired with ETH that is seamlessly replaced with BNT by the protocol. This would solve a long-standing onboarding friction for Bancor, as projects wishing to get listed needed to hold BNT in addition to their own token.<\/p>\n<p>After the Uniswap V3 announcement and its heavy focus on swap efficiency \u2014 partially at the expense of liquidity pool automation \u2014 it became clear that AMM projects are starting to diversify into different niches. With SushiSwap\u2019s focus on additional features like margin trading, Balancer\u2019s push for composability, and Bancor\u2019s <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roach focusing on the LP and the BNT token, the AMM space is becoming more and more varied.<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"defi_newsletter\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/bancor-releases-no-liquidation-lending-with-vortex-as-amms-continue-diversification\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Bancor releases no-liquidation lending with Vortex as AMMs continue diversification &#8221; Automated market maker exchange Bancor has rolled out a new mechanism that allows users to increase their capital efficiency while providing liquidity in its pools. Called Vortex, the solution allows users providing liquidity in BNT, Bancor\u2019s utility token, to borrow funds while continuing&#8230;<\/p>\n","protected":false},"author":1,"featured_media":219285,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDQvMzRhZGZkNjctZjc4MC00ZWU1LWEyMDctNzc5YmM4N2UzOTM5LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[75914,74877,74868,74891,77595,4965],"class_list":["post-219284","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bancor","tag-decentralized-exchange","tag-defi","tag-ethereum","tag-lending","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/219284","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=219284"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/219284\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/219285"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=219284"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=219284"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=219284"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}