Cryptonews DeFi News Bancor Pauses Protection Mechanism Due to ‘Hostile Market Conditions’

Bancor Pauses Protection Mechanism Due to ‘Hostile Market Conditions’

Fredrik Vold

Last updated: October 23, 2023 08:57 EDT | 3 min read

The decentralized finance (DeFi) protocol Bancor (BNT) said it has paused its impermanent loss (IL) protection mechanism due to what it calls “hostile market conditions.”

In an announcement published on Monday, the team behind Bancor said that impermanent loss protection has been “temporarily paused,” while promising that it will be turned back on “as the market stabilizes.”

“There is no ongoing attack and funds on the protocol are secure,” the announcement further said, adding that remaining users will continue to earn yield and “be entitled to withdraw their fully-protected value when IL protection is reactivated.”

Elaborating on the reason for halting the impermanent loss protection, the announcement said that “anomalies, if not manipulative behavior” have been observed in the data.

The announcement went on to blame some of their problems on “the recent insolvency of two large centralized entities,” who it said were long-time liquidity providers in Bancor V2.1.

“To cover their liabilities, these entities have rapidly liquidated their BNT positions and withdrawn large sums of liquidity from the system, while an unknown entity has opened a large short position on the BNT token on an external exchange,” the announcement said.

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

It added that on-chain data now suggests “some of the worst BNT rewards dumping is behind us.”

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

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

yup lmao. some good discussion in this recent thread as well: https://t.co/8VmMu0ARAh
— Hasu⚡️🤖 (@hasufl) June 20, 2022

Bancor is a DeFi protocol that allows users to earn yields by staking only a single token, instead of pairs of tokens as is typical on many other DeFi protocols. It also differentiates itself from other protocols by (normally) offering full protection against impermanent loss.

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

Other teams also take protective measures

US crypto trading platform Voyager Digital announced that it had signed a deal with crypto trading firm Alameda Research for a “revolving line of credit providing Voyager with access to further capital.” The credit facility is intended to “safeguard customer assets in light of current market volatility,” Voyager Digital wrote in the announcement.
Bitcoin (BTC) mining firm Bitfarms entered into a financing agreement for mining equipment with initial funding of USD 37m from the Bitcoin-focused financial services firm NYDIG. The deal was made to “increase our financial liquidity and flexibility during this period of macroeconomic crypto challenges,” Jeff Lucas, chief financial officer at Bitfarms wrote in the announcement.
Crypto trading firm Genesis Trading’s CEO Michael Moro shared that his firm has “mitigated our losses with a large counterparty who failed to meet a margin call to us earlier this week.” He did not specify which “large counterparty” he was referring to.
MakerDAO (MKR), a DeFi protocol that issues the stablecoin DAI, announced that it has disabled its Aave (AAVE) Direct Deposit Module (D3M). “According to the Urgent Signal Request posted on the recommendation of the Risk Core Unit, this is a preventive measure against potentially unacceptable risks to the Maker Protocol,” MakerDAO wrote in a tweet.