Roughly nine months after the inception of the Vortex feature, Bancor celebrates hitting a major milestone after burning more than 2 million BNT.
Here is to the next 100+♾ 😉🍻
A short thread about the history of the vortex🧵👇 pic.twitter.com/lgfWd116dB
— glenn (v, 3) (@PrimalGlenn) December 26, 2021
The difference between BNT and vBNT
In contrast to other AMMs, Bancor uses single-sided liquidity pools that all use the protocol’s native BNT token as their counterpart, which has an elastic supply. Users who wish to add project tokens to a liquidity pool thus only need the project token, as the Bancor protocol can automatically mint any amount of BNT if needed.
On the other side, liquidity can also be supplied by BNT holders, which can relieve the protocol from having to mint new tokens. In exchange, they receive vBNT tokens at a 1:1 ratio, which can be used for voting in Bancor DAO’s decentralized governance. This also makes it possible to stake BNT tokens in liquidity, while at the same time using them as collateral for a loan, by selling vBNT temporarily and buying them back in order to unstake BNT.
Instant Impermanent Loss protection
The elastic supply of BNT also makes it possible to protect liquidity providers from the effects of Impermanent Loss. The Impermanent Loss insurance was introduced by Bancor in October 2020, albeit with a few restrictions. Initially, Impermanent Loss insurance started to accrue 30 days after depositing project tokens as liquidity and liquidity providers had to wait 100 days to become fully protected.
These restrictions were now lifted when Bancor v3 was launched last month. Liquidity providers are now protected immediately from Impermanent Loss. When withdrawing their liquidity, they now receive the exact token amount they initially provided.
Burn Day event incoming?
Since the Impermanent Loss insurance mechanic puts BNT stakers at risk instead, Bancor launched the Vortex feature in April 2021. This introduced a mechanic that takes a portion of all trading fees that accrue on the decentralized exchange and uses the proceeds to burn vBNT tokens in order to incentivize BNT holders to stake their tokens.
Initially, this portion (“Burner rate”) was set to 5% and increased to 10% in June. In October, a snapshot vote passed that increased the Burner rate to its maximum of 15%. Most recently, there has been a proposal to implement a Burn Day event, which would set the Burner rate to 100% for a period of 24-hours in order to raise awareness about Bancor’s tokenomics.