Introduction to Bancore?
Bancor is credited as one of the earliest automated market makers (AMMs) and it’s been a hot topic over the years whether they also are due credit for originating the idea of an AMM in the first place. Anyways, in fall 2020, Bancor introduced an innovative new concept called single-sided liquidity provisions. At the time, Bancor had under $100M of liquidity coming off DeFi Summer, and had fallen far behind the DeFi darling Uniswap and other new AMMs like SushiSwap.
Single-sided LPs were a radical new DeFi offering where you can deposit a single token and Bancor would pair BNT with the token to create the LP, while also providing protection against impermanent loss, as long as LPs remained for 100 days. Impermanent loss is a temporary loss of funds when providing liquidity. It’s simply the difference between holding an asset versus providing liquidity in that asset.
The launch of single-sided LPs by Bancor was an immediate success and drove Bancor to reestablish itself as a top AMM in terms of both trading volume and liquidity. The drawbacks at the time were that these single-sided LPs were limited to certain tokens and had deposit limits.
Often, these limits would be maxed out as LPs raced to earn comparatively higher yields for providing liquidity on tokens like ETH, WBTC, and LINK without risk of impermanent loss, which has often been a complaint among early DeFi LPs. Worst of all, the gas fees to deposit and withdraw from Bancor v2 were comparatively higher than competing AMMs.
Fast forward to today, Bancor v3 has launched with significant improvements to their signature IL-protected single-sided LPs including:
- Instant impermanent loss protection (no need to wait 100 days!)
- Unlimited capacity for single-sided LP deposits
- A single BNT pool vs having to choose where to LP with BNT
- Auto-compounding rewards (liquidity mining rewards sit in the same pool as LPs and hence are more efficiently used to deepen liquidity)
- Lower gas fees on Ethereum L1 than the previous Bancor v2
Bancor has kicked off today with just 4 new pools in v3 for DAI, LINK, BNT, and ETH. Each pool includes additional BNT rewards to incentivize new LPs. Eventually, they’ll provide a migration tool for v2 LPs to move to v3 but for now, these are brand new liquidity pools currently boasting $600M in TVL.
In the following tutorial, I’ll walk through how I can deposit into any of the 4 pools depending on which exposure I want and earn yield in trading fees + BNT rewards.
How to Earn Up to 51% APR as an ETH LP with IL-Protection on Bancor v3
Before we get started, please be aware of a few major risks.
- Smart contract risk in Bancor v3 (different than v2 contracts) and be extra cautious of any new contracts deployed in DeFi, despite reputable teams
- Oracle failure could lead to an exploit
- Systemic risk in DeFi composability
- Pegged assets such as stablecoins can potentially de-peg
- Estimated rewards can go up or down depending on the amount of competing liquidity and the price of the BNT reward token
Here’s how I get started with Bancor v3!
- First thing, I go to the Earn tab in Bancor v3 to check out the possible yields I can earn on Ethereum Mainnet and see I can deposit only ETH to earn about 51.94% annualized in net yield.
- Next, I connect my Ethereum wallet in…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
