Bancor Launches V3 AMM In Bid to Regain Dominance

Bancor was the first-ever automated market maker (AMM) and holds a special place in crypto lore after attracting $153M in 2017 in what was then the largest initial coin offering (ICO).

After falling off the radar as it lost market share to rival AMMs like Uniswap and Sushiswap, the protocol is back and launching Bancor 3 with key upgrades.

The most important new feature may be something called Omnipool which promises to cut gas costs for traders in half.

Bancor shipped an upgrade in October 2020 which allowed users to provide liquidity in the form of single tokens, as opposed to the pairs required by AMMs like Uniswap.

While this alleviated impermanent loss (IL), the design requires pairing all assets with BNT, Bancor’s native token. This means trades need to be routed through two pairs. For example, a swap from ETH to WBTC would go from ETH to BNT, and then from BNT to WBTC, doubling gas costs.

Omnipool

Omnipool may change this.

“With Omnipool, there is now no extra ‘hop’ in Bancor trades. We’ve effectively virtualized the intermediate BNT hop,” Nate Hindman, head of growth at Bancor, told The Defiant. “This reduces gas costs and enables Bancor to attract more trading fees with the same level of liquidity, making the protocol more capital efficient.”

Hindman believes that new users haven’t been using Bancor partially because of the high gas costs.

Bancor 3 also offers what it’s billing as Instant Impermanent Loss protection — the protocol’s previous upgrade made users wait 100 days for full IL protection. Now, they’ll get it instantly.

The upgrade also includes what Bancor calls Infinity Pools. Before Bancor 3, the protocol put caps on the amount users could deposit into liquidity pools, constraining total value locked (TVL). Now, the protocol is lifting those deposit limits.

Falling Behind

Though it shipped the first AMM, Bancor has lost ground to competitors like Uniswap which regularly facilitates over $1B in daily trade volume — Bancor has only breached $100M in daily trading volume twice in November, according to a Dune Analytics query made by the team.

Bancor has hovered around 2% of all DEX trading volume for the past six months, according to a query written by Frederik Haga, the co-founder of Dune Analytics.

With Bancor 3, the protocol is attempting to get back to its innovative roots.

“The re-architecture of the protocol has opened up a world of possibilities, some of which we aren’t sharing until Phase II (Sunrise) is closer to release,” Hindman said. “Actually the most groundbreaking stuff is going to come in that phase.”

All of the upgrades released as part of Bancor 3 are part of the upgrade’s first phase, called Dawn, Hindman told The Defiant. The code for Dawn will be open-sourced in the coming weeks with a target release date for early 2022, according to the press release provided to The Defiant.

Bancor 3.1 called Sunrise, and 3.2, called Daylight, are yet to come.