They are trying to save one of the oldest decentralized finance (DeFi) protocols, Bancor (BNT) with the Carbon Dex.
Bancor lost 30% of its Total Locked Value (TVL) when they suspended Bancor’s impermanent loss protection program in June 2022, The Defiant estimates. To explain, impermanent loss protection ensures that assets in liquidity pools have the same dollar value.
Theoretically, an impermanent loss protection feature rebalances liquidity pools to recover losses, Crypto-University claims. The hope is that impermanent loss protection keeps investors from suffering huge losses if an asset price drops. For example, a Tether (USDT)/Ethereum (ETH) liquidity pool will cover ETH losses if Ethereum’s price drops.
However, Bancor shut down its impermanent loss protection program after the TerraUSD (UST) meltdown in May 2022. To explain, TerraUSD collapsed after it speculators realized it could make promised US dollar payments. The TerraUSD collapse caused many speculators to flee crypto.
One hope for the Carbon Protocol is to increase DeFi yields. Bancor claims most DeFi yields are below US treasury bond yields. For the record, the interest rate on series I Saving Bonds issued between 1 November 2022 and 30 April 2023 was 6.89%.
Can they save Bancor?
The Bancor DAO shut down BNT Distribution in June and began increasing protocol fees to cover deficits and restore reserves, a press release admits.
The next effort to save Bancor is a decentralized protocol they call Carbon. Carbon will add a new on-chain liquidity they call Asymmetric Liquidity to the Bancor Network (BNT).
They claim Carbon governs the buying and selling of assets with separate, user-defined curves. The hope is that Asymmetric Liquidity will give users greater control over trades. Users have more control because each Carbon strategy of on-chain limit orders and range orders. They call these automated flexible trading strategies.
Carbon gives each order in the system a unique bonding curve. The curve defines the order’s shape and price range. They claim users can update order parameters without closing or updating the parameter position.
They claim the strategies and composite orders create on-chain liquidity for token pairs. A routing engine determines the direction and liquidity utilization for trades against the network.
Can Carbon Resist Sandwich Attacks?
Plus, they claim Carbon trading is resistant to sandwich attacks, the most common form of Maximal Extractable Value (MEV). To explain, MEV represents the excess value hackers steal from users in a cryptocurrency network.
In a sandwich attack, a predator adds (sandwiches) trades to other peoples’ trades. Sandwich attacks allow crooks to manipulate asset prices. Ideally, a Sandwich attack lowers the price of the asset so the crook can buy it cheap. Sandwich attacks often attack automated market maker solutions such as Bancor.
Carbon Features
Carbon will add several new trading features to the Bancor Liquidity Network. Bancor is a DeFi trading and staking protocol that offers single-sided liquidity.
Advantages Carbon could give Bancor Network speculators include:
Asymmetric Liquidity: “the ability to create automated trading strategies composed of one or two on-chain limit or range orders for any given token pair, with each order represented by a unique, adjustable bonding curve.”
Asymmetric and Irreversible: “individual user strategies may be composed of independent buy and sell orders which trade in a single direction and are therefore irreversible on execution.”
Concentrated and Adjustable: “order conditions are predefined using specific concentrated ranges, and may be updated without closing and recreating the order.”
Composable: “multi-order strategies automatically shift liquidity between linked orders as they are filled, reducing the cost of manually creating orders.”
Re-usable: “tokens acquired in one order become available for trading in a linked order once markets move into range.”
Adjustable Bonding Curves: Carbon contains a novel mathematical formula that allows users to create many bonding curve shapes. These curves are adjustable online. Carbon has applied for a patent on the formula that creates these curves.
Asymmetric Liquidity Pools: These allow spot trading involving associated token pairs, Limit Orders, Buy Low, Sell High, Average in Order, and Token Distribution.
Carbon Strategies: A variety of strategies including dual range orders, dual limit orders, dual mixed orders, single range orders, and single limit orders.
Carbon Fees
They will finance the Carbon Protocol with flexible fees. Bancor Decentralized Autonomous Organization (DAO) members determine how they will collect and use Carbon Protocol fees.
Currently, they are proposing two Carbon fees; Taker Fees and Maker Fees. They will charge Taker Fees on executed post trades. They will charge Maker Fees on executed strategies.
Carbon is not available yet, but a Carbon Simulator is available on GitHub.
What Value Does the Bancor Network Offer?
It is easy to see why to see why they are developing the Carbon Protocol. The Bancor Network Token’s (BNT) Coin Price fell from $3.27 on 15 December 2021 to 34.94₵ on 20 December 2022.
Hence, Bancor lost most of its value over the past year. On 20December 2022 CoinMarketCap gave Bancor a $56.725 million Market Capitalization, a $56.725 million Fully Diluted Market Cap, a Total Value Locked (TVL) of $78.326 million, and a 24-Hour Market Volume of $4.571 million on 20 December 2022.
Bancor had $4.204 million Centralized Exchange (CEX) Volume, and a Decentralized Exchange (DEX) Volume of $376,623 on 20 December 2022. They base those numbers on a Circulating Supply of 162.357 BNT and a Total Supply of 162.358 BNT.
In contrast, CoinGecko gave Bancor a 345₵ Coin Price, a $55.359 million Market Cap, a $56.682 million Fully Diluted Valuation, a Total Locked Value of $18.732 million, and a 24-Hour Market Volume of $2.275 million on 20 December 2022. They base numbers on a Circulating and Total Supply of 162.357 million.
Bancor was CoinGecko’s 324th ranked cryptocurrency and CoinMarketCap’s 299th Cryptocurrency on 20 December 2022.
I think speculators need to watch Bancor (BNT) because Carbon could offer a better liquidity mining system. However, I still consider Bancor to risky to buy, because there is no evidence the Carbon Protocol works. Hence, I think speculators should wait until Carbon makes money before taking a risk on it.
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