The document summarizes the Bancor protocol, which aims to address liquidity issues for cryptocurrencies and decentralized assets. It proposes using "smart tokens" that hold reserves of other tokens to enable continuous liquidity without requiring exchanges. Transactions are facilitated through a constant reserve ratio formula to determine pricing. Examples show how smart tokens can be used for crowdsales, token exchanges, and creating liquidity for long tail or niche currencies. The protocol aims to provide advantages like continuous liquidity, lower fees and volatility compared to traditional exchange-based trading.

1. Bancor
Josh Chu

2. History
● The bancor was a supranational currency that John Maynard Keynes and
E. F. Schumacher conceptualised in the years 1940–1942 and which the
United Kingdom proposed to introduce after World War II
● The name was inspired by the French banque or ('bank gold')
● This newly created supranational currency would then be used in
international trade as a unit of account within a multilateral clearing
system
● Keynes was able to make his proposal the official British proposal at the
Bretton Woods Conference but it was not accepted

3. Problems
● Liquidity Problem
○ The current exchange model for currencies/assets has a critical barrier
■ Requiring a certain volume of trading activity
■ Small-scale currencies are nearly impossible to be linked to other popular
currencies using a market-determined exchange rate

4. Idea
● Smart contract & Smart tokens (ERC20 tokens)
○ Tokens can be automatically managed by immutable code
○ Allowing tokens to hold balances of other tokens (i.e. reserves), directly through smart
contracts
○ Smart tokens do not need to be traded in an exchange in order to become liquid

5. Method
● A smart token holds a balance of least one other reserve token, any
ERC20 standard token or Ether
● Smart tokens are issued when purchased and destroyed when liquidated
○ It’s always possible to purchase a smart token with its reserve token

6. Bancor protocol
● CRR (Constant Reserve Ratio)

7. Price Calculation per Transaction
● E (Reserve Tokens) -> T (Smart Tokens)
B: Reserve Token Balance
S: Smart Token Supply
R: Constant Reserve Ratio (CCR)

8. Example 1: Crowdsale of BNT
● Goal: 300,000 ETH
● 1 ETH = 1 BNT
● Supply: 300,000 BNT
● CRR: 20%
● Funding: 240,000 ETH
● Reserve: 60,000 ETH

9. Example 1: Crowdsale of BNT
Activity 1: Post-crowdsale initial state
1 BNT = 1.0000 ETH
Supply: 300,000
Reserve: 60,000 ETH
300,000 ETH
300,000 BNT

10. Example 1: Crowdsale of BNT
Activity 2: 300 ETH converted to BNT
1 BNT = 1.0040 ETH
Supply: 300,299
Reserve: 60,300 ETH
300 ETH
299 BNT

11. Example 1: Crowdsale of BNT
Activity 3: 700 ETH converted to BNT
1 BNT = 1.0133 ETH
Supply: 300,993
Reserve: 61,000 ETH
700 ETH
694 BNT

12. Example 1: Crowdsale of BNT
Activity 3: 1302 BNT converted to ETH
1 BNT = 0.9959 ETH
Supply: 299,691
Reserve: 59,692 ETH
1,302 BNT
1,308 ETH

13. Example 2: Token Changer
● 1 BNT = 1 BNTGNO = 2 GNO
● Supply: 10,000 BNTGNO
● CRR
○ BNT: 50%
○ GNO: 50%

14. Example 2: Token Changer
Activity 1: Initial state
20,000 GNO
1 BNTGNO = 1.000 BNT
= 2.000 GNO
Supply: 10,000
Reserve: 5,000 BNT
10,000 GNO
10,000 BNT
10,000 BNTGNO

15. Example 2: Token Changer
Activity 2: Buying BNTGNO for 30 BNT
1 BNTGNO = 1.003 BNT
= 1.994 GNO
Supply: 10,030
Reserve: 5,030 BNT
10,000 GNO
30 BNT
30 BNTGNO

16. Example 2: Token Changer
Activity 3: Converting 70 GNO to BNT Step 1
1 BNTGNO = 1.000 BNT
= 2.001 GNO
Supply: 10,065
Reserve: 5,030 BNT
10,070 GNO
70 BNT
35 BNTGNO

17. Example 2: Token Changer
Activity 4: Converting 70 GNO to BNT Step 2
1 BNTGNO = 0.996 BNT
= 2.008 GNO
Supply: 10,030
Reserve: 4,995 BNT
10,070 GNO
35 BNTGNO
35 BNT

18. Example 3: Potential Bancor Network

19. Use-Cases
1. The Long Tail of User-Generated Currencies
2. Crowdfunding a Project
3. Token Changers
4. Decentralized Token Baskets
5. Network Tokens

20. Advantage
1. Continuous Liquidity
2. No Extra Fees
3. No Spread
4. Predictable Price Slippage
5. Lower Volatility

21. Bancor Protocol Ecosystem
1. End-Users
2. Smart Token Creators
3. Asset Tokenizers
4. Arbitrageurs

22. Reference
● Bancor wiki, https://en.wikipedia.org/wiki/Bancor
● Hertzog, E., Benartzi, G., Benartzi, G. (2017, May 30). Bancor Protocol:
Continuous Liquidity and Asynchronous Price Discovery for Tokens
through their Smart Contracts; aka “Smart Tokens”. Retrieved from
https://www.bancor.network/static/bancor_protocol_whitepaper_en.pdf