Bancor pauses protection mechanism due to ‘hostile market conditions’

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Decentralized finance (DeFi) protocol Bancor (BNT) said it suspended its impermanent loss (IL) protection mechanism due to “hostile market conditions.”

In an announcement published on Monday, the team behind Bancor said that fickle loss protection has been “temporarily paused” and vowed it will be reactivated “when the market stabilizes.”

“There is no ongoing attack and the funds on the protocol are secure,” the announcement continued, adding that the remaining users continue to earn income and “have the right to withdraw their fully protected value if the IL protection is reactivated”.

The announcement explained the reason for the discontinuation of fickle loss protection, stating that “anomalies, if not outright manipulative behavior” were observed in the data.

The announcement went on to blame some of its problems on “the recent bankruptcy of two large centralized entities” that were said to be longstanding liquidity providers in Bancor V2.1.

“In order to cover their liabilities, these companies quickly liquidated their BNT positions and drained large sums of liquidity from the system, while an unknown company opened a large short position on the BNT token on an external exchange,” it said in the announcement.

The announcement did not name any of the organizations to which it referred.

It added that on-chain data now suggests that “some of the worst BNT premium dumps are behind us.”

The team also said they expect the break to give the protocol “some room to breathe and recover.” It added that trading remains active on the protocol but deposits have been halted.

In the crypto community, some people have expressed skepticism about how Bancor’s IL protection supposedly works:

Bancor is a DeFi protocol that allows users to generate income by wagering just a single token, rather than pairs of tokens common to many other DeFi protocols. It also differs from other protocols in that it (usually) offers full protection against inconsistent loss.

The protocol’s native token, BNT, was trading at $0.508 as of 09:30 UTC on Monday, up 4.4% over the past 24 hours and down 50% over the past week.

Other teams are also taking protective measures

  • US crypto trading platform Voyager Digital announced that it has signed a deal with a crypto trading firm Alameda Research for a “revolving line of credit that gives Voyager access to additional capital.” The credit facility is designed to “protect customers’ assets in the face of current market volatility,” Voyager Digital wrote in the announcement.
  • Bitcoin (BTC) mining company. bit farms inked a mining equipment financing agreement with initial funding of $37 million from the Bitcoin-focused financial services firm NYDIG. The deal was completed to “increase our financial liquidity and flexibility during this time of macroeconomic crypto challenges,” Jeff Lucas, Chief Financial Officer at Bitfarms, wrote in the announcement.
  • crypto trading company Genesis tradeCEO Michael Moro divided that his firm “mitigated our losses with a large counterparty that failed to meet a margin call to us earlier this week.” He did not specify which “major counterparty” he was referring to.
  • MakerDAO (MKR), a DeFi protocol that issues stablecoin DAI, announced that it has disabled its Aave (AAVE) Direct Deposit Module (D3M). “According to the Urgent Signal Request published on the recommendation of the Risk Core Unit, this is a preventive measure against potentially unacceptable risks for the Maker protocol,” MakerDAO wrote in a tweet.


Learn more:
– Bancor Discovers Vulnerability, Seizes $460,000 in User Funds (UPDATED)
– Bancor and MyEtherWallet affected by security vulnerabilities

– Not enough liquidity for Celsius to sell staked Ethereum in the open market – Analyst
– BlockFi, and others come forward while Three Arrows hires consultants, Babel Finance pauses payouts

– Three Arrows Capital has left us ‘spooked’ after $1m disappearance claims from trading firms
– After Terra and Celsius, the crypto market could now be hit by three arrows

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