Startups

Bancor – Eliminating Liquidity Issues With Smart Tokens

Blockchain shows promise, it is being adopted at a rapid speed, still, it is not mainstream. In my opinion, this is because of the difficulty in accessing the technology by common people like us who do not quite understand its technical jargon. But thanks to techs like Bancor, it seems that the scenario is finally changing.

Here’s how.

Bancor – A decentralized financial system

I’d like to reinstate here that for an average man out there, creating, let alone managing his own currency is nothing short of a dream. Even if he manages to do that somehow, he faces demons in the form of liquidity, which is merely a factor of the value of the new currency and its ability or feasibility in being traded for any other cryptocurrency or fiat.

Bancor is ultimately trying to change that.

It is a platform which does not only let people create their own cryptocurrencies, set their value against a base coin, but it also lets them stay worry-free about its liquidity.

As a result of that, in the long run, they are free from requiring any counterparty. Not only the value of their currencies is set to that of the base coin (say, ETH or BTC), but also they are given free reins in hopping back and forth between them.

So, summarily, Bancor provides a system where;

  1. anyone can create a cryptocurrency
  2. link that currency to any desired base coin
  3. trade the currency back and forth.

This is not it, however.

Bancor also allows users to trade their created assets or use them anywhere they want. Translating this to the stock phenomenon that we have, it would mean that you can sell your shares elsewhere regardless of its value and its demand. Simple as that.

A question, of course, arises here.

How Bancor provides the solution for the liquidity problems?

Allow me to explain…

The answer to the question asked is in the main purpose and what I call the engine of the Bancor – the Smart Tokens.

Bancor revolutionizes the cryptocurrency exchange landscape by providing a computational or mathematical solution to the value of a cryptocurrency and that is actually the introduction of smart tokens.

In its simplest words, a smart token is a currency that you create, it is an exchange in itself, and can be a part of the larger network formed by the Bancor.

It works like this:

  1. You create a smart token,
  2. You give it a connector value below or equal to 100%, and
  3. That value determines the exchange value of your smart token.

Before you could ask, let me explain what the connector value is.

It is the value between 0% and 100% that is assigned to the tokens you create. But that value has to be assigned to that of any popular currency, for example, ETH, or BTC. So, if you assign a value of, let’s say, 2% ETH, the final value or the market cap of your coin would be 2x that of the ETH. This is particularly how smart tokens work as their own exchanges.

The mathematical formula for the description above is this:

Value = Balance / Supply x CRR

Where CRR is the Constant Reserve Ratio.

As you can see, any cryptocurrency that has a certain value against a popular coin on the Bancor can be exchanged or traded with that coin and other ones on the network, which means only one thing: No liquidity. Everyone can sell and buy your newly created smart token without worrying about its value.

The architecture of the smart tokens

There are four types of smart tokens comprising the Bancor ecosystem.

1. Token Relays

These are the smart tokens that act as currency exchanges.

2. Token Baskets

A name given to the groups of the smart tokens that you possess or have invested in. They are like ETFs of the stock world.

3. Smart Tokens

The main exchangeable tokens that you’ve created.

4. Token Networks

The tokens that make liquidity a possibility. It acts as a bridge between the currency you’ve come up with and any other currency on the Bancor network. So, if you’ve created, let’s say, HandCoin (such a lousy name, I know), you’d have to first change it to the token of the Bancor network and then exchange them for any other desired currency. This universal token of the Bancor network is called BNT.

By default, the BNT acts as a connector, but it is possible to change it. However, letting it the way it is would bear fruits in the sense that your smart token’s price would shoot up if the BNT sees a rise, which inevitably would be possible if people like you take interest in BNT (duh!).

A huge use case of the Bancor platform

The elimination of the liquidity problem and the freedom of spending your currency elsewhere is what makes Bancor a huge success in the crypto-exchange industry. One of the huge use cases of this platform could be in the crowdfunding. Anyone wishing to launch a crowdfunding campaign could do so without any problem whatsoever as he or she would stay content that his created smart token on the Bancor is as liquid as any successful asset in this world.

Given this, it is obvious that it completely disrupts the current exchange system that we have both for the fiat and the cryptocurrencies. It offers more coverage to every currency created on it and it also never fails to give value to it.

Owing to these features and promises of the Bancor, I personally think that finally, the application of the blockchain and the cryptocurrencies could be possible. We could see anyone from a coffee shop owner to a business enterprise launch their own coins and then set up a crowdfund. The possibilities, my friend, are limitless with Bancor and this is why I simply love it.

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Noor Najam

Contributes guest posts to BlockPublisher with industry analysis & news in the blockchain space. Email: editor.opinions@blockpublisher.com

3 Comments

  1. In its simplest words, a smart token is a currency that you create, it is an exchange in itself, and can be a part of the larger network formed by the Bancor.

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