Quick Overview of Bancor V3 Features: Instant Full Impermanent Loss Protection and Independent BNT Aggregation Pool, etc.
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Quick Overview of Bancor V3 Features: Instant Full Impermanent Loss Protection and Independent BNT Aggregation Pool, etc.
Bancor will launch Phase 1 of V3 in January next year, offering instant and full impermanent loss protection (no 100-day staking required), and will also establish a separate BNT liquidity pool.
Navigating Web3 tides with focused insightsAuthor: Karen, former editor at ChainNews
Last week, a report on impermanent loss in Uniswap V3 revealed that 80% of its liquidity pools suffer more impermanent loss than fee earnings, and up to half of LP users achieve lower net returns than simple HODLers. Clearly, effectively mitigating impermanent loss in AMMs has become an urgent challenge.
As the original proposer of the AMM model, Bancor has continuously optimized its design. The V1 version launched in 2017 required all pools to use BNT as one side of trading pairs. After considering factors such as impermanent loss (IL), the V2.1 version released last year allows users to deposit single-sided assets and receive up to 100% impermanent loss protection under certain conditions.
Bancor’s upcoming V3 upgrade will introduce many new features, including immediate 100% impermanent loss protection upon staking, a dedicated BNT Omnipool, auto-compounding rewards, dual rewards, third-party impermanent loss protection, composable LP tokens, simplified contracts to reduce gas costs, and the ability to deploy the protocol on Layer 2.
Specifically, Bancor will roll out V3 in three phases: Dawn (Dawn), Sunrise (Sunrise), and Daylight (Daylight). The first phase is expected to launch in January 2022, with the second and third phases rolling out in February and March of next year.
Impermanent Loss Protection: Protocol-Level Instant IL Protection + Third-Party Support
Instant 100% impermanent loss protection is the most critical feature introduced in Bancor V3. In Bancor V2.1, users enjoy impermanent loss protection only in whitelisted token pools, but the protection starts at 0% within the first 30 days of staking, reaches 30% on day 30, and increases by 1% daily thereafter, reaching full 100% protection only after 100 days of staking.
In other words, under V2.1, users must stake for 100 days to receive full impermanent loss protection, and only whitelisted tokens are supported. Bancor V3, however, grants users 100% impermanent loss protection immediately upon staking, minimizing impermanent loss to the greatest extent possible.
Moreover, Bancor's current impermanent loss protection first uses fees earned from protocol-owned liquidity as the first line of defense. If losses exceed accumulated fees, newly minted BNT is used to cover the gap, which is why there is a whitelist for protected pools. In V3, third-party projects can also provide impermanent loss protection for their token liquidity providers, allowing project teams and Bancor to share this burden and enabling support for more protected pools.
Dedicated BNT Omnipool: Trading Without Routing Through BNT
In Bancor V2.1, one side of every pool consists of BNT. In V3, there will be a standalone BNT Omnipool where users can stake BNT and earn rewards. BNT holders no longer need to choose which pool to stake in—they can simply deposit into this single pool and earn yield across the entire network. This functionality will later enable the protocol to facilitate direct token-to-token trades without routing through BNT, significantly improving efficiency, especially when swapping ETH for other ERC-20 tokens.
On another note, while users could previously provide single-sided liquidity, once the BNT supplied by the protocol on the other side reached a predefined cap, users had to supply additional BNT to expand the pool. In V3, there are no deposit limits. Specifically, the concepts of "trading liquidity" and "superfluid liquidity" will be introduced. Trading liquidity is used for market making, while superfluid liquidity can be utilized for native or other fee strategies. The size of trading liquidity remains governed by the DAO; any tokens exceeding this amount can participate in superfluid liquidity strategies, generating additional value for stakers.
Rewards Upgrade: Auto-Compounding + Dual Rewards
Auto-compounding of trading fees and liquidity mining rewards is another major feature of Bancor V3. In previous versions, users had to manually re-invest their rewards back into pools.
Additionally, beyond BNT, Bancor V3 allows third-party projects to offer rewards in relevant pools. As a result, liquidity providers can earn trading fees plus dual token incentives, and all these rewards can compound automatically.
Others
LP token composability is another significant feature in V3, allowing users to leverage their LP tokens to generate additional yields in other DeFi protocols—or Bancor may automatically do so on behalf of users. Furthermore, Bancor has greatly simplified its V3 contracts, reducing gas costs for transactions, storage, and unstaking, and enabling direct deployment of the protocol on Layer 2.
Summary
Overall, in terms of impermanent loss protection, Bancor V3 maximizes coverage by offering immediate, full protection on day one for whitelisted pools via the protocol itself, while also enabling third-party projects to share the impermanent loss burden—extending protection to more pools than ever before.
On the other hand, the new standalone BNT Omnipool, auto-compounding, and dual rewards are likely to attract more liquidity and help liquidity providers earn higher returns.
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