Bancor Suspends 'Impermanent Loss Protection', Citing Market Strain By Investing.com

Bancor Suspends 'Impermanent Loss Protection', Citing Market Strain

Cryptocurrency Jun 20, 2022 05:55AM ET

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Bancor Suspends 'Impermanent Loss Protection', Citing Market Strain

By Geoffrey Smith

Investing.com -- Decentralized finance network Bancor said Monday it is suspending its so-called Impermanent Loss Protection barely a month after its launch, citing "hostile market conditions".

Bancor is the latest in a series of platforms offering high token-based rewards to crypto speculators - frequently through the use of derivatives - to face liquidity strains as the price of many cryptocurrencies slump under pressure from a cycle of higher global interest rates. Various lending platforms including Celsius Network, Finblox, and Babel Finance have all announced similar measures over the last eight days.

Celsius said on Monday it will need more time than first thought in order to restart operations.

Bancor, whose marketing slogan is "Earn safe DeFi yields on your favorite tokens", said the move was a temporary one "to protect the protocol and its users".

The Impermanent Loss Protection mechanism was designed to protect depositors in liquidity pools consisting of multiple tokens against big swings in the value of the individual tokens in the pool, something that is usually correlated to overall liquidity in that specific token. But the trick has proved harder to guarantee than the designers imagined in the context of the biggest crypto sell-off in four years. Bitcoin fell below $20,000 over the weekend taking its losses for the year to over 55%, while Bancor's own token, BNT, has lost nearly 95% of its value from its 2021 peak. It had slumped to less than 52 cents as of Monday from $3.34 at the start of the year.

Bancor said it had identified "anomalies, if not manipulative behavior," on its blockchain, implying that one or more participants have been shorting the token.

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Lawrenti Berija Jun 20, 2022 6:34AM ET

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