The leading DeFi protocol banker has suspended its temporary loss protection program, citing “hostile market conditions” and “manipulative behavior” as the main reasons behind the action. While assuring users and investors that this is only a temporary measure, Bancor noted that all funds on the protocol are safe, and trading remains active on all liquidity pools.
As the months-long selloff shows no signs of reversal, many DeFi protocols have plunged deep into crisis mode due to liquidity stress as investors pull funds out of liquidity pools.
After that crypto lender Celsius froze users’ accounts last week, the decentralized automated market maker (AMM) – Bancor – announced Monday, by distributing its native token BNT, designed to offset IL’s influence. Were stopped its Temporary Damage (IL) Protection Facility. who are affected.
IL occurs in DeFi when external market conditions cause the value of the assets at stake relative to their initial value during the deposit time. Launching its Bancor version 3 earlier this year, the protocol refined the security mechanism, positioning it as a special feature that sets it apart from other DeFi competitors.
According to the official blog post, once the market stabilizes again, the bold measure aimed at “protecting the protocol and its users from potential manipulative actors” will be lifted. However, the protocol did not disclose a specific timeline for such an extreme measure.
The decentralized exchange reassures its users that they can continue to receive returns for the assets they hold during the turbulent period and withdraw funds with IL security after the facility is reactivated. The statement reads:
“Withdrawals made during this volatile period will not qualify for IL protection. Users who remain in the Protocol will continue to earn Yields and will be entitled to withdraw their full-protected value upon reactivation of the IL Security…
Deposits are not currently accepted to prevent confusion through direct contract negotiation where information on the stalled security is not visible.”
The sudden change in policies came as a response to the frequent dumping of rewarded BNT over the past 18 months, leading to a fall in the asset’s price. Currently, BNT is trading at $0.53, down almost 95% from its 2021 peak.
The team stopped the facility to prevent BNT from falling continuously. This has to do with IL compensation to users in BNT, increasing the supply of such assets and thus facilitating a drop in the price of the token. Furthermore, the team cited “the recent bankruptcy of two large centralized entities, major beneficiaries of the BNT liquidity mining rewards” as partly responsible for escalating the situation:
“In order to cover their liabilities, these entities swiftly liquidated their BNT positions and withdrawn a large amount of liquidity from the system, while an unidentified entity opened a large short position on BNT tokens on an external exchange. Is.”
Ahead of Bancor’s latest move to safeguard its native token, Babel Finance had already been involved in halting withdrawals due to liquidity pressures in Celsius. As the crypto industry sees its worst sell-off in years, some firms are having deep trouble financing their loans, and well-known digital asset hedge funds such as Three Arrows Capital (3AC) have been flooded with liquidations.
In the case of Bancor, the protocol said it has identified “anomalies” through its on-chain data, indicating that more than one major participant is actively shorting the token.
PrimeXBT Special Offer: Use this link to register and enter code POTATO50 to get up to $7,000 on your deposit.