Bancor bears sustained permanent loss rather than impermanent loss

Bancor is not only a pioneer in AMM, but also a pioneer in providing impermanent loss protection, and has made outstanding contributions to the development of DEFI. However, bancor’s impermanent loss protection has suffered a huge deficit due to the recent malicious market trend.

The author has published a number of articles to study the impermanent loss protection of BNT. We have all come to a definite conclusion that it is unsustainable to compensate impermanent losses by means of inflation tokens, but I did not expect the collapse to come so quickly.

In fact, the impermanent loss protection of BNT makes the holders of BNT bear obvious unequal risks. When the price returns to the starting point, the impermanent loss of the liquidity provider is zero, however the loss of ILP will continue to expand even if the price returns to the starting point, and will not be temporary like impermanent loss. As can be see from the below table, ILP loss is -200% when the price back to time T0, while impermant loss is 0%.

The specific calculation can refer to https://x3finance.medium.com/how-much-will-bnt-pay-for-impermanent-loss-protection-24da9cae38dd

In other words, BNT holders bear the permanent loss accumulated all the time, not impermanent loss. Meanwhile, the permanent loss is highly correlated with price fluctuations, which is much greater than impermanent loss. Therefore, the failure of BNT’s impermanent loss protection scheme is inevitable.