Banker’s Protocol has ‘stopped’ the temporary loss protection, blaming unfavorable market conditions for the move.
The announcement came on Sunday, after a rough week for the cryptocurrency markets and a rough week for Bancor’s native coin. Bancor Network Token (BNT) is down 49.1% over the last 7 days at $0.521353.
According to the banker, his decision came as a reaction to the “recent bankruptcy” of “two large centralized entities”. The company did not even name the two.
“Due to hostile market conditions, Bancor’s temporary loss protection has been temporarily suspended,” Bancor said in a Medium post earlier today. “The IL Security on Protocol will be reactivated as soon as the market stabilizes. This is a temporary measure to protect the protocol and its users.”
Last Monday, crypto lending platform Celsius suspended all withdrawals amid growing concerns for its future. Venture capital (VC) firm Three Arrows Capital is facing an insolvency crisis in its own right. The struggle of these big players has helped create an atmosphere of fear, uncertainty and doubt in the entire market.
name of bankor
Also released in an AMA this MondayBancor’s head of research, Mark Richardson, joins the dots for those who haven’t already. While Bancor’s Medium post failed to name any specific player, Richardson was clearly less reticent.
“We found another Celsius wallet that was going to withdraw $10 million from the protocol and there was also an additional panic wave on the protocol, resulting in a very large amount of withdrawals,” he said. “It started to look something like a bank run event where it would be hard to imagine the protocol – such a huge flight of so much liquidity all at once.”
Richardson further added that a centralized entity is now perceived as “a hostile adversary against Bancor Protocol” as it is “making short positions” and attempting to manipulate the price of $BNT.
It seems that the once happy family of crypto whales is now eating each other alive and Richardson is not happy with the situation.
“I’m extremely disappointed with my industry that it even came this far,” he said.
FYI: Temporary Losses in a Nutshell
Users face temporary losses when holding their tokens in a liquidity pool of two or more tokens. This staking creates an automated market maker or automated liquidity pool, which users can employ to swap tokens in a decentralized manner. Popular examples include Uniswap, Pancakeswap, and SushiSwap. A major pioneer of the liquidity pool system was the banker.
While liquidity pools offer users the opportunity to earn interest or fees from their staking funds, there are some concomitant risks as well. If the price of tokens in the pool becomes too high, the valuable assets in the pool may be removed and devalued or replaced with stable assets. It maintains the balance of the liquidity pool and ensures that the value of one asset does not exceed that of the other asset or assets.
When a user decides to withdraw their staked tokens, the return they receive is measured as a percentage of their pool. (If they had 10% at the time of staking, they get 10% of the pool when they exit.)
The user may then find that the legal value of their pool entitlement is less than what their tokens actually hold.
The temporary loss does not take into account any profit that the User may have earned from trading fees while their assets were staked. Therefore, it is possible to suffer a ‘permanent loss’ and still make a profit.
Temporary Loss Protection was first introduced by Bancor in October 2020 and offered a safety net for those contributing to their liquidity pool. Now, with crypto entering a bear market, that safety net is gone.
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