Bancor recently upgraded to Bancor v2.1 – which uniquely featured Impermanent Loss insurance facilitated by elastic BNT supply. For a good recap, please refer to this Delphi Daily. While conceptually similar as they are both dilutive, this method is distinctly different than the more popular liquidity mining rewards as a method to off-set LP risk (Yes, liquidity rewards are not primarily used to off-set IL). Bancor’s IL insurance is retroactive and tied to measurable economic loss by LPs. On the other hand, Liquidity mining rewards have the capacity to over and undershoot LP IL exposure. When accessing the fair value of both IL insurance and mining rewards, both fall short if the associated liquidity does not bring equal value (trading volume, fees, etc.).
If I were an LP, which would I prefer (assuming even future fee returns)? It boils down to an LP’s motivation. If my goal is purely as a mercenary farmer, the instant liquidity and forecastable nature make liquidity mining more favorable. If I’m an LP that’s bullish on the farming token, liquidity mining also seems favorable as the range of your token rewards is more predictable. You do not protect liquidity to possibly earn BNT. How much is Bancor losing out in liquidity here? Probably a lot. IL insurance, however, distinctly favors more passive LPs who are long-term bullish on their supplied assets. This is a large market. Bancor’s single-sided liquidity pool had this intention in mind. Let’