Bancor Raises $150 Million in an Ethereum Based ICO for a Decentralized Exchange and User-Generated Currencies

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Bancor makes history in performing the biggest token sale since the Slockit DAO, raising $150 million in some tense three hours that placed the ethereum network under stress.

Continuing the experimentation of how best to perform ICOs, Bancor used a somewhat new method of simply allowing anyone to send however much within a one hour period.

However, during that one hour, there were “massive malicious attacks to our network,” Bancor says, without providing any detail, which may mean ethereum’s network might have simply become too congested during that one hour period.

So, “to ensure full community participation,” Bancor “opted to extend the restriction-free hour in an effort to ensure that pending transactions were completed,” to three hours.

The token sale is one of the most decentralized. 10,885 participants took part, Bancor says, sending 396,720 eth, currently valued at $150 million. It’s a huge sum of money with probably less than 10% needed for what they aim to do.

But there is a great thirst in the ethereum community to invest in these projects and Bancor appears to be one of the more interesting as Tim Draper, a well known VC investor, is their advisor and they have an alpha product.

The product can be described in many ways, but at its core is a new formula they say can allow any token to be instantly exchanged for any other without going through an exchange or having to place a buy or sell in an order book.

Price discovery in the Bancor network.

CRR being a “Constant Reserve Ratio set by the smart token creator, for each reserve token, and used in price calculation, along with the smart token’s current supply and reserve balance.”

If it does work, this would be a significant development as it allows anyone to exchange any token for any other without going through any third party.

User Generated Currencies

“We are now beginning to witness the emergence of user-generated currencies,” Bancor’s whitepaper says.  But liquidity shortages can be a problem, making life difficult for smaller currencies.

To facilitate a “long-tail of user-generated currencies,” they have seemingly developed a somewhat complex algorithm that determines the value and price of a currency based on its relationship with a “reserve currency” or many such reserve currencies.

An example Bancor network.

This can allow anyone to raise funds, with Bancor simplifying the token creation process to a simple conversation with a chat bot.

The alpha version of Bancor further shows a number of communities as you can simply create your own in a social network of sorts.

On the surface, Bancor appears a lot more interesting than we thought. Perhaps even a breakthrough of sorts. But it has faced criticism. Emin Gün Sirer‏, professor at Cornell University, has publicly stated:

“Ok, here’s the deal: no one gets to complain as these reserves are whittled away due to bugs in Bancor’s code. No whining, no take backsies… and by “bug,” I mean any design flaw, including the fundamental flaw where a contract tries to set prices regardless of market conditions.”

Joey Krug, of Augur, stated they found out something like Bancor does not work in practice because of “market scoring rules on ethereum, trading through them is pretty much impossible given # of transactions req. + gas cost.”

Vitalik Buterin, Ethereum’s inventor, in seemingly disagreeing with Krug, publicly stated:

“I continue to be a strong supporter of on chain market scoring rules as decentralized exchanges and am very curious about what the results of those tests are.”

He is probably not the only one who would like to see the results of this experiment, especially as this may be a significant development which could empower individuals to finance their dreams or to easily join an ETF.

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