Bancor: $150M ICO In 2.5 Hours
Say goodbye to exchanges, spreads, and hacking: the future is here, and it’s called Bancor.
BANCOR IN THEORY, MAKES IT EASIER FOR SMALL CURRENCIES WITHOUT LIQUIDITY TO GET UP AND RUNNING.
Say goodbye to exchanges, spreads, and hacking: the future of finance is here, and it’s Bancor. Bancor rode their “smart tokens” to a $150M ICO in 2.5 hours, setting the then-record for largest ICO ever. Inspired by one of the most famous economists of all time, we’ll break down what makes Bancor unique, as well as the good (and bad) reasons they raised so much money.
IDEA SPAWNED FROM A JADED ECONOMIST
John Maynard Keynes, the namesake behind Keynesian Economics, was a seriously jaded man after World War II. He’d watched The Great Depression and World War II play havoc with the world’s financial systems. At the Bretton Woods Conference after WW2, he proposed the idea of a “Bancor;” a supranational currency that would prevent stronger countries and currencies from bullying smaller economies with weaker currencies. Keyne’s idea didn’t take at the conference, but it’s been revived by one of the hottest ICO teams right now. Bancor is a currency that, from their whitepaper, has the goal of “removing the need for two opposite wants to be simultaneously matched.” Bancor in theory, makes it easier for small currencies without liquidity to get up and running. Let’s get into why.
Bancor issues “Smart Tokens.” Each token can hold multiple currencies, with Ethereum as a reserve. You might decide to create a token that is 50% Bitcoin, 25% Ethereum, and 25% Iota. It’s the ability to hold multiple currencies in a token that has drawn comparisons to mutual funds and ETFs. The tokens have Ethereum as a reserve, which is currently the clear #2 crypto, and seeing more real-world applications every day. This ensures if you want to cash out a token, it’ll be worth something. The value of a token is the sum of its parts. So you can easily purchase smaller currencies into a token and have them be worth something. One of the great challenges of up-and-coming currencies is achieving the volume of trading activity required for market-liquidity.
The game-changing implications of this are clear. Bancor pitched investors on no exchanges: the smart tokens themselves replaced them. There will be no spread between the buy and the ask price, since the smart tokens calculate the current price. As newly created tokens use Bancor as their reserves, the value of Bancor itself will rise.
NO NEED FOR EXCHANGES?
A world without cryptocurrency exchanges is intriguing. Just ask anyone who had money on Bitfinex or MtGox, two prominent exchanges that have been hacked and lost cumulatively, hundreds of millions of dollars. Bancor’s claim to eliminate the “spread” is revolutionary as well. The spread, or the difference between the buy and the sell prices, is as old as the stock market itself.
It’s an ambitious project, but Bancor put together a solid team. Tim Draper, one of Silicon Valley’s biggest VCs, threw his considerable name behind the project. Brock Pierce, a blockchain VC, is involved as well. The key member of the team might be Bernard Lietaer, a name that probably wouldn’t ring a bell to most people on the street. But Liater has been dubbed “The Architect of The Euro” for his role in creating the European currency used by 19 nations. If the goal is creating something similar for cryptocurrency, Bernard Lietaer is one of the most qualified men on the planet.
It’s easy to talk impressive tech. It’s hard to code world-changing technology. But Bancor seems to have assembled a talented team of programmers, and in a twist that I like, has their code on their website. Individuals can check out the code involved in token creation and token conversion. Seeing something tangible like this is always great, especially compared to many ICOs that demand money without any kind of working prototype.
With the ICO mania going on right now (see how many ICOs are in our ICO calendar), it can be tough to step back and evaluate a project critically. For Bancor to have raised these eye-popping sums conventionally through a VC process would have taken significantly longer, with milestones, due diligence, and multiple rounds of funding. Some have argued ICOs are the future; money can be delivered way faster from those who have it, to those who use it to create. Conversely, ICOs can also demonstrate there are a great many idiots in the world willing to plunge staggering sums into projects hoping for the next Bitcoin. Which is Bancor?
LOST IN THE HOOPLA OF DOLLAR SIGNS
Bancor, like Tezos, raised an enormous sum accidentally. Lost in the hoopla and dollar signs is the fact that ICOs often have a set goal and are capped. The whole point of an ICO is getting tokens while they’re still cheap and exclusive. The more tokens out there, the more devalued it becomes, and that’s not what you want when you’re plunging a ton of money into something highly speculative. The Bancor team recommended investors use MyEtherWallet. Unfortunately, during the ICO, MyEtherWallet couldn’t handle the volume of transactions. Bancor graciously kept the ICO going longer than planned, and pocketed an extra 51 million. This seems like a good problem. But not if you bought in early. Investors were angered that their coins were devalued already.
Bancor’s core code is all of 40 lines, so most of the criticism is against the concept itself. There’s a fair amount of criticism out there, but the Bancor team has posted rebuttal pieces and extensively answered AMAs, so they deserve credit for that. Investing in Bancor boils down to if you think there’s a market for market-makers. Emin Gun Sirer, an experienced crypto writer, published an extensive piece title “Bancor is Flawed” that blasted numerous aspects of the token. One of his strongest arguments was that you could do everything Bancor does on your own; Bancor’s ability to match misaligned needs can just be done by a common currency. Or in this case, a cryptocurrency. Whether Bancor really needs to exist is the crux of the question. Prospective investors would be well-served to read both the piece and Bancor’s extensive rebuttal. The team has an ambitious idea, but we’ll have to wait and see if there’s a market for market-making tokens.
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