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Impermanent Loss Protection
Bancor offers all liquidity providers 100% Impermanent Loss Protection (ILP).
This ensures that liquidity providers get back at least the same value of their deposited tokens as if the tokens were simply held in their wallet.
How it works:
  • Say a user deposits $100,000 of a token in a liquidity pool.
  • The protocol matches the user's deposit by providing $100,000 worth of BNT (Bancor Network Token) tokens to the pool.
  • In return, both the user and the Bancor protocol receive fee-accruing LP tokens (pool tokens).
  • When the user withdraws from the liquidity pool, both the user's and the protocol's LP tokens are burned.
  • If the user has suffered Impermanent Loss, fees earned by the protocol's LP tokens are used to compensate for the Impermanent Loss.
  • The result is users can stake with confidence knowing they’ll get back 100% of the tokens they originally deposited, while passively collecting more of the tokens they’ve staked through earned trading fees.
Important to note:
  • Partial compensation in BNT: The protocol earns fees, via protocol-owned pool tokens, in both BNT and non-BNT tokens. If the protocol has not accrued enough non-BNT token fees to fully compensate the liquidity provider for their Impermanent Loss in the token they've staked, it will give the user as many non-BNT tokens as possible, and pay the rest of the compensation in an equivalent value of BNT tokens.
  • ILP Vesting: Currently in Bancor V2.1, liquidity providers accrue Impermanent Loss Protection over time and the protection increases by 1% each day and reaches 100% (full protection) only after 100 days. In Bancor V3, liquidity providers receive 100% Impermanent Loss Protection as soon as the LP stakes their tokens into the pool. There will be a 0.25% withdrawal fee to prevent abuse as well as a 7-day cool-down period when withdrawing.
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