Bancor describes the enemy antagonist behind the inconsistent loss of loss

Bancor describes the enemy antagonist behind the inconsistent loss of loss

Bancor, a pioneer in the area of ​​Decentralized Finance, temporarily hired his popular insurance function for unstable losses (IL) last weekend and commented on that the protocol is not really "decentralized".

inconsistent loss refers to the unrealized amount that appears when you provide a pool liquidity in the form of cryptocurrency and the value of these tokens has changed since you have stored it.

Since the automated market maker said that he wanted to give the protocol room to breathe, he has observed that wallets, which are connected to the crypto loan Celsius and Nexo, remove liquidity from the system while taking a haircut.

Blockworks spoke to Bancors Head of Growth Nathaniel Hindman and Head of Research Mark Richardson to understand what they regarded as "manipulative behavior" that caused them to protect the protocol. The couple identified two main factors: large short positions that were received against the BNT token of the protocol, while at the same time an increase in the lifts and sales of the rewards for the liquidity reduction, which are paid out by the protocol in BNT.

Large short positions

in a June 19th Bloggen , bancor said (LPS) temporarily pause due to a persistent "attack" and an "enemy antagonist". They believe that the attack on containers related to Celsius' attempt to leave large positions in the protocol. They found accounts on two stock exchanges, FTX and OKX, the short interest rates worth a total of $ 2.5 million against the BNT token of the platform.

"It's not catastrophic," said Richardson in an interview. "But if you keep these positions, you borrow the maximum daily limit every day." He assumed that the fast withdrawals were made to cover liquidations or debts.

"Due to the financial situation in which you are, you are much ruthless when you get out of the market," he said.

In addition, they believed that someone on the Message Board 4Chan spread misinformation about how Bancor runs their minutes. This sparked in panic and caused a number of active withdrawals, similar to a bank run, which encouraged other people to follow him-until a large part of the Total Value Locked (TVL) of the protocol was placed in the queue according to the product architect.

Large payments mean that BNT becomes less liquid, which means that the token can absorb the sales pressure less. But Bancor was built to finish with short interest, said Hindman-and emphasized that it was not just this incident that led to the IL break.

"It was this perfect storm of events."

It's not just the shorts, ”he said.“ In addition, some of the largest centralized actors in the industry use our system, then go bankrupt and pull large amounts of liquidity mining rewards. ”

Bancor LPS Liquidity mining rewards “took too long to

While decentralized stock exchanges such as Uniswap do not protect against unpeading losses, Bancor set up such compensation as a unique selling point. LPS receive BNT-TOKEN as a reward for investing their capital in Bancor pools. This is the "original sin" that the protocol had headached, said Hindman.

"The rewards for the BNT liquidity mining really took too long," he said, adding that large stacks have been accumulated in the hands of some people who now quickly dispose of "what the system is at a maximum."

The combination of a market slump, considerable short positions and tons of BNT rewards that were unloaded at the same time caused the team to intervene.

"We knew that we would not withstand it for long," said Richardson.

There were some Consider that Bancor simply shapes new BNT to do liquidity providers as part of its ILP-Mechanism compensate.

Hindman denied this by describing it as a misunderstanding. "Some of these criticisms come from the greatest investors of some of our competitors and people from the industry who simply did not take the time to understand this system," he said.

He said that Bancor works similarly to an insurance company by offering IL insurance against a percentage of trading fees in the network.

"At the moment, about 15 % of the trade fees are confiscated from the income of the liquidity providers to finance the insurance, and this also means that Bancor has been in our own pools co-invested in order to generate protocol fees that compensate for these costs," he said.

The characteristics of BNT is a last way out that is only used if the protocol fees from the trading activity are not sufficient.

Dao emergency powers vs. Condortized authority

Bancor said it had to activate its “emergency powers” ​​to react to the crisis and raised the eyebrows whether this violated the basics of a decentralized autonomous organization. Technically speaking, there should be no centralized management group within a DAO.

But the Bancor team says it considered necessary to assign certain people who can make decisions in a crisis.

"In these early days of decentralized protocols, especially those that are as complex as Bancor, we think that it is only responsible for the DAO of a multi-sig emergency rights," said Hindman and referred to a multi-signature wallet, the protocol upgrades and parameters that offer a measure of centralized control.

"We didn't want to stand by and how a community in our opinion a small, handful of players sucks out the system."

Bancor is now working on the DAO, also as an independent observer, to suggest a greater protection for his IL insurance system position of the whole system.

"We understand that it is certainly controversial, but we believe that it was the right decision," said Hindman.

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The contribution Bancor Descrbe 'Hostile Antagonist' Behind Imperman Loss Defense is not a financial advice.