Bancor Joins List of Protocols Affected by “Market Conditions”

Paigambar Mohan Raj
Source: Upto Brain

Bancor protocol, a blockchain-based decentralized exchange, is the latest to join a growing list of projects that have been affected by the current market situation. The company released an official medium blog to explain its present predicament and how it plans to move ahead.

As per the official release, Bancor has temporarily halted its impermanent loss (IL) protection, citing reasons for hostile market conditions. As soon as the market stabilizes, it will activate IL protection and is a quick step to safeguard the protocol and its users.

According to the team, as their understanding of the present situation has grown, they have noticed abnormalities, if not manipulative conduct, appearing in the data.

The blog says that the money on the Bancor protocol is secure, and there is no active attack. The IL will not protect withdrawals made during this problematic time frame. Users that continue to participate in the protocol will be able to withdraw their fully protected value when IL protection is reactivated and will continue to receive yields. The IL protection’s temporary suspension should provide the protocol some breathing room and time to recuperate. We attempt to reinstate IL protection as quickly as we can as we wait for the markets to normalize. On the network, trading is still going on across all liquidity pools.

Deposits have also been halted on Bancor to avoid misunderstandings through direct contract interaction where the information on the halted protection is not apparent.

The company states,

“We are confident that the general measures we have adopted will produce the results we expect, which are to protect the protocol and its users from potentially manipulative actors.”

The recent sale of rewards emissions accrued over the past 18 months has necessitated pausing IL protection. BNT incentives effectively have “double cost.” First, they reduce the value of the BNT, resulting in an impermanent network loss. Second, since the excess BNT emissions contribute to making up for this IL, its value drops even more.

The blog discusses the recent insolvency of two unnamed yet sizable centralized organizations that were significant primary recipients of BNT liquidity mining incentives as long-term LPs in Bancor V2.1 have increased these expenses. These organizations quickly liquidated their BNT investments and withdrew substantial amounts of liquidity from the system to pay their debts. In contrast, an unidentified organization launched a sizable short position on the outside market on the BNT token.

The blog concludes by saying that according to on-chain statistics, some of the worst BNT reward dumpings are behind us.

With the runway to continue paying contractors and encouraging the adoption of the protocol for many years, the foundation sponsoring the Bancor protocol is well-capitalized and diversified to weather the current market slump. The Bancor DAO will vote on approving the brief delay when an interim report is released.