Smart Media Tokens Talk: What is the Bancor Protocol?
If you've read the Smart Media Token Whitepaper you may have noticed the section on "Automated Market Makers" which are special contracts based on the Bancor Protocol allowing guaranteed liquidity for SMTs that implement them.
This essentially eliminates the need for what we think of as a traditional crypocurrency exchange where buyers and sellers make orders in an order book. Now users can buy and sell directly to an algorithmic smart contract 24/7 and buy or sell tokens instantly.
When setting up a SMT you'll be able to back it with a reserve tank of STEEM while setting a reserve ratio. For example, if you back your SMT with a 2,500 STEEM reserve and have CPR (constant portfolio ratio) of 0.25, the theoretical market cap of your SMT would be 10,000 STEEM.
The cool part about it is that if someone attempts to dump a ton of tokens on the market all at once, the algorithm will adjust the price lower accordingly and the reserve tank will never go to zero. Alternatively, if someone attempts to buy a lot of tokens at once the price will adjust upward similarly.
Let's take a look at some visual aids to help us gain a better understanding.
Above you see a typical depth chart on an exchange. The buy and sell sides are often mismatched because it is based on the individual buyers and seller decisions. It is a source of market inefficiency.
Now let's look at the this depth chart above. This is what a depth chart that is controlled by the Bancor Protocol looks like. Notice the perfect mirroring of the buy and sell sides. The algorithm perfectly adjusts the price based on demand leading to a highly efficient and convenient market.
I really think this will be a game changer and I'm quite excited to see it implemented on the STEEM blockchain.
This post was not meant to be an exhaustive explanation of the Bancor Protocol or how it will be implemented with SMTs. Please read the SMT Whitepaper for a more thorough and in depth explanation: https://smt.steem.io/smt-whitepaper.pdf
Also the original Bancor Whitepaper is a great resource: https://www.bancor.network/static/bancor_protocol_whitepaper_en.pdf
this will be recorded in history. i cant wait for SMT
I am Cornholio! (Whoa! Hm heh... that was cool) I need T.P. for my bunghole! Come out with your pants down!
did not know that, ty for clearing that up
I remember Ned saying he was talking with the Bancor team during a livestream. With the front running problems Bancor could potentially have being on the Ethereum network it wouldn't surprise me if they switched over to Steem or Eos.
Holy cow, this is some exciting stuff. Thanks for making a little more sense of things. It's so hard to keep up!
Nothing had me excited for SMT tokens. Did not even look at the white paper. I had (terribly) assumed it'd be a collection of pump and dumps on our blockchain. Will now read it with an intense focus.
Thanks!
The AMM is definitely a very important part of the whole SMT project. I can relate quite a bit to your comment. :)
Interessing post and great concept thanks for sharing
SMT seems like an intriguing idea. However, I do worry about inflation in that third-parties will be able to mint their own crypto-currency and doesn't that have the potential to adversely impact the value of steem?
Great info... thank your for sharing. Upvoted, resteemed and following.
cheer
img credz: pixabay.com
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nice work, I'm not that smart on the tech side here but that was helpful.