Bancor peeked my interest because upon first glance what they were claiming to achieve seemed impossible. After reading the whitepaper and failing to understand how Bancor could possible work (reading technical whitepapers usually ends in this result for me but the Bancor whitepaper was far from technical) I Inquired with a developer or representative on Telegram about the mechanics and theory behind their system. I had recently learned about how Bitshares allows users to create "smart tokens" which are backed by a reserve of BTS and wanted to know if Bancor was the same or similar - I was assured that it was not.
Failing to understand the economics or benefit behind the Bancor Protocol I decided not to invest - And boy am I glad!
Emin Gün Sirer and Phil Daian (who discovered the Ethereum DAO vulnerability) have written a consise and lengthy critique of the Bancor Protocol which you can find here.
The following is a summary of their points. Please go to the blog to read more in depth.
- Bancor uses lots of mumbo jumbo terminology.
- The core problem they want to address, "Double Coincidence of Wants" is not a real problem.
- One can always use ether as a medium of exchange.
- Bancor is essentially a central bank strategy for automatically setting a dynamic peg for new coins.
- Everything Bancor can do for you on chain, you can do by yourself off chain.
- It is much better to manage the reserves manually than to commit to the Bancor strategy.
- The Bancor strategy fails to capitalize on excess value
- The algorithmic dampening provided by Bancor isn't desirable for already liquid assets whose value is unstable.
- The Bancor strategy will not do anything to find or maintain the true equilibrium value of an asset.
- Bancor thus acts like a dynamically adjusted currency peg.
- Bancor presents an arbitrage opportunity. It does not lead the market towards equilibrium, it trails the market, always and by definition.
- Bancor does not "eliminate labor" in price discovery.
- There is no indication that the Bancor strategy is an optimal, or even good, use of reserves to discover the price.
- Bancor is a net negative in markets with substantial liquidity.
- Bancor claims to provide liquidity, but does not.
- Bancor is open to front-running. – basically you get scammed.
- Bancor's suggested fix to front-running is broken.
- Bancor reimplemented math. – they wrote code wrong.
- Bancor did not test their own math.
- Arithmetic errors can be fatal.
- Bancor does not support the notion of supply caps for Bancor-based tokens.
- Bancor does not scale.
- Bancor shortchanges its users.
- Bancor code is "difficult to prove correct."
- Bancor code has a reentrancy problem in the sell() function.
- Bancor code has a different reentrancy problem in the change() function.
- Bancor code assumes that ERC20 tokens based on Bancor are cooperative. – ERC20 tokens can contain malicious code.
Dump Bancor if you own it.
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