Bancor Protocol Suspended Non-Permanent Loss Protection Feature

The Bancor DeFi protocol team has suspended Impermanent Loss Protection (ILP) due to«hostile market conditions».

«The measure to suspend IL protection should giveThe protocol requires a little time for respite and recovery. While we wait for the markets to stabilize, we are working to re-activate the option as soon as possible,” the blog says.

ILP compensates for possible temporary lossesusers when depositing assets into protocol liquidity pools using BNT tokens. The coins come from rewards for placing funds in pools owned by Bancor or from an additional issue.

What is Impermanent Loss?

The protocol team noted that the recent sell-off by users of rewards accumulated over the past 18 months has led to the need to issue new BNT.

Additional pressure on the token price came from«insolvency of two large centralized organizations», which the developers did not name. These institutions have been the main beneficiaries of liquidity mining pools as «long-time providers» in Bancor V2.1.

«To cover their obligations, theyquickly liquidated positions in BNT and withdrew large amounts from the system, while an unknown person opened a large short position on the token on an external exchange,” the team explained.

Bancor clarified that “there are no ongoing attacks at the moment,” and the funds in the protocol are safe.

Depositing funds is also temporarysuspended. Withdrawal of funds is possible only through Bancor V3 without compensation for losses. Users who leave assets in liquidity pools will be able to withdraw them later with the ILP feature once it is reactivated, the team assured.

“What’s the point of Bancor’s ILP if it just disappears when it’s needed most,” commented opinion leader Cobie.

He drew attention to the developers' remark that the suspension of the option was due to the way they «designed and built it».

A well-known analyst under the pseudonym Hasu said that "Bancor's pretend game of hiding IL is falling apart."

«They're just releasing new BNT forcompensation and call it “IL protection.” The value is passed on to token holders through inflation, causing further losses for all other BNT pairs and leading to depreciation. “Death spiral,” he added.

On June 13, amid the fall of the crypto market, the large crypto lending platform Celsius Network suspended withdrawals, exchanges and transfers between accounts.

Since that moment, the price of BNT has fallen almost twice - from ~$1 to ~$0.52 (Bitfinex). 

Hourly BNT/USD chart on the Bitfinex exchange. Data: Trading View.

After the market crash there were reports ofpossible insolvency of the hedge fund Three Arrows Capital. Company co-founder Su Zhu did not directly confirm the rumors, but stated that they were «committed to solving the problem».

Recall that by June 18, the amount of funds in the DeFi ecosystem had decreased to $70.72 billion, a 71% decrease from the December 2021 peak.

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