DeFi Protocol Bancor Activates its Impermanent Loss Protection


Decentralized Finance (DeFi) protocol, Bancor has disclosed that it would be slamming the brakes on its Impermanent Loss protection feature. The protocol made this known to all of its investors through a blog post that was released on Sunday.

According to the post, the removal of protection from Impermanent Loss (IL) is a result of the current unease within the cryptocurrency market. Bancor however stated that the decision is in the best interest of the protocol and its users.

While many investors frowned at this news, Bancor said it was needed to give the protocol recovery space and it will be taken out as soon as possible.

“The removal of IL protection would only be active pending when the market regains stability and a clear-cut direction” it stated.

Although impermanent loss is a feature common to liquidity pools, Bancor introduced this IL protection feature sometime in 2020. This feature and a couple of other novel ones were however strengthened in the Bancor 3 which launched in mid-May 2022. 

However, following the famous implosion which led to the collapse of LUNA and UST tokens, Bancor’s IL protection feature has been under watch. One of such individuals who embarked on this fact-finding quest is a Web3 researcher named Hasu. According to him, Bancor’s IL protection claim is nothing but a shell game that lacks the tenacity to stand the test of time. 

“What Bancor does is to print new BNT tokens which it uses to pad liquidity providers underwater. The effect of this padding cascades to BNT token holders in the form of inflation; this leads to further impermanent loss for all BNT token pairs on the protocol” he said.

Market Plunge infiltrates the DeFi space

The introduction of DeFi to the world of cryptocurrencies has no doubt increased the adoption of digital assets. With DeFi, investors can now earn yields simply by staking tokens, lending, providing liquidity to pools, or through crypto-collateralized loans.

The bloodbath across the market has however not spared the once serene and high-risk-shielded DeFi space. In reaction to this, Celsius, which is a prominent player in this space, pulled the plugs on withdrawals since Bitcoin (BTC) and the broader market sell-off intensified. 

Similar to Celsius, Babel Finance is another DeFi protocol that has stopped its users from being able to withdraw. According to the crypto lender, the decision was due to “unusual liquidity pressure” the platform has been facing in recent times.

Victoria Nye
A Blockchain columnist who is enthusiastic about developing a network interface between the real world and the cryptosphere.

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