Bancor can stay solvent longer than the market can stay irrationalsteemCreated with Sketch.

in bancor •  2 years ago 

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It shouldn't be a surprise to many that Bancor has studied Keynes. The name of the company itself is from the supranational currency that Keynes proposed in the 1940s. Keynes' thought has had a huge impact on the world, and even though it is popular lately for libertarian-minded critics to trash Keynes without understanding the complexities of his proposals (which were attempts to solve problems that had led to two world wars), there is still a lot we can learn from him today.

One of Keynes' many well-known quips is, "The market can stay irrational longer than you can stay solvent." These are wise words any investor should carefully consider, as there are many who have not heeded Keynes' wisdom and lost everything as a result (this happened to Keynes himself, in fact), thinking incorrectly that they could weather a crisis.
However, Bancor has done something quite amazing: it has inverted the quote to "Bancor can stay solvent longer than the market can stay irrational."

Attempts over the past 36 hours to manipulate the price of BNT and cause a panic-sell to crash the company have done nothing other than increase Bancor's own holdings of BNT and awarded arbitrage opportunities to fast traders who helped keep BNT's price stable at 0.01 ETH. Barely a dent has been made in BNT's ETH reserves, and even if those reserves were totally depleted it wouldn't make a difference.

The purpose of Bancor and Ethereum is to eliminate the need for exchanges and brokers. Bancor's smart contract is your broker now; it only charges you gas to make transactions, no extra fees, and there's no spread when buying or selling to the contract. You can still trade BNT on exchanges if you see some arbitrage opportunities, but in general it is unnecessary.

When you buy a BNT token from the smart contract, a new token is created and the price goes up. When you sell to the normal smart contract, the token is destroyed and the price goes down. All this means is that the buyer and seller can make their individual half of the trade whenever they want, they don't have to trade at the same time; and Bancor calls this "Asynchronous Price Discovery". Whatever happens to the price of BNT on exchanges doesn't directly affect the smart contract price; traders might see the price of BNT go down on an exchange and decide to panic-sell their BNT to the contract, which would then make the contract price of BNT go down, but this is irrational. When the price of BNT on an exchange goes down below the contract price, you should not sell your own holdings to the contract in a panic, instead you should buy from the exchange and sell that to the contract for arbitrage.

When the market is manipulated into acting irrationally, and the contract price of BNT drops below the ICO price of 0.01 ETH, Bancor invites you to sell to their price floor contract. This contract is different from the normal sell contract in a few ways. First, it will always offer to buy your BNT at a price of 0.01 ETH, the ICO price. Second, the tokens you sell to it are not deleted, but are added to Bancor's own holdings, similar to a stock buyback, and these buybacks are funded with a reserve that currently sits at 108,120 ETH. When Bancor increases its holdings of BNT, this incentivizes the team to work hard to make their product even more amazing so they will maximize the return on their own BNT holdings.

Bancor also allows arbitrage opportunities from the contract to reward traders who help them keep the price of BNT stable. You can sell BNT to the price floor contract and turn around and use that ETH to buy more BNT from the normal contract at a lower price than you just sold it for. By buying more BNT, you push the price of BNT back up over the price floor. This benefits Bancor, and arbitrage traders, and investors who want a stable price for a longer time horizon; the only people who lose here are the manipulators and the panic-sellers.

After a full day of being hammered, barely a dent has been made in the reserves, and BNT has stayed stable while the price of nearly other crypto currency has dipped hard. So, what would happen if this irrational market continued for a few months and depleted Bancor's ETH reserves entirely?

Not much.

The funds in reserve are those that exceeded the ICO goal. Even if the reserve funds were totally drained, Bancor would still have plenty of money to continue development. And if those reserves were totally drained, then Bancor would end up owning over 12 million more BNT tokens than it started with, tokens it will hold long term, and with it holding that many BNT, it will become practically impossible for outsiders to further manipulate the price of BNT below the price floor, so there won't even be a need for additional reserves, and the price will return to a slow and steady climb, as Bancor intended from the start.

In other words, if anyone reading this is trying to manipulate and crash the price of BNT, please stop, you're only hurting yourself. Whatever you try to do only helps Bancor and the dedicated investors who believe in the project and are here for the long term, and happy to snatch up any arbitrage opportunities you enable them to.

Bancor isn't going to just disappear. It works. And it is going to change the world.

 
This post was picked up from Reddit. Credits to Bancorage.


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good read!

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Yes @ugos it is!!

it about time some similar idea come along... but need to consider longer and how it works

Actually you don't make any case as to why it is irrational to think BNTs are currently worthless. As per my post (which you downvoted without a comment) the behavior is that of a Ponzi scheme (I am not presuming that the intent is to defraud ICO buyers I am only describing the mechanism). At this point in time all that has happened is Bancor has put in place a token, sold it for 140M USD, kept ~70M USD to maintain the value of the token, and cashed in the other 70M USD. As per my post the only way the initial investors can get their money back, ie sell their holdings at an average 0.01 BNT/ETH is for a new 70M USD to be invested in the BNT, and these new holders are left in the same situation. Since there is no other income to the coin holders and since this is not a currency that is meant to be used to buy stuff, this situation is never going to change, so it makes no sense to me to value this at more than the reserve at this point since the only demand for it is speculative , not commercial.

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