While there are plenty of blockchain projects focused on dApps and the conversion of tokens, one that stands out is the Bancor Network and its BNT token.

Indeed, this project is one of the most well known in the cryptocurrency space. It has also had its fair share of ups and downs. From a blockbuster ICO to legal challenges. From widespread partnerships to a widely publicized hack.

However, is it something you should consider?

In this Bancor Network Token review, I will give you everything that you need to know. I will also take a look at the long term prospects and adoption potential of BNT.

What is the Bancor Network?

The Bancor Network has created an elegant solution in its decentralized network which allows traders to swap ERC-20 ad EOS tokens seamlessly across nearly 10,000 token pairs, and all with a single click.

What is Bancor Network
Image via Bancor Website

Bancor allows users to instantly convert between two tokens without needing a counterparty to the trade. This is all done right within the Bancor wallet, and this model has allowed Bancor to provide traders with automatic liquidity for trades.

More importantly, it allows the network to remain completely decentralized, and much of the functionality of the network is thanks to the innovative use of the BNT token to facilitate trades.

So, this all sounds really intriguing but in order to understand the real heft behind Bancor, we have to go over its relatively eventful history.

Bancor Network Background

The Bancor Network is overseen by the Bancor Foundation, which is based in Zug, Switzerland. The company also operates a Research & Development center in Tel Aviv, Israel, which gives the company a foothold in the rising blockchain hub in Zug as well as the rising Middle Eastern technology center of Tel Aviv.

The company was founded in 2016 by a group is Israelis with a background in Silicon Valley start-ups, as well as experience in scaling startups and blockchain technologies. It was named after the international trade balancing currency initially envisioned by John Maynard Keynes.

Bancor Network Token Sale
Token Sale Page for the Bancor Network Token

The Bancor Network is perhaps most well-known for holding one of the most successful ICOs ever. In 2017 it set a world record by raising over $153 million in Ethereum tokens in less than 3 hours. The world-record has since been topped by several projects (including SIRIN Labs and Tezos), but remains an impressive beginning for the project.

Since the ICO the Bancor Network has seen over $1.5 billion in token conversions take place on its platform, all facilitated by the BNT token. In addition, there are over 100 liquidity providers serving as Bancor nodes, and these nodes provide over $13 million in liquidity by staking BNT tokens to power token conversions.

Cross-chain Conversion

Bancor has made the user experience of exchanging tokens quite easily. The intuitive wallet app is slick and allows for the quick and easy conversion of tokens similar to what users get when using Coinbase Pro or other custodial wallets.

While the user interface makes it look simple, behind the scenes the Bancor wallet is transacting directly with BNT smart contracts on the blockchain, all while allowing users to retain full control of their private keys and funds at all times.

Bancor Cross Chain
Cross Chain Token Swap on Bancor

The obvious advantage of Bancor’s wallet is that it not only allows for the exchange of tokens, but it does so without the need for a counterparty. This makes it the first network to allow cross-chain conversions without requiring users to give up their private keys in the process of the exchange.

Bancor began their cross-chain integration efforts with EOS and Ethereum, however, they have plans to add other bridges over time, eventually enabling them to function as a multi-chain liquidity solution that can provide instant token conversions for many of the popular blockchains such as Bitcoin, Tron, and Ripple.

Range of Conversions

Already Bancor gives traders and investors an amazing range of conversion options, with feeless, instant trades available for Ethereum and EOS tokens across more than 9,700 token pairs right through the Bancor wallet.

To make a comparison, one of the most popular exchanges Binance has roughly 175 tokens available, but just 570 trading pairs.

Automatic Liquidity

One of the greatest benefits of Bancor and the BNT token is that they bring liquidity to cryptocurrency markets, and without liquidity, currencies are apt to wither and die. After all, who wants to own a currency that can’t be easily bought and sold.

Of course, the top cryptocurrencies like Ethereum, Ripple, Litecoin, and others in the top 20 have enough trading volume on their own, but the Bancor Protocol brings a unique solution that delivers automatic decentralized liquidity to any token.

Bancor Liquidity
Instant & Affordable Liquidity on Bancor. Image via Bancor Blog

Through the Bancor Protocol any token at all, even those privately created, can get instant liquidity, no matter what size trade volume the token enjoys. This is incredibly important functionality when it comes to facilitating the adoption of decentralized applications.

Since many dApps have their own tokens, and now those tokens are able to be converted with other cryptocurrencies instantly and with a single click right within a user’s wallet.

How Bancor Protocol Works

At this point, you might be wondering if it’s really necessary to have another decentralized exchange. After all, the centralized exchanges seem far more popular at this point, and there are dozens of active exchanges already providing a trading platform and liquidity for cryptocurrencies.

In short, yes the world does need another exchange, or at least it needs an exchange like Bancor. That’s because the Bancor platform provides a much-needed service of increasing liquidity for any token, and of creating a platform where any token can be exchanged without the need for a counterparty.

This is something that can’t be accomplished with any other asset. Take fiat currencies as an example. If you want to exchange U.S. dollars for Yen you need to find someone willing to sell Yen to complete the transaction. Every asset is like this. There must be a buyer and a seller for a transaction to work.

Bancor Protocol
Overview of the Bancor Protocol for external developers

Bancor only requires one person to complete a trade, with the liquidity provided by the native BNT token and its smart contracts. The BNT token’s smart contracts ensure that there is a balance between tokens at all times. Once any trade is concluded there will also be a total remaining that represents the BNT balance coded into the smart contract.

This structure removes the need for the exchange to act as a third-party to transactions. With Bancor and its BNT token, you are able to continually perform exchanges for Ethereum and EOS compatible tokens right through the Bancor wallet.

You can think of the system as an hourglass. It’s a closed system and it doesn’t matter how you turn the hourglass, it always holds the same quantity of sand. In this analogy, the hourglass represents the BNT smart contract, and the grains of sand are the tokens being traded.

And next up from the team will be a development marketplace for dApps that will also make use of the cross-chain compatibility and balanced smart contracts.

Bancor Team

The Bancor Network was founded in 2016 by Israeli siblings Guy and Galia Benartzi. Both remain active with the project, with Guy on the Foundation Council, while Galia is in charge of business development. She is also a strong proponent of women in blockchain and crypto.

The Foundation Council president was Bernard Lietaer until his death in February 2019. Since then I have been unable to locate any update that names his successor.

Bancor Team
Galia & Guy Benartzi & Yudi Levi. Images via Bancor & Twitter

The CTO of Bancor is Yudi Levi, and he’s held that position since the start of Bancor in 2016. Prior to that, he was co-founder and CTO of AppCoin. He also spent over a decade as a chief architect of several mobile projects, including Real Dice, Mytopia, and Particle Code.

The team also has an impressive list of advisors, including Brock Pierce, the Chairman of the Board at the Bitcoin Foundation, and venture capitalist TimDraper.

The BNT Token

As was mentioned earlier, Bancor held an ICO on June 12, 2017 that raised $153 million in just three hours. That ICO sold roughly 40 million BNT tokens at an average price of $3.92 each. Currently, there’s a circulating supply of BNT of over 60 million tokens.

The BNT token hit its all-time high of $10.00 on January 10, 2018 and its all-time low of $0.299204 on October 23, 2019. As of November 11, 2019 it is only moderately above that all-time low, trading for $0.317714.

BNT Price Performance
BNT Price Performance. Image via CMC

That circulating supply can change however since BNT is created as needed to initiate exchanges. The Bancor protocol will create as much BNT as needed to match the value of currencies held within the smart contract.

Trading & Storing BNT

Interestingly, the Bancor Network only handles around 2% of the trading volumes of BNT. The largest trading volumes by far can be found at IDCM, followed by CoinBene, and then comes the Bancor Network. There are a handful of other exchanges that also handle BNT exchanges, but trading volumes are minimal at best.

In fact, IDCM controlled over 79% of the total token trading volume for BNT when I checked. This could actually be a problem from a market liquidity perspective. It means that trading is highly dependent on one exchange and any disruption there could cause a collapse volume.

Morevoer, if we were to take a look at the order books on an individual exchange such as Binance it is clear that there is a lack of liquidity there. You will need to be very careful when placing an order there as if reasonable sized orders are likely to lead to slippage.

Once you have your BNT tokens you are going to want to store them in a secure offline wallet. Given that these are ERC20 tokens it means that you can store it any Ethereum compatible wallet. There is also a mirror-image EOS based token that was created to mimic the ERC-20 token and to allow exchanges of EOS based tokens.

Development & Roadmap

The Bancor network is an interesting mix of open source and closed source software. Some of the core code is known only by the company whereas there are open source repositories for developers to build on.

Some people argue that the lack of full open source code means that potential vulnerabilities could exist which have not been vetted by the community. Indeed, this may have been the case with the hack we cover below.

Having said that, we can still get a good idea of how much work is being done on the Bancor protocol based on these two repositories.

Below you have the total commits to two smart contract repositories in the Bancor GitHub. These are the total commits over the past 12 months to the repos.

Bancor GitHub
Commits to Select Repos over last year

As you can see, there has been a relatively steady flow of commits that have been pushed to these repos. This shows that the developers are still actively working on the protocol.

Of course, this may exclude all the work that is being done in the private repositories. Indeed, if we were to take a look at the roadmap it would seem as if the project has quite a bit in front of them.

Roadmap

In September of this year, the Bancor team released their updated roadmap for the next 6-12 months. Some of the most important things to look out for include the following:

  • Community Staking: This will allow anyone on the Bancor Network to stake their tokens and add to the liquidity of the network. In return for this they will earn a staking reward
  • Stable BNT: This will be a stablecoin Bancor Token which will hold its value with USD. This will provide liquidity to the ecosystem while eliminating the risk posed by a fluctuating BNT price.
  • BNT Airdrop: Those who hold BNT on Ethereum & EOS can look forward to an airdrop of BNT’s Ethereum reserve
  • BNT Inflation: The team hopes to upgrade the BNT token to an inflationary model where the initial inflation level will be set to 0%
  • BNT Voting: A governance component will be added. With voting, holders of BNT tokens will be able to take part in decisions that will affect the ecosystem

The team has not released defined milestones for these steps but they have managed to execute on previously defined goals. This includes the BancorX launch on the EOS MainNet and the EOS / ETH cross chain experience.

If you wanted to keep up to date with developments on the Bancor protocol then you can read follow their official blog or their Twitter account.

The Bancor Hack

Bancor was the target of a hacker on July 9, 2018 and suffered losses totaling $23.5 million. Of that $10 million was BNT tokens, which were recovered when Bancor froze the blockchain.

Bancor Hack
Bancor Announcement of Security Breach. Image via Bancor Twitter

They were unable to recover $12.5 million in ETH tokens and $1 million in NPXS tokens. Bancor said the security breach occurred in a wallet used to upgrade the Bancor smart contracts.

The freezing of BNT by Bancor has been highly criticized by Litecoin creator Charlie Lee, who has claimed the company and blockchain is not fully decentralized since it has the ability to freeze clients’ assets, and is also able to lose its clients’ funds.

Bancor’s Legal Issues

While Bancor has proven popular with traders across the globe, it isn’t certain yet where the platform stands legally in many jurisdictions, nor is it certain what liabilities Bancor might have in relation to its users.

For one thing, even though the platform is well known for its liquidity mechanism, it’s also known that it isn’t the most secure platform, as highlighted by the theft of $13.5 million worth of tokens from the Bancor platform in 2018.

In response to that hack, Bancor has created a backdoor to help protect users in case something similar were to happen again, but legal experts say the backdoor fix could complicate Bancor’s legal responsibilities.

The fix allows Bancor to freeze or even destroy an asset to avoid a hack being successful, but attorneys say that without full disclosure of the ability to freeze or destroy assets Bancor could become liable under many state and federal consumer protection laws in the U.S.

In response Bancor has halted the availability of their platform to U.S. based traders. Further complicating matters is the fact that many Americans bought BNT tokens during the 2017 ICO and still hold those tokens.

In fact, there is very little said about disclosure in the Bancor whitepaper, or on the Bancor website. In the whitepaper, there is just one appearance of the word disclosure, and that refers to the distribution of earnings from the ICO.

On the website, there isn’t a direct warning, but there is a link to the company’s Terms of Use, and in that document, there’s a statement all in capital letters that says content may be made unavailable, or that Bancor can block you from accessing the content. We assume this is in reference to their ability to delete or move tokens on-chain, among other things.

Bancor has attempted to protect itself from U.S. regulators by banning U.S. residents from using the Bancor platform as of July 8, 2019.

This came following the release of a joint statement by the U.S. Securities and Exchange Commission and the U.K. Financial Industry Regulatory Authority where it was determined an entity “involved in effecting transactions in digital asset securities … is subject to the federal securities laws.” However, it’s unclear if this also means assets traded on the platform will be considered securities.

In 2018 the SEC pursued an enforcement action against the decentralized EtherDelta exchange, which is quite similar to the Bancor Exchange. There are also rumors that Bancor has been contacted by the SEC.

Conclusion

One of the major roadblocks in mass adoption is the lack of liquidity, and difficulty in exchanging various tokens for each other. The Bancor Protocol has done away with this problem through the automation of liquidity.

It’s true that complete beginners will face a small learning curve, but the UI of the wallet is as simple as they come. Anyone new to cryptocurrencies should have no problem learning how to make exchanges using the Bancor wallet.

Moreover, the Bancor Protocol is making it easier for developers to build a seamless exchange application between a plethora of tokens. There are also a host of updates that have been planned for the next 6 to 12 months.

Of course, there are still questions linger around the project including the issues of regulations in the U.S. and beyond. Potential centralisation of control in the three year transition period may deter some who fear the potential for arbitrary frozen accounts.

You also have the really paltry token performance of BNT especially over the past year. Yes, it is true that many other tokens are in a rut but BNT appears to have been hit particularly hard. Perhaps this was all in relation to the legal challenges?

Either way, Bancor does have some great technology, use cases and a strong team powering it forward. Those ICO funds are likely to help them weather the storm and further refine their offering.

Featured Image via Shutterstock

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

Posted by Steve Walters

Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies.