Tokenized Capital markets with reserve ratios & no exchanges: Bancor Network, Kickico,…

Bancor’s token sale (BNT) held the ICO record in June, with $153million raise in just one hour. Back then (it feels already like ages) it was the first one to launch a “One-hour uncapped” sale! Needless to say, that the record has been broken every month and we are now at a $257million for Filecoin just a few days ago who beat Tezos with $232million.

Bancor token sale was not a white paper fundraiser. A team of 10 developers was already working for a whole year and had a beta product delivered about 1.5 months before the ICO!

I first heard about their value proposition, it was late May when they contacted DailyFintech to share content. At first sight, it was solving liquidity in the token emerging market and resembled the mission of Lykke exchange whose global trading platform is open source on the one hand but uses a proprietary match-making mechanism on their exchange that will be able to handle (eventually) any kind of digital asset.

I had the pleasure to speak to Eyal Herzog from the Bancor foundation, recently and got to the heart of their core value proposition. Bancor is focused on adding liquidity to digital currencies or any token without the need of an exchange that depends on market-makers or any algorithmic match-making. Bancor is not automating the match-making mechanism that clears trades. Bancor is automating the conversion of tokens (I.e. buy one, sell another) through a programmable smart mechanism. So liquidity is offered outside of exchanges – I like to think of this as off-road liquidity. Eyal likes to think of the analogy of transportation via cars, trucks, planes, ships etc but with no driver, pilot, captain etc.

This way the Smart contracts will be facilitating the issuance of tokens which of course are ERC20 compatible but offer more than just transferability. You can convert the tokens without having to go to an exchange.

Liquidity is measurable. For Bancor it is determined by the CRR – Constant reserve ratio. For example, the BNT token has a 10% Ether reserve ratio. The higher the CRR of a token, the more liquidity; the lower the CRR of a token, the less liquid. 100 CRR would be pegging it to Ether. BNT is not a derivative of ETH but you could say it is denominated in ETH. When you buy a BNT, there is an issuance of the token/and adding ETH to the reserve (on the smart contract) and when you sell BNT, the smart BNTs are destroyed.

Bancor wants small cap tokens to have liquidity. Their upcoming release will be the first step in that direction by offering the ability to integrate any third party ethereum wallet (like Metamask, Parity, Imtoken, etc) and enable on-chain conversion between any two tokens (without having to go to an exchange).

Second major step is Bancor’s recent announcement of a strategic partnership with Kickico, a kind of decentralized Kickstarter or rather a 3-in-1 platform for ICO’s, crowd funding and crowd-investing. The KickCoin has launched its sale since Aug 29 and is ongoing until Sep 16.

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KICKICO aims to become a platform for small to medium size fundraising ventures through Initial tokens offering. However, since most of them will not have enough capitalization to be listed and traded on crypto-exchanges, the integration with the Bancor network will make their tokens really “Smart”.

Through this partnership, the Bancor network is scaling with the onboarding of the Kickico ventures. Kickico offers liquidity to its clients that choose to issue a “Smart token” which would mean that it can be exchanged with any of ERC-20 tokens. The way it will work for Kickico and Bancor, is that every KickCoin will have a 5% reserve currency of BNTs.

A very different world

I can see the fear in many eyes these days around ICOs, ethereum etc. We are still very human and so we overreact to all the sweeping changes that are happening. And of course, it won’t be a straight line to the direction we are heading to.

Let’s switch to think of the change that is happening. ICOs are not only about funding a company. “ICOs are more about an ecosystem on which for profit companies will be built on; more like a country. We are in a unique time that protocols are built on which the next generation of the Web will operate” echoing words from an excited Eyal Herzog.

Bancor wants to remove the barriers to liquidity for the issuance of all sorts of tokens: from community, to loyalty, to business etc.

Anyone today can issue a currency against any asset. The cost of failure is so low and we have all the technologies needed:

  • 24/7 internet
  • secure and decentralized = blockchain tech
  • connecting all blockchains = liquidity

For those that still think that Smart contracts and Smart tokens are just a programmable module on the blockchain, much like an Excel or a Google sheet cell with a Macro; there is a wake-up call that they can’t continue ignoring.

Smart contracts and Smart tokens can hold Assets on-chain and off-chain; can transfer Value on-chain and off-chain; can create Liquidity on-chain and off-chain. Centralized checks, audits etc. are not needed.

Doesn’t Bancor network feel like the decentralized tokenized version of future Central Banks and a few other Capital markets crucial institutions (SWIFT, exchanges etc), with reserve ratios determined in a decentralized way? Very exciting times of new decentralized monetary tools to consider. So stay tuned.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

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