Sometimes it’s harder to explain Bancor v2.1 to AMM veterans than it is to explain it to newcomers

For those deeply familiar w/ AMM pools - even the biggest whales/best operators - understanding IL protection & single-sided exposure can require re-learning what they already knew

Here’s my latest ELI(LP) - “explain it like I LP’d before”

Let’s use the $LINK pool as an example:

- You deposit $100K worth of $LINK
- Bancor protocol mints $100K worth of $BNT to match the other side

Both your deposit and the protocol’s deposit earn swap fees

The Bancor protocol also offers insurance against any IL incurred by your stake.

The insurance increases at a rate of 1% each day the stake remains live, and matures to full coverage after 100 days.

After this period, any impermanent loss that occurred in the first 100 days or any time thereafter is covered by the protocol at the time of withdrawal.

Withdrawals prior to the 100-day maturity are only eligible for partial compensation.

For example, withdrawals after 60 days in the pool receive 60% compensation on any impermanent loss incurred.

Also, there is no IL compensation for stakes withdrawn within the first 30 days.

If there is not enough $LINK in the pool to compensate for IL fully in $LINK, part of the compensation may be paid in $BN

For example:

- Say you put in 4000 $LINK (worth $160K)
- after 100 days, the $LINK price doubles (stake now worth $320K)
- you can now withdraw the value of 4000 $LINK or $320K (eg., $310K in $LINK, $10K in $BNT)
- plus swap fees in $LINK & $BNT rewards

With the exception of rewards, any $BNT withdrawn from the system, including as part of IL compensation, is subject to 24h lock-up.

$LINK can always be immediately withdrawn

In general, liquidity can be withdrawn from the pool at any time and before you have 100% IL insurance, it would just be subject to IL (similar to a normal AMM pool)

In sum, Bancor v2.1 is designed to generate higher profits for LPs from swap fees & liquidity mining rewards.

When IL is no longer part of the equation, fees & rewards are pure profit.

Starting the base of a Wiki with explainers

If there are links/explainers/threads you’ve found helpful, feel free to share them here https://twitter.com/natehindman/status/1360338053454303235