LibraryMarkets2017Design paperCorpus record
Bancor Protocol: Continuous Liquidity and Asynchronous Price Discovery for Tokens through their Smart Contracts
Bancor. Eyal Hertzog, Guy Benartzi, Galia Benartzi.
The 2017 Bancor paper on smart tokens that hold reserves of other tokens and quote a continuous price from a reserve ratio. It is an early automated-liquidity design, distinct from Uniswap's later constant-product pools.
Bancor's paper puts a smart token in the middle of every conversion. The token holds reserves of other assets, and a formula quotes a price from the reserve ratio so a market can exist without a matching seller.
- Evidence
- Primary paper
- Re-measured
- No
- Assumptions
- 4
- Records linked
- 6
Code
Source, repository, and what is actually hosted
- Bancor protocolhttps://bancor.network/
- The source URL is not a GitHub repository. No code remote is invented.
- Full text is not mirrored. Public availability is not a licence to copy the file onto this site.
- Add to a reading list
01 Claim ledger
What the paper is allowed to say
Each row is a sentence already in the study. The status is the same on every row: a model claim, not a live measurement.
Claim 01 · Paper model
The token is the market
Instead of an order book, a smart token custodies reserves. Buying the token adds to a reserve and mints supply. Selling does the reverse.
Claim 02 · Paper model
The reserve ratio sets the curve
A connector weight, the fraction of the token's value that should sit in a given reserve, determines how fast the price moves. It is the ancestor of later weighted pools.
Claim 03 · Paper model
Continuous liquidity is the claim
There is always a price, because the formula does not need a counterparty who posted a quote. The depth at that price still depends on how large the reserve is.
Claim 04 · Paper model
Relay tokens pair two reserves
To convert A to B, the paper routes through a smart token that holds both. The user need not hold the relay token afterwards. The hop still passes through its prices.
Claim 05 · Paper model
This is the automated-market-maker ancestor
Later constant-product pools are a special case of this family. Bancor's contribution is the reserve-ratio formula and the smart-token framing, including ambitions the later pools dropped.
02 Three cuts
Observation, model, falsifier
A desk does not stop at the summary. Each claim is cut three ways, using only this study's own assumptions and checks. Nothing here is a new figure.
01 The token is the market
Observation
What the study says
Instead of an order book, a smart token custodies reserves. Buying the token adds to a reserve and mints supply. Selling does the reverse.
Model
What has to hold
Arbitrage against external markets exists where the smart token is supposed to reflect a basket.
Falsifier
What would retire it
How large is the reserve relative to the trade being quoted?
02 The reserve ratio sets the curve
Observation
What the study says
A connector weight, the fraction of the token's value that should sit in a given reserve, determines how fast the price moves. It is the ancestor of later weighted pools.
Model
What has to hold
Reserve tokens behave. A rebasing reserve corrupts the formula's view of inventory.
Falsifier
What would retire it
What is the connector weight, and can it change?
03 Continuous liquidity is the claim
Observation
What the study says
There is always a price, because the formula does not need a counterparty who posted a quote. The depth at that price still depends on how large the reserve is.
Model
What has to hold
Reserve tokens behave. A rebasing reserve corrupts the formula's view of inventory.
Falsifier
What would retire it
Is there an external market an arbitrageur would use to correct the formula price?
04 Relay tokens pair two reserves
Observation
What the study says
To convert A to B, the paper routes through a smart token that holds both. The user need not hold the relay token afterwards. The hop still passes through its prices.
Model
What has to hold
The conversion hop through a relay is still cheaper than the alternatives. Two formulas mean two spreads.
Falsifier
What would retire it
Does a later Bancor feature, such as impermanent-loss protection, appear in this paper? It does not.
05 This is the automated-market-maker ancestor
Observation
What the study says
Later constant-product pools are a special case of this family. Bancor's contribution is the reserve-ratio formula and the smart-token framing, including ambitions the later pools dropped.
Model
What has to hold
Reserve tokens behave. A rebasing reserve corrupts the formula's view of inventory.
Falsifier
What would retire it
Is there an external market an arbitrageur would use to correct the formula price?
03 Sequence
One action, as an operating tape
- 01A smart token is created with a reserve of some other asset and a stated connector weight.
- 02A buyer sends reserve tokens in. The contract mints smart tokens according to the formula and the price rises.
- 03A seller returns smart tokens. The contract burns them and releases reserve assets. The price falls.
- 04A conversion between two outside assets can hop through a relay: sell one side, buy the other, in amounts the two formulas dictate.
- 05The reserve stays in the contract. There is no order to cancel and no maker to go offline. There is also no one who promised a tight spread beyond what the reserve size supports.
04 Load-bearing
The argument, and where a pitch drops it
Always-on is not the same as deep
The cut
A formula can quote a price for a tiny reserve. The last unit is infinitely expensive in the usual curves, and the first units of a small pool are still easy to move. Marketing that says liquidity is guaranteed should be translated as 'a formula will answer', which is a weaker claim.
Why it carries weight
If this cut is skipped, the paper's name is being used without the mechanism that makes the name mean anything.
Where it is dropped
A reserve ratio chosen for marketing rather than for inventory risk will be discovered by the inventory.
The smart token's own price is circular
The cut
Price is computed from reserves and supply. If the token is supposed to track a basket, someone must arbitrage it against that basket. The contract does not look at the outside world. A depeg between formula price and market price is corrected by traders, or not at all.
Why it carries weight
If this cut is skipped, the paper's name is being used without the mechanism that makes the name mean anything.
Where it is dropped
The paper does not make a thinly traded token into a deep market. It makes a formula.
Impermanent loss lives here already
The cut
A reserve that rebalances against outside price moves leaves the liquidity inside holding a path-dependent mix. Later AMMs named this more clearly. The arithmetic is in this design.
Why it carries weight
If this cut is skipped, the paper's name is being used without the mechanism that makes the name mean anything.
Where it is dropped
Later Bancor products, insurance mechanisms and governance are not the 2017 formula.
05 Register
What has to be true
Model · Not re-measured
Reserve ratios are set and, if adjustable, adjusted by a rule depositors have read.
Model · Not re-measured
Arbitrage against external markets exists where the smart token is supposed to reflect a basket.
Model · Not re-measured
The conversion hop through a relay is still cheaper than the alternatives. Two formulas mean two spreads.
Adversary · Not re-measured
Reserve tokens behave. A rebasing reserve corrupts the formula's view of inventory.
06 Divergence
What happened after the paper
Bancor shipped relay tokens and later insurance-like mechanisms for liquidity providers that are not in the original paper. Uniswap and Balancer took the automated-market idea further into production. Read this paper for the reserve-ratio formula and the claim of counterparty-free quotes. Read later versions separately when they promise protection against divergence loss.
A later client, parameter set, or reward formula is a different object. Cite this paper for the mechanism. Cite a primary release for the network. This desk has not re-run the proof.
07 Pre-mortem
What to check before you use the idea
- 0 of 4 marked on this browser. A mark is a reading note, not a pass, a rating, or a recommendation.
08 Anatomy
The paper, in the order a builder needs
The problem it names
A small token may have no natural counterparty at the moment someone wants to trade. Bancor's proposal is a contract that always offers a price against its reserve, so discovery does not wait for two humans.
What the design proposes
- A smart token names a reserve and a reserve ratio.
- Buying the smart token deposits reserve and mints supply. Selling does the reverse.
- The price is a function of supply and reserve, not of an order book.
How the mechanism is specified
- The reserve ratio determines how violently the price moves as supply changes.
- Connectors between reserves are how the paper imagines paths across tokens. Each hop depends on its own reserve.
- Continuous liquidity is not liquidity at a good price. The formula will quote even when the reserve is nearly exhausted.
What this page does not treat as proven
- Later Bancor products, insurance mechanisms and governance are not the 2017 formula.
- A reserve ratio chosen for marketing rather than for inventory risk will be discovered by the inventory.
- The paper does not make a thinly traded token into a deep market. It makes a formula.
Why the desk still reads it
Read Bancor alongside Uniswap v2 when a team says 'automated market maker' without writing an invariant. The two papers are not the same curve, and the difference is the business.
09 Lexicon
Terms, opened into the record
- Smart token
- A token that holds reserves and mints or burns itself against them according to a formula.
- Connector weight
- The reserve ratio that sets how sensitive the price is to a trade.
- Relay
- A smart token used as a bridge so one reserve asset can be converted into another.
- Continuous liquidity
- A quote that does not require a resting order. Depth still depends on reserve size.
10 Repository
Every linked record on this page
Underlined words open a page that already exists: a concept, a protocol profile, a failure record, or another paper. If a word is not underlined, this desk does not have a record for it.
This is Blockchain Lab's reading of a public design paper. It is not the paper, not a copy of it, and not an offer of tokens, equity, custody or a partnership. Later network behaviour can diverge from the text. Nothing here is investment, legal or technical advice.
Research status: Design paper. Last reviewed: 1 October 2026. This is a reading of a public paper, not investment, legal or security advice.