Bancor's Basket of Cryptos (Bancor Review part 1 of 2)
Bancor’s record-setting ICO struck a positive cord with investors, but the company’s concept has left a sour taste for some. In a two-part series, we review this tech startup’s ambitious effort.
When Bancor held its ICO this summer, it was widely received by investors. So hyped up were crypto enthusiasts about the offering that Bancor set a record, raising roughly $153 million.
The draw to the Bancor ICO largely stemmed from the startup’s unique protocol that enables digital tokens to be traded more easily. Through the introduction of so-called smart tokens based on smart contracts, running on the Blockchain, Bancor is laying the groundwork that could help the varying cryptocurrencies being unleashed reach masses.
Those who follow the happenings of the financial industry have likely seen at least one headline a week relating to cryptocurrencies and/or ICOs. Tech startups raising funds by offering their own versions of cryptocurrencies are unleashing their tokens at a dizzying pace. Making heads or tails, of the which, who, and why can be a complicated, daunting process. Those issues, coupled with some of the off putting features of cryptos, such as the volatility associated with them, has led to many of these currencies being ignored or simply overlooked.
Some of these offered tokens have caught on hugely. Think Bitcoin, Ethereum, Litecoin, and Dash, all of which have become household names. For each of these, there are dozens of others that may be just as worthy of attention, but they are often overshadowed by these more popular tokens.
Bancor seeks to bridge this divide, ease the pains of cryptocurrency volatility, and provide more liquidity. The intriguing groundwork Bancor is laying to make this all happen is one of the reasons its ICO managed to rake in the $153 million.
In a two-part series, we’ll go over the craze that led to Bancor’s record-setting ICO. We’ll make not of any subsequent issues, as well as go over how the startups is putting to use the $153 million it raised during its ICO.
Let’s start with how Bancor came to be.
Bancor’s twist to the crypto industry
The hype around Bancor relates to its self-named protocol. Based on its structured, some have likened it to an exchange, however, Bancor does not fancy itself as an exchange. Instead, it promotes itself as providing a protocol that helps anyone create new types of cryptocurrencies.
The startup boasts that its Bancor protocol represents the "first technological solution for the classic problem in economics known as the “Double Coincidence of Wants Problem,” in the domain of asset exchange.” Bancor argues that existing exchanges rely on market makers to provide liquidity, which can create cause liquidity problems. Small cap, custom, and lightly traded currencies, like the WhopperCoin can be negatively affected by traditional exchange models.
Bancorp found that this was an inherent barrier that makes it “nearly impossible” for small-scale currencies to be linked to other popular currencies using a market-determined exchange rate.
Bancor’s answer is to remove that barrier-to-liquidity by employing an asynchronous price-discovery model that comes complete with a means to hold several kinds of cryptocurrencies. The so-called smart tokens can hold various assets, and they can be purchased and sold for the token(s) they hold in reserve.
“In the age of smart contract blockchains, tokens can be automatically managed by immutable code which controls their issuance and behavior. We realized this could mean allowing tokens to hold balances of other tokens (i.e. “reserves”), directly through their smart contracts that could be designed by their creators and managed programmatically. These new technological capabilities warrant rethinking of the possible solutions for converting one currency to another and determining market prices.” - Bancor