Bancor 3 Launches With Impermanent Loss Protection Promising Sustainable DeFi Liquidity

Major Ethereum ETH/USD-based decentralized finance (DeFi) protocol Bancor BNT/USD launched the third iteration of its decentralized application (DApp) which introduced impermanent loss protection.

What Happened: Bancor 3 promises to protect against impermanent loss to liquidity providers, which could purportedly make it simpler for decentralized autonomous organizations (DAOs) to participate in liquidity pools, according to an announcement shared with Benzinga on Wednesday.

Mark Richardson, Product Architect at Bancor said that "Bancor 3 aims to put DeFi liquidity back in the hands of DAOs and their loyal token holders" after the DeFi boom "attracted a number of opportunistic participants."

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Why It Matters: Impermanent loss happens when the price of a token changes after a liquidity provider deposited it in a liquidity pool resulting in the value of the assets locked being lower than what they were worth when they were first deposited. Liquidity pools are systems using pairs of tokens with usually half of the dollar value being one token and the rest being the other token and the assets of liquidity providers are influenced by the fluctuations of both.

Bancor 2 first introduced the possibility of providing only one of the two assets necessary to provide liquidity for a trading pair. Now Bancor 3 is attempting to make it practical by decreasing the barrier to entry and ensuring lower transaction fees.

Changes introduced in Bancor 3 include Omnipool, instant impermanent loss protection, auto-compounding rewards, dual rewards and superfluid liquidity. Omnipol is a protocol capable of compensating a user’s impermanent loss in another pool.