Bancor Basics
Frequently asked questions about Bancor Protocol
This a living document continuously updated by the community and therefore a work in progress. It is divided into the following sections:

1. Liquidity Pools

Liquidity pools are automated market-maker (AMM) smart contracts that exchange assets algorithmically using on-chain reserves.
Liquidity on traditional asset exchanges has historically been provided by a small handful of professional trading firms with permissioned access and specialized tools. This concentrates liquidity in the hands of a few actors who can withdraw their assets during periods of volatility and restrict trading of an asset when users need it the most.
In contrast, AMM pools allow liquidity to flow from an unlimited number of everyday users, lowering the barrier to token creation and yield generation, and increasing resistance to market manipulation and censorship.
Launched in June 2017, Bancor created the first-ever network of AMMs on the blockchain. Since then, AMM liquidity pools have evolved into a core building block of decentralized finance (DeFi), attracting over $30 billion in locked value across numerous blockchains.

2. Why Use Bancor?

DeFi lets you make money on the tokens you're holding. You stake the tokens in a liquidity pool, and your money facilitates trading and earns fees from each trade. Your tokens may go up or down in price - that volatility encourages trading which generates fees. But that same volatility can also incur value loss in your holdings ("impermanent loss"). Because as your tokens move in price, they can be automatically sold at a discount or bought at an inflated price, which results in you losing money instead of earning.
On Bancor, we designed a system called "Safe Staking". It protects your holdings no matter how your token moves, so you can earn higher yield with less risk.
  • Stake the token you love: no more 50/50 split; earn with 100% upside exposure, single sided.
  • Protect your money: 100% protection from impermanent loss
  • Auto-compounding fees: fees are automatically re-added to your stake, compounding your gains
  • Rewards: earn BNT rewards which are also protected from impermanent loss

3. Bancor Safe Staking

Safe Staking allows you to deposit your tokens in a liquidity pool and earn passive yield with zero risk of impermanent loss and single-token exposure.
The protocol is designed to ensure a depositor ("LP") gets back the same value of the tokens deposited (as if they held the tokens in their wallet) plus trading fees & rewards, using a novel mechanism called Impermanent Loss Protection (IL Protection).
IL Protection tracks the HODL value of your deposited tokens. Even if a token moons, you are protected and entitled to withdraw the full value of the tokens you staked. For example, if you stake 1 ETH, even if the ETH price doubles, you're entitled to withdraw the equivalent value of 1 ETH. Plus you earn trading fees (paid in ETH) and rewards (paid in BNT).

How it Works

To support Safe Staking, the Bancor protocol uses its protocol-owned BNT to jointly fund pools alongside user deposits. In other words, when a user deposits $100,000 in a supported token ("TKN"), the protocol matches the user's deposit by providing $100,000 worth of BNT to the pool. In return, both the user and the protocol receive fee-accruing LP tokens (pool tokens).
When a user withdraws their liquidity, the user's and protocol's LP tokens are both burned. If the user has suffered any IL, fees earned by the protocol's LP tokens are used to compensate for the IL, and the remainder is burned for BNT.
The amount of BNT offered by the protocol to support trading in a given token is governed by the Bancor DAO. The DAO aims to offer protocol liquidity in amounts that are profitable for the network, i.e., where trading fee income exceeds the cost of IL protection.

Network Design

Bancor uses its protocol token, BNT, as the counterpart asset in every pool. Using an elastic BNT supply, the protocol is able to provide BNT liquidity alongside an LP and compensate them for any IL with swap fees earned from protocol-owned LP tokens.
If fees earned from protocol-owned LP tokens are greater than the cost of IL compensation, the protocol is able to entirely offset IL for LPs without emitting new BNT. If there are ever insufficient protocol fees to fully compensate an LP for their IL, the protocol's IL protection may be paid out in an equal value of emitted BNT.
Two burning mechanisms place deflationary pressure on the BNT token:
  1. 1.
    When an LP withdraws: the initial BNT provided by the protocol in addition to the fees it earns (less any IL compensation) are burned when an LP withdraws from the system
  2. 2.
    Continuous vBNT Burning: a percentage of every transaction on the network is used to burn vBNT (staked BNT) via the Bancor Vortex

IL Protection Vesting

When a user makes a new deposit, the IL Protection offered by the protocol increases at a rate of 1% each day the stake remains live, and matures to full protection after 100 days.
After a period of 100 days, any impermanent loss incurred in the first 100 days or any time thereafter is covered by the protocol at the time of withdrawal. Withdrawals prior to the 100-day maturity are only eligible for partial compensation. For example, withdrawals after 60 days in the pool receive 60% compensation on any impermanent loss incurred. Also, there is no compensation offered at all for stakes withdrawn within the first 30 days.
Note that in the proposed Bancor v3, IL Protection is offered instantly (100% protection from day one) - more info

4. Depositing / Withdrawing Liquidity

How to deposit tokens in the Bancor Protocol

You can stake and earn on 100+ tokens in the Bancor protocol on bancor.network or any site integrated with Bancor smart contracts. Users connect via Web3 wallets such as MetaMask.
Watch the founder of Axie Infinity walk through staking in Bancor:
AXS is one of 100+ tokens whitelisted by the Bancor protocol, allowing users to stake and earn AXS with single-token exposure and zero impermanent loss.

Where can I track returns after depositing liquidity?

This information can be viewed in the "Portfolio" tab under the "Earn" section of app.bancor.network. Your Bancor Earn Portfolio allows you to connect your wallet and track your individual LP positions including fees earned, your ROI (return on investment) and more.
An LP can track their individual returns from Bancor pools in the Portfolio tab of the Bancor "Earn" tab.
For each individual stake in a pool, the Portfolio page displays:
  • Initial Stake” — the total number of tokens initially staked
  • Protected” — the value of your position with full 100% protection
  • Claimable” — value available for withdrawal. If IL has occurred, and the stake is less than 100 days old, Claimable will be lower than Protected.
  • "Fees & Rewards"
    • total fees paid in BNT or non-BNT tokens, depending on whether you've staked BNT or non-BNT tokens
    • total rewards (BNT mining rewards) paid on a given pool position. Your rewards multiplier accrues weekly with a max at X2 after 4 weeks in a pool. Multipliers on all active LP positions reset if an LP withdraws liquidity from any Bancor pool.
  • ROI — An LP's ROI, or "return on investment", is calculated as follows:
    • Protected Stake Value-Initial Stake Value/Initial Stake Value*100

What kind of fees can you earn from Bancor pools?

When you deposit your tokens on Bancor, you earn a percentage fee from trades that occur in the token you've staked. For example, if you deposit LINK, you will earn a fee from trades that occur in LINK. The estimated annual percentage return (APR) is dependent on trading and other network activity, and fluctuates accordingly, as well as liquidity mining rewards that Bancor governance approves per pool.
The bancor.network front-end estimates APR based off the past 24h of trading fees. The APR also includes mining rewards (if they are listed as "Active" in the "Rewards" column). Trading fees are paid in the token you've staked, whereas rewards can be paid out in the tokens you've staked or BNT.
Estimated APRs displayed in the bancor.network front-end

4. Impermanent Loss 101

Impermanent loss (or divergence loss) is a risk faced by users who deposit their tokens in AMM liquidity pools. It is the difference in value between holding tokens in an AMM liquidity pool and holding them in your wallet.
Liquidity pools consist of multiple tokens (usually two) paired together in a pool. IL occurs when the tokens inside the pool diverge in price. The greater the divergence, the greater the risk of negative returns for the pool's LPs.
The risk is referred to as "impermanent" because the loss is only realized when you withdraw your tokens from the pool. If the relative prices of tokens in the pool return to their original state when you deposited tokens, the loss is minimized or eliminated.
However, this is rarely case. More often, the losses become permanent the moment you withdraw your tokens, reducing your earnings and sometimes wiping out your entire share of profits. Even when accounting for fees and rewards, you suffer negative returns versus simply holding your tokens in your wallet.
Check your wallet on IL.wtf to see if you've been rekt by IL.

How IL works

When tokens paired together in a pool change in price relative to one another, an arbitrage opportunity emerges, incentivizing re-balancing of the pool by third-party trading bots known as arbitrageurs.
Re-balancing causes the liquidity pool to automatically liquidate the rising token at a discount and purchase the token whose price is falling at a premium. As a depositor, you're left holding less of the token that increased in price, and more of the token that decreased in price. Over time, this causes the cumulative value of your pooled tokens to be worth less than if you simply held the two assets in your wallet.

The Risk

On-chain data analyzing over $100b+ in trading volume and 20,000 liquidity provider wallets shows that users providing liquidity to unprotected AMM pools suffered negative returns roughly 50% of the time.
We consider this risk to be intolerable for many users — which is why we designed a safer and simpler way to earn on your favorite tokens with zero IL risk.

More FAQs

How do pools become profitable for liquidity providers?

As a pool increases in size and more liquidity is added, it attracts more trades and generates more trading fees for LPs. The deeper the pool, the lower the slippage. So deep pools attract the most and the largest trades - and therefore more trading fees.

How is APR calculated

"APR" in the Pools table refers to annual percentage returns from both trading fees and mining rewards.
The bancor.network front-end measures estimated APR from these two sources:
  1. 1.
    Trading fees: APR from trading fees is calculated by measuring the total fees earned by the pool over a given time (e.g., 1 day or 7 days), dividing it by the current liquidity in the pool, and then annualizing it. For example, if there are $30,000 worth of fees in a pool with $10M liquidity over the course of 7 days, the APR is $30,000 / $10,000,000 * 100 * 52 weeks = 15.6%.
  2. 2.
    Liquidity Mining Rewards: APR from rewards is measured similarly. Rewards distributed to the pool in a given week, divided by liquidity, and then annualized. The "Rewards" column in the Pools table indicates whether rewards are currently "Active" in a given pool.
In Bancor v2.1, trading fees automatically accrue in the pool, compounding the LP's gains. Liquidity mining rewards, on the other hand, accrue in a separate rewards contract, requiring an individual LP to manually re-add their earned rewards to the pool. In Bancor v3, both trading fees and liquidity mining rewards are auto-compounding (more info).

What is vBNT?

vBNT is the governance token of Bancor. Users who stake BNT in any whitelisted pool receive vBNT in return representing their % ownership of the pool. This makes vBNT similar to an LP token, except you can also use it to vote in Bancor governance via https://app.bancor.network/eth/vote/.
When using vBNT to vote, you will need to stake your vBNT in the governance contract as a first step. Once staked, there’s a 72-hour lockup period to un-stake vBNT from the governance contract. Voting Guide
Per the vBNT Burner Proposal, a 5-20% share of network trading fee revenue can be used to buy and burn vBNT, reducing the circulating supply of BNT tokens and locking BNT in the protocol permanently.
To withdraw staked BNT from a pool, you must have the same number of vBNT in your wallet, though not necessarily the same vBNT tokens. In other words, you can trade your vBNT for other tokens while your BNT is staked, and buy vBNT back if/when you want to withdraw your BNT from Bancor. Only your wallet can withdraw your staked BNT using the necessary number of vBNT.
Make sure you understand the risks of trading your vBNT before doing so.

I withdrew my position and got compensated partially in BNT. Why?

The protocol provides BNT to its pools and these BNTs accrue fees from trading. These fees are used to compensate any possible IL. In cases where the trading fees accrued by protocol-owned BNT does not outweigh the IL, BNT equivalent (calculated at the current pool rate) will be emitted from the protocol as compensation.
Note: BNT withdrawn from the system is subject to a 24-hour lock-up.

Can I lose my IL Protection somehow?

Only if you withdraw. If you withdrew before the 30 day cliff, you are not eligible for any insurance. Withdrawing between 30 and 100 days qualifies you for the achieved percentage - for instance, if after 60 days in the pool you withdraw and there is $100 USD worth of IL, you’ll receive compensation for 60% (or $60 USD) of the loss.

Are all pools eligible for Impermanent Loss Protection?

Only pools voted into the Bancor v2.1 whitelist by Bancor governance are eligible to receive impermanent loss protection and single-sided exposure. At the time of this writing, there are over 85 tokens whitelisted in Bancor v2.1.

I have a hardware wallet. Can that be used as well?

Yes. MetaMask supports hardware wallets like Trezor and Ledger directly. There’s no need to keep it connected to your PC after you’ve finished with the interactions.

Where are the funds being deposited to?

Funds are sent to a smart contract that keeps record of the liquidity, but you always maintain ownership - it's non-custodial as it is based on the smart contracts.

If they’re not in my wallet, how do I maintain ownership?

Your hardware wallet, like a Ledger wallet, is not a storage device; it is an encryption device. So when you 'move' coins into a ledger wallet, you are really moving them to an address on the blockchain, that can only be decrypted by the ledger. Staking from the Ledger just means that the Ledger encrypted address will still maintain control of the coins. And interacting with the contract will require the Ledger for cryptographic signing. This means that any interaction with the Bancor protocol will require the physical Ledger device.

Why is there no space available for my tokens in certain pools?

The option to provide single-sided liquidity is available only if there’s sufficient space on the other side of the pair, which is BNT.
If there is not enough space in a given pool for providing single-sided ERC20 liquidity, an LP has two options: provide BNT to open up space, wait until another user provides BNT to open space, or work with governance to increase the limit of protocol-owned BNT that can be provided to the pool.

How much ETH do I need to pay to stake in a Bancor pool?

Any transaction on the Ethereum network costs gas. You can look at estimations once you attempt to transact, the gas prices should appear on MetaMask. You can also check gas prices by checking Eth Gas Station.

I’m getting an error or very high transaction fee. What gives?

This may be due to a contract bug. You should not approve it, and instead refresh your browser and MetaMask, or reconnect the wallet and try again. If you still experience issues, please reach out to us via ban.cr/support.

5. Liquidity Mining Rewards

What are BNT Rewards?

BNT rewards aims to achieve two primary goals:
  1. 1.
    Attract new liquidity into Bancor pools
  2. 2.
    Create stickiness to incentivize long-term liquidity provision
See the initial BNT Liquidity Mining proposal here.

How long does a selected LM pool receive rewards?

The period of time a pool receives rewards is configurable and is voted on by the BancorDAO and subject to the governance decision via on-chain voting.

Which pools are eligible for rewards?

Only whitelisted pools are eligible for rewards.
Voting for new tokens to be added to the BNT liquidity mining rewards program is subject to the community and the BancorDAO. You can see the pools that have rewards as they'll "Active" in the "Rewards" section.

How do I get my favorite token to receive LM rewards?

If your token is whitelisted, it can be proposed as a pool that can receive LM. Reach out to the governance via our Discord chat!

What is a whitelisted pool?

A whitelisted pool is a pool deemed worthy by BNT governance to receive IL insurance, single-sided staking and possibly LM rewards (subject to a separate on-chain voting). You can request to whitelist new projects by initiating discussion on Discord and in the Bancor governance forum. See instructions on how to whitelist a token. Below is the initial list of whitelisted pools:
AAVE, ALEPH, ANT, BAL, BAND, BAT, BNB, BUSD, BZRX, CEL, CHERRY, COMP, CRO, CRV, DAI, DXD, ELF, ENJ, ETH, EWTB, FTT, GNO, gUSD, JRT, KNC, LEND, LINK, LRC, MANA, MATIC, MKR, MLN, MTA, NMR, OCEAN, OMG, pBTC, RARI, RCN, REN, renBTC, renZEC, RPL, RSR, SNX, SRM, STAKE, sBTC, sUSD, SUSHI, SWRV, SXP, TRB, TOMOE, UNI, USDC, USDT, WBTC, wNXM, XDCE, YFI, UMA, QNT, ZRX.

How are BNT liquidity mining rewards distributed?

BNT liquidity mining rewards will be distributed as follows: 70% to the BNT side of the liquidity pool and 30% to the base ERC20 token side of the pool. Rewards are distributed continuously per block.

What token do I receive the rewards in?

The rewards from the LM program are provided in BNT only. This is unrelated to the swap fees, which comes from trading activity on that pool and may be received in the staked token.

How can I see, stake or withdraw BNT rewards?

First, visit the "Portfolio" section under the "Earn" tab in app.bancor.network. At the top right side you will see a Rewards dashboard, showing total rewards to date, and the claimable amount you currently can stake or withdraw. From there, you have three options:
1.Stake: You will be able to choose a pool to direct your BNT rewards to. Staking your BNT rewards allows the rewards to earn swap fees and additional rewards, which can also be staked, while maintaining bonus multipliers on all live stakes.
2. Hold: Holding rewards in the contract has no impact on your bonus multipliers; however, doing so will not generate additional rewards. You can stake or withdraw your rewards from the rewards contract at any time. There is no deadline to take action.
3.Withdraw: Withdrawing your BNT rewards sends the rewards directly to your wallet and resets your multipliers to 1x on all of your existing LP positions. This temporarily reduces your earnings potential on your staked liquidity until the multipliers return.

What is the Bonus Rewards Multiplier?

Liquidity providers who keep their rewards staked to the protocol receive a “Bonus Rewards Multiplier”, which increases their BNT rewards by up to x2 per week. Each position in a liquidity pool has its own multiplier. The Bonus Rewards Multiplier (BRM) starts at x1 and increases by 0.25 every week. The max possible multiplier is x2, achieved after 4 weeks in a pool.
Multipliers are per pool. If you have a max multiplier in dai/bnt and you add another dai/bnt position, that position immediately has max multiplier.
Withdrawing your BNT rewards or withdrawing liquidity from any pool resets multipliers on all your live stakes across all pools.
You will have to wait for four weeks to get the 2x multiplier into full effect again (0.25x added each week).

Do I need to stake or withdraw the rewards on a weekly basis?

No, the rewards are earned continuously on your initial stake per block. You can stake or withdraw your rewards from the rewards contract at any time. There is no deadline to take action.
Keep in mind holding rewards in the contract has no impact on your bonus multipliers; however, simply holding rewards in the contract and not staking them means you are not earning compounded yield / additional rewards.

5. Pool management

How to create a new pool to Bancor?

Go to https://app.bancor.network/eth/pool/create. Select the ratio (we recommend 50/50 as only 50/50 pools can currently become eligible for IL insurance, single-sided exposure and liquidity mining rewards). Select the token and click continue. Note that this is a complex transaction which might cost more gas than a usual transaction.

How to get a pool whitelisted for single-sided staking and impermanent loss protection?

Who manages the pool’s fee?

Currently, pool owners set the pool's initial fee The fee can then be updated via on-chain voting in Bancor governance.

6. Trading

Which fees are associated with swapping?

As Bancor exists on the Ethereum network, all transactions will incur ETH gas costs, which are unrelated to Bancor. Different wallets such as MetaMask will show you gas estimates. You can also track the current gas prices in sites like https://ethgasstation.info/ to choose the best time to swap.
Besides the ETH gas fees, each pool is set with a percentage fee on each trade, which is sent to liquidity providers in the pool. For example, an ETH to LINK trade on Bancor generates a fee distributed to users providing LINK on Bancor.

What is the difference between "Unlimited Approval" and "Limited Approval"?

In order to swap tokens, you will need to first approve allowance for the relevant tokens. You can choose Unlimited approval in case you do not want to approve each time you trade these tokens, or Limited Approval if you do not want the contracts to keep ownership of moving these tokens on your behalf.

7. Further Resources

8. Helpful Links

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Contents
1. Liquidity Pools
2. Why Use Bancor?
3. Bancor Safe Staking
How it Works
Network Design
IL Protection Vesting
4. Depositing / Withdrawing Liquidity
How to deposit tokens in the Bancor Protocol
Where can I track returns after depositing liquidity?
What kind of fees can you earn from Bancor pools?
4. Impermanent Loss 101
How IL works
The Risk
More FAQs
How do pools become profitable for liquidity providers?
How is APR calculated
What is vBNT?
I withdrew my position and got compensated partially in BNT. Why?
Can I lose my IL Protection somehow?
Are all pools eligible for Impermanent Loss Protection?
I have a hardware wallet. Can that be used as well?
Where are the funds being deposited to?
If they’re not in my wallet, how do I maintain ownership?
Why is there no space available for my tokens in certain pools?
How much ETH do I need to pay to stake in a Bancor pool?
I’m getting an error or very high transaction fee. What gives?
5. Liquidity Mining Rewards
What are BNT Rewards?
How long does a selected LM pool receive rewards?
Which pools are eligible for rewards?
How do I get my favorite token to receive LM rewards?
What is a whitelisted pool?
How are BNT liquidity mining rewards distributed?
What token do I receive the rewards in?
How can I see, stake or withdraw BNT rewards?
What is the Bonus Rewards Multiplier?
Do I need to stake or withdraw the rewards on a weekly basis?
5. Pool management
How to create a new pool to Bancor?
How to get a pool whitelisted for single-sided staking and impermanent loss protection?
Who manages the pool’s fee?
6. Trading
Which fees are associated with swapping?
What is the difference between "Unlimited Approval" and "Limited Approval"?
7. Further Resources
8. Helpful Links