Bancor is a decentralized liquidity network that provides users with a simple, low-cost way to convert tokens directly from their wallets.
The Bancor Protocol enables automatic price determination and an autonomous liquidity mechanism for tokens on smart contract blockchains. These Smart Tokens have one or more connectors to a network that hold balances of other tokens, allowing users to instantly purchase or liquidate a Smart Token for any of its connected tokens directly through the Smart Token’s contract, at a price
that is continuously recalculated to balance buy and sell volumes.
Bancor operates similar to an exchange in that users can buy and sell tokens, but the mechanics that enable these actions are completely different.
Here are the main differences between Bancor and traditional exchanges:
- No Counterparty. In both centralized and decentralized (DEX) cryptocurrency exchanges, buyers and sellers must be matched in order for a trade to be executed. With Bancor, every transaction is executed directly against a smart contract. This means that converting a cryptocurrency does not require matching two parties in real-time with opposite wants; rather, it can be completed by a single party directly through the token’s smart contract.
- Continuous Liquidity. In traditional exchanges, a token’s liquidity is pegged directly to the availability of a buyer or seller at the time of a transaction. On the Bancor Network, tokens are always available for purchase regardless of trade volume. This is possible through Bancor’s automated pricing mechanism which increases a token’s price and its supply each time it is purchased.
- No spread. Typical exchanges will have different prices when one tries to buy a token as opposed to selling it, this is known as the spread and is a way for exchanges to make money on every transaction. On Bancor, the price for both selling and purchasing tokens is the same due to the algorithmic price calculation of the Bancor Formula.
- No Order Book / Predictable price slippage. Exchanges require an order book, a list of potential buy and sell orders, in order to match buyers. Since this list is dynamic, it is usually difficult to determine what the price slippage will be if an order requires more than one counterparty, e.g. if someone is looking to buy more tokens than any 1 person is selling at the desired price. Bancor does not have an order book and all prices are calculated using a formula so the price slippage for every transaction is known ahead of time.
- Amazing UI/UX. This one is more subjective, but Bancor’s UX makes it incredibly easy to buy and sell tokens quickly and efficiently.