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Bancor, an early decentralized finance (DeFi) protocol, announced that its much-anticipated protocol update, Bancor 3, is now out of beta and has launched on mainnet, bringing with it a host of new features and improvements.

According to the team, the main goal of Bancor 3 is to create sustainable on-chain liquidity for token projects. The idea is to give participants enough incentives to use the protocol, including auto-compound earnings, dual rewards, and—arguably its most important feature—the ability to instantly receive 100% impermanent loss protection.

In the world of DeFi, impermanent loss happens when a user provides liquidity to a liquidity pool, and the ratio of their deposited assets changes at a later point potentially leaving investors with more of the lower value token. This can be a rather painful experience as the bigger this change is, the more users are exposed to impermanent loss.

The problem, according to Bancor, is that many DeFi projects seem to ignore the issue, “just brushing it under the carpet.” Ultimately, this results in inaccurate APR (annual rate of return expressed in percentages) numbers reported by some protocols.

“Many token holders have learned a hard lesson that the APR figures they see do not include impermanent loss; rather, they just see fees over liquidity. But that assumes that liquidity stays the same over time,” Mark Richardson, product architect at Bancor told Decrypt.

To get true APR, Richardson explained, you must take transaction fees, minus impermanent loss over liquidity.

“As more token holders have started to realize that the APR that they see going in is not what they eventually get out, they have started to pull back from staking inside liquidity pools. This is bad for trust, it’s bad for liquidity and it’s bad for the development of DeFi,” he added.

According to Richardson, to build truly sustainable decentralized liquidity markets, a “broad, sustainable involvement in liquidity pools, with a diversity of participants (not just sophisticated market-making firms)” is needed.

轉貼自： Decrypt

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