Bancor’s Approach to Handling Impermanent Loss Shows Financial Viability

Bancor has been working on a reliable method to address impermanent loss and it seems to have struck gold with its insurance-based approach

The Bancor Network has been busy trying to solve the issue of impermanent loss on its decentralized exchange. In a recent report, the protocol showed significant success with its approach, leading to the belief that it might be able to handle the protection of temporary loss of funds in the long term.

Impermanent Loss on DEXs

Yesterday, Bancor released a Protocol Health Report for its v2.1 decentralized exchange (DEX) upgrade.

The report covered the exchange’s financial and operational performance for the past quarter, showing significant liquidity and revenue gains.

As the report showed, liquidity across the DEX rose by 100 percent over the past three months, resulting in about 700,000 BNT (worth $1.12 million) in earnings from swap fees. However, the platform’s strategy on impermanent loss appeared to have faltered.

When Bancor launched the DEX late last year, it focused primarily on effective impermanent loss management.

Also known as divergence loss, the impermanent loss is a problem that affects mostly exchanges that run on the automated market maker (AMM) protocol. It occurs when liquidity providers (LPs) lose funds due to the volatility of a trading pair. It basically describes how much revenue an investor would have earned if they had held on rather than provide liquidity to the market.

The effect of this divergence is a loss of value, compared to the benchmark “buy and hold” portfolio.

The loss is termed “impermanent” because it could be reverted if the prices returned to their original state. However, even in the best scenarios, losses due to divergence will reduce liquidity providers’ profits from price swings.

Possible Long-Term Benefits

Bancor had initially tried to solve the problem with oracles, which reads token prices and render arbitrage virtually unnecessary.

However, front-running issues rendered this approach impractical. So, the exchange deployed an insurance mechanism to cover the cost of impermanent loss.

The project implemented a vesting schedule to incentivize LPs to stake their tokens in the long term.

The protocol’s strategy was to incentivize more altcoin holders to become LPs instead of adopting the buy-and-hold strategy. Another strategy Bancor plans to explore is to encourage projects to use their treasuries to provide liquidity to AMMs. Just like proof-of-stake (PoS) rewards, the method could allow projects with considerable token reserves to increase liquidity on token pairs and also get additional rewards.

The vesting schedule will see Bancor provide one percent coverage on liquidity capital for up to 100 days. However, LPs who make withdrawals before 30 days won’t get any compensation for losses in that period.

Bancor’s approach appears to be yielding benefits. As the company reported, the total impermanent loss associated with withdrawn liquidity amounted to 41,000 BNT ($64,000). On the flip side, the protocol also earned 350,00 BNT ($560,000) in fees.

Bancor added that some LPs withdrew their deposits before getting 100 percent insurance. These LPs got partial protection, which was paid based on their coverage level. The report pointed out,

“As the proportion of insurance policies with 100% protection increases over time, it stands to reason that the associated cost to the protocol will rise. However, various factors suggest the protocol is able to handle this insurance burden.”

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Author: Jimmy Aki

Blockstack Gets Patent Approval for Single Sign-on For Decentralized Applications (DApp)

Blockstack, the decentralized web development platform has been granted a patent for its method of cryptographically signature which makes it possible to sign on any of their Dapss with a single digital signature without the need for any third-party authentication.

Blockstack got the nod from USPTO on March 24, merely 8 months after it applied for the patent. The 8-month waiting period is quite low when we compare it to the average time period taken by USPTO has been around 32-months. Blockstack first released the developer version of Auth in 2017.

The patent document suggests that Blockstack’s Auth aims to become the one cryptographic password to rule them all in the next generation of internet also known as Web 3.0. The patent document also revealed that the functionality of Auth would be quite similar to current generation social media platforms like Google and Facebook’s one-click sign-in for multiple platforms. However, the execution would be quite different from the current ones.

In the current scenario, a third-party is responsible for authentication who take over the control from the user and manages to scan any possible data from centralized servers without the user’s consent or we can say the policies have been as such that a user has to grant authority to use the service. However, Auth won’t be relying on servers for authentication and instead, it would make use of the cryptographic public key.

How Auth Would Ensure Privacy for the Users

The process of authentication would be carried out by exchanging JSON web tokens between the Dapps and Blockstack browser. At the time of sign-in an “ephemeral transit key” is generated by the Dapp whose public portion is sent to the browser using “authRequest” token. The browser then encrypts the public portion and send back the encrypted public information to Dapp in the form of “authResponse” token.

Although this would be Blockstack’s first patent for its universal login Auth protocol, it has also led to questioning whether patenting was the right way for open source Blockstack Auth and decentralization in general. Muneeb Ali, CEO of Blockstack addressed the issue on a forum after 2 days of patent confirmation. Ali claimed that the main reason for them to patent their system was so that no other big firms file the patent for any similar protocol, which would have negated their work.

Ali also cited that many big firms like IBM, Microsoft and Amazon have been interested in making it big in the blockchain space and have filed numerous patents for the same. Ali also noted that their only intention is to patent core team effort and called it purely for the defensive purpose.

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Author: James W

Justin Sun Responds To TRX Coin Burn Criticism, Tron Super Reps Voted To Increase Cap

  • TRON foundation passed its 27th proposal altering the method by which voting and block rewards are issued
  • TRON’s stakeholders (Super Reps and partners) have been the key decision-makers of the networks’ decisions

When TRON Foundation was founded in 2017 they initially started with the ERC-20 token which restricted their hard cap to only 100 billion TRX. However, in June 2018 when they had just announced their mainnet, TRON’s executives took the DPoS (Delegated Proof of Stake) approach. On which they introduced block and voting rewards for TRON’s Super Reps and those that held TRX stake. This resulted in the lifting of their hard cap.

Founder Justin Sun responded to TRX holders that went to social media to call out Tron for not running a coin burn since Justin promised to not let the supply cross 100 billion.

With an estimated reward of close to 500 million TRX annually, the blocks rewards are more often than not reserved for the super reps while the voting rewards are subject to division by the total votes.

Rewards per year = (SR rewards per block + voting rewards per block) * (seconds of one year/seconds of block time)

Therefore;

Rewards per year = (32 + 16) * 365 * 24 * 3600 / 3 = 504,576,000

The 27th proposal.

TRON’s 27th proposal sailed through on the 2nd Nov 2019, whose main objective was to change the Super Reps block rewards to around 16 TRX while altering voting rewards awarded to the 127 partners (27 Super Reps and following 100 partners) to around 160 TRX.

This brought about a substantial increase in TRON’s reward program encouraging more people to pick up Super Reps and partners and be active participants in voting and staking of TRON mainnet. Now all the functions are decentralized with close to 90% of rewards being pocketed by those who have a stake in TRON. This would mean that TRON’s hard cap would be subject to decision by block and voting rewards. Their rewards have since skyrocketed to 1.85 billion TRX annually.

Rewards per year = (SR rewards per block + voting rewards per block) * (seconds of one year/seconds of block time)

Rewards per year = (16 + 160) * 365 * 24 * 3600 / 3 = 1,850,112,000

Notably, TRON foundation doesn’t govern the TRON mainnet. It is mainly controlled by those who hold TRX and the community around TRX. The last decision TRON foundation made in regards to the Network was the original issuing of one hundred billion TRX, while all other key decisions were completely made by the super Reps and partners.

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Author: Lujan Odera

Oracle Software Giant Sues Crypto Startup ‘CryptoOracle’ For Trademark Breach

The practice of adding popular brand names to the name of a startup is a method used to attract clients to a business. The blockchain industry has seen this practice several times over with startups adding popular words such as Bitcoin and Blockchain to their names in a bid to lure customers. Some startups even use parts of popular companies’ names for the same purposes.

CryptoOracle has taken to Court

One blockchain startup, CryptoOracle, has been sued by the software giant, Oracle, for cybersquatting and trademark infringement. The lawsuit claims that CryptoOracle LLC used Oracle’s brand name in a bid to ride on the popularity of the software giant. Cybersquatting is the practice of using an internet domain name in bad faith with the intention of profiting from the goodwill built by another brand or trademark.

CryptoOracle was founded by Louis Kerner in 2017. The blockchain startup is a cryptocurrency advisory firm which serves other blockchain startups and entrepreneurs in the industry. The company sells tickets to events they host at which those interested in blockchain businesses can get the information they need and meet with other players in the crypto space.

Oracle is one of the biggest software firms, and it is famously known for the Java software. They also provide a range of services such as database management and cloud services. Oracle hosts many conferences and educational seminars for different software categories and topics.

Before the lawsuit, a cease and desist order had been issued to Kerner and his brand as Oracle sought to settle the matter out of court. CryptoOracle responded with a filled-in trademark application for their brand name. Oracle said that they could not allow the use of their brand name in the defendant’s business.

A request to force CryptoOracle to change its brand name and withdraw the trademark application has been placed before a federal judge. Oracle’s attorney reportedly said that his client might be entitled to the profits CryptoOracle made during the time they’ve been using the name.

Oracle and Blockchain

Oracle has plans to move into the crypto business through its Oracle Blockchain Platform, and this may be another reason behind the lawsuit. If another company with a similar brand name already exists in the crypto space, it might cause confusion among customers because it is easy to mistake one for the other. Such confusion could cost Oracle some business and the software giant is trying to avoid that.

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Author: Ali Raza