BancorProtocol

ContinuousLiquidityandAsynchronousPrice
DiscoveryforTokensthroughtheirSmartContracts;
akaSmartTokens

EyalHertzog,GuyBenartzi&GaliaBenartzi

May30,2017

DraftVersion0.99

Thephrase"doublecoincidenceofwants"wascoinedbyJevons(1875)."Thefirstdifficultyin
barteristofindtwopersonswhosedisposablepossessionsmutuallysuiteachother'swants.
Theremaybemanypeoplewanting,andmanypossessingthosethingswanted;buttoallowof
anactualactofbartertheremustbeadoublecoincidence,whichwillrarelyhappen."
TableofContents

TableofContents 1

TheBancorProtocol 2
Background 2
IntroducingSmartTokens:ASolutiontotheLiquidityProblem 2
ANewMethodforPriceDiscovery 3
Use-CasesforSmartTokens 4
TheLongTailofUser-GeneratedCurrencies 4
CrowdfundingaProject 4
TokenChangers 5
DecentralizedTokenBaskets 5
NetworkTokens 6
AdvantagesofSmartTokens 6
TheBancorProtocolEcosystem 7
ASolutiontotheCoincidenceofWantsProblem 7
SmartTokenInitiationandCustomization 7

TheBprotocolFoundation 8
BancorNetworkToken(BNT)-TheFirstSmartToken 8
BNTCrowdsaleObjectives 8

ExamplesandIllustrations 9
Example#1:SmartTokenTransactionFlows 9
Example#2:TokenChangerTransactionFlows 10
IllustrativeMapofaPotentialBancorNetwork 11

PriceCalculationPerTransaction 12

Summary 12

Acknowledgements 12

1
TheBancorProtocol
Abstract:TheBancorprotocolenablesbuilt-inpricediscovery1andaliquiditymechanismfor
tokensonsmartcontractblockchains.Thesesmarttokensholdoneormoreothertokensin
reserve,andenableanypartytoinstantlypurchaseorliquidatethesmarttokeninexchangefor
oneofitsreservetokens,directlythroughthesmarttokenscontract,atacontinuously
calculatedprice,accordingtoaformulawhichbalancesbuyandsellvolumes.

TheBancorprotocolisnamedinhonoroftheKeynesianproposal2tointroduceasupranational
reservecurrencycalledBancortosystematizeinternationalcurrencyconversionafterWWII.

Background
Weliveinaworldwhereanyonecanpublishanarticle,songorvideo,createadiscussiongroup
andevenrunanonlinemarketplace.Wearenowbeginningtowitnesstheemergenceof
user-generatedcurrencies.Differenttypesofstored-value(currencieshereafter)havebeen
issuedandcirculatedforcenturiesintheformofbanknotes,bonds,equity,giftcards,loyalty
points,communitycurrencies3andothers.Bitcoinwasthefirstdecentralizeddigitalcurrency,
followedbyawaveofnewcryptocurrenciesthathavebeenissuedsince,andrecentlyweve
seentheriseofanewassetclassoftokensthataretypicallyissuedincrowdsales(ICOs)
throughsmartcontracts.

However,currencies,whichareessentiallynetworksofvalue,donotconnecttoeachotherinthe
samewaythatinformationnetworksdo.WhiletheswitchesonInternetexchangepoints(IXs)
interlinkinformationnetworks,activetradersonexchangesareeffectivelyinterlinkingcurrencies.

Thecurrentexchangemodelforcurrencies/assetshasacriticalbarrier,requiringacertain
volumeoftradingactivitytoachievemarket-liquidity.Thisinherentbarriermakesitnearly
impossibleforsmall-scalecurrencies(suchascommunitycurrencies,loyaltypointsorother
customtokens)tobelinked(exchangeable)tootherpopularcurrenciesusinga
market-determinedexchangerate.

Intheageofsmartcontractblockchains,tokenscanbeautomaticallymanagedbyimmutable
codewhichcontrolstheirissuanceandbehavior.Werealizedthiscouldmeanallowingtokensto
holdbalancesofothertokens(i.e.reserves),directlythroughtheirsmartcontracts,thatcould
bedesignedbytheircreatorsandmanagedprogrammatically.Thesenewtechnological
capabilitieswarrantrethinkingofthepossiblesolutionsforconvertingonecurrencytoanother
anddeterminingmarketprices.

IntroducingSmartTokens:ASolutiontotheLiquidityProblem
SmarttokensarestandardERC20tokenswhichimplementtheBancorprotocol,providing
continuousliquiditywhileautomaticallyfacilitatingprice-discovery.Thesmarttokenscontract

1
https://en.wikipedia.org/wiki/Price_discovery
2
https://en.wikipedia.org/wiki/Bancor
3
https://en.wikipedia.org/wiki/Community_currency
2
instantlyprocessesbuyandsellorders,whichdrivetheprice-discoveryprocess.Duetothis
capability,smarttokensdonotneedtobetradedinanexchangeinordertobecomeliquid.

Asmarttokenholdsabalanceofleastoneotherreservetoken,which(currently)canbea
differentsmarttoken,anyERC20standardtokenorEther.Smarttokensareissuedwhen
purchasedanddestroyedwhenliquidated,thereforeitisalwayspossibletopurchaseasmart
tokenwithitsreservetoken,aswellastoliquidateasmarttokentoitsreservetoken,atthe
currentprice.

ANewMethodforPriceDiscovery
Asmarttokenutilizesanovelmethodforprice-discoverywhichisbasedonaConstantReserve
Ratio(CRR).TheCRRissetbythesmarttokencreator,foreachreservetoken,andusedinprice
calculation,alongwiththesmarttokenscurrentsupplyandreservebalance,inthefollowingway:

Balance
P rice = Supply CRR

Thiscalculationensuresthataconstantratioiskeptbetweenthereservetokenbalanceandthe
smarttokensmarketcap,whichisitssupplytimesitsprice.Dividingthemarketcapbythe
supplyproducesthepriceaccordingtowhichthesmarttokencanbepurchasedandliquidated
throughthesmartcontract.Thesmarttokenspriceisdenominatedinthereservetokenand
readjustedbythesmartcontractpereachpurchaseorliquidation,whichincreasesordecreases
thereservebalanceandthesmarttokensupply(andthustheprice)asdetailedbelow.

Whensmarttokensarepurchased(inanyoftheirreservecurrencies)thepaymentforthe
purchaseisaddedtothereservebalance,andbasedonthecalculatedprice,newsmarttokens
areissuedtothebuyer.Duetothecalculationabove,apurchaseofasmarttokenwithaless
than100%CRRwillcauseitspricetoincrease,sinceboththereservebalanceandthesupplyare
increasing,whilethelatterismultipliedbyafraction.

Similarly,whensmarttokensareliquidated,theyareremovedfromthesupply(destroyed),and
basedonthecurrentprice,reservetokensaretransferredtotheliquidator.Inthiscase,fora
smarttokenwithaCRRlessthan100%,anyliquidationwilltriggerapricedecrease.

Thisasynchronousprice-discoverymodelworksbyconstantlyreadjustingthecurrentprice
towardanequilibriumbetweenthepurchaseandliquidationvolumes.Whileintheclassic
exchangemodelpriceisdeterminedbytwomatchedordersinreal-time,smarttokenpricesare
calculatedover-time,followingeveryorder.

Theaboveformulacalculatesthecurrentprice,however,whenapurchaseorliquidationis
executed,theeffectivepriceiscalculatedasafunctionofthetransactionsize.Thecalculation
canbedescribedasifeverytransactionisbrokenupintoinfinitelysmallincrements,whereeach
incrementischangingthesmarttokenssupply,reservebalance,andthusitsprice.Thisensures
thatpurchasingthesameamountofsmarttokensinasingleormultipletransactionswouldyield
thesametotalprice.Additionally,thismethodensuresthattheCRRwillbekeptconstantandthe
reservecanneverbedrained.Essentially,theeffectofthetransactionsizeontheprice(duetoits

3
changingthesmarttokenssupplyandreservebalance)isincorporatedintotheeffectiveprice
foranytransaction.Themathematicalfunctionsforcalculatingpricepertransactionsizeare
presentedfurtherinthisdocument.

Usingthismethod,theBancorprotocolcanenableliquidityandasynchronouspricediscoveryfor
existingstandardtokens--throughsmarttokensholdingtheminreserve,enablingbackward
compatibility.Thisuse-caseandothersaredescribedindetailbelow.

Use-CasesforSmartTokens

TheLongTail4ofUser-GeneratedCurrencies
Thelongtailphenomenacanbeobservedinmanydifferentonlineecosystemssuchas
publishing(blogs),videos(YouTube),discussionforums(Reddit,FacebookGroups)andmore.In
eachoftheseexamples,thelongtailhasbecomesignificantlylargerinscalethaneverythingthat
precededit.Theformingofalongtailbeginsassoonasthebarrierstoitsexistenceareremoved
(e.g.YouTubemakingitsimpleforanyonetouploadandshareuser-generatedvideos).

Therearemanyexamplesofuser-generatedcurrencies,suchasgroupcurrencies(community
orientedcurrencies),loyaltypoints(businessorientedcurrencies),andthemostrecentbeing
hundredsofcryptocurrencies(protocolorientedcurrencies).However,theneedtoachieveand
maintainliquidityforthesesmallornewcurrenciesremainsasignificantbarrierfortheirviability.

Smarttokensareuniqueinthattheycanbepurchasedorliquidatedbyasingleparty,usingthe
calculatedprice,removingtheneedfortwooppositewantstobesimultaneouslymatched.This
effectivelymeansthatbyusingtheBancorprotocol,small-scalecurrencieswithalowexpected
tradevolumecanoffercontinuousliquidity,thus,removingthebarrierforthemtobelinkedtothe
globaleconomy.

Enablingthelongtailofcurrenciesislikelytobringaboutanewgenerationofcreative
use-cases.Thoughitsimprobabletopredictallofthem,someofthemorelikelyuse-casesare
listedbelow.

CrowdfundingaProject
Thecrowdfundingspacehasbeengrowingrapidly.Smarttokenscanbeusedforcrypto
crowdfundinginitiatives,wheretheparticipantsreceivetokenswhichareliquidand
market-priced.Forexample,amusicianmaycollectfundstorecordanalbum,whichwouldbe
soldonlineexclusivelyinexchangefortheissuedtokens.Asuccessfulalbumwouldgenerate
highdemandforthetokens,drivinguptheirpriceandrewardingthoseholdingthem.Manyother
examplesexistsuchascrowdfundingaventurecapitalfundorraisinginitialcapitalfora
credit-creatingneighborhoodcurrency.

4
https://en.wikipedia.org/wiki/Long_tail
4
TokenChangers
Tokenchangersaresmarttokensthatholdmultiplereservetokens,withatotalCRRof100%and
canbeusedtoexchangebetweenanystandardERC20tokenstheyholdinreserve.Atoken
changerisdesignedtoprovideanexchangeservicebetweenitsreservetokensthrougha
two-stepprocessofpurchasingthesmarttokenwithonereservetoken,andimmediately
liquidatingitforanother.

Duetothepricecalculationformula,eachtimereservetokenXisconvertedtoreservetokenY--
thepriceofXdecreases,whilethepriceofYincreases.Largertransactionswillmovetheprice
moresharply,however,ahigherreservebalancewouldreducepricevolatility.

Asnoted,anystandardERC20tokencanbeusedasareserve-tokenevenifitisalreadytraded
inotherexchanges.Insuchascenario,agapmayopenbetweenthecalculatedpriceofa
reservetokenanditspriceinanoutsideexchange.Thissituationcreatesanarbitrage
opportunitywhichincentivizesarbitrageurstorestoreeconomicequilibrium,thuskeepingthe
tokenchangerpricesinsyncwiththepricesatwhichtheirreservetokensaretradedinother
exchanges.

Atokenchangerscreatormaysetaconversionfeethatwouldapplyoneach
purchase/liquidation.Feescanbeaccumulatedinthereservesandthusincreasethesmart
tokenspricewitheverytokenconversiontakingplace,increasingthesmarttokensvalue.This
increasewillbenefittheholdersofthesmarttoken,whomayhavedepositedtheoriginal
reserveswhenthesmarttokenwascreated,orpurchaseditwithanyofitsreservetokensatany
timeafterthat.

PopularexchangessuchasMtGoxandBitfinexhavebeenhackedwithhundredsofmillionsof
dollarsworthofassetsstolenfromtheiraccounts.Convertingonetokentoanotherusingatoken
changerdoesnotrequiredepositingfundsinanexchangeandthusremovesthecounterparty
riskfromtheprocess.Anotherimportantbenefitisthatnotransactionlimitsneedtobeapplied,
asisthecasewithotherinstanttradingsolutions,duetothedecentralizednatureofthetoken
changer.Whiledecentralizedexchangesofferthisbenefitaswell,smarttokensdonotrelyon
tradevolumetoprovideliquidity.

DecentralizedTokenBaskets
Smarttokenscanbeusedasdecentralizedtokenbaskets,whichfunctionsimilarlytoETFsor
indexfunds,simplybyholdingaportfolioofreservetokenswithatotalCRRof100%.Aspricesof
anyofthereservetokensriseorfall,sodoesthevalueofthesmarttoken.Similartotoken
changers,hereaswellarbitrageursareincentivizedtorealigntheconversionrateswithmarket
priceswhichensurestheproperratiosarekeptbetweenthereservesaccordingtotheirreal-time
marketvalue.Thesesmarttokensenableuserstodirectlyholdassetbaskets,withoutafinancial
servicesproviderasanintermediary.

5
NetworkTokens
Acollectionofsmarttokensthatusethesamereservetokenformanetworkoftokens.The
commonreservetokencanbedescribedasanetworktokenwhichcapturesthecombinedvalue
ofthenetworkoftokenswhichholditinreserve.Increaseddemandforanyofthesmarttokens
inthenetworkwouldincreasedemandforthenetworktoken,sinceitisrequiredforpurchasing
thesetokens,andthenheldintheirreserves.Increaseddemanddrivesupthepriceofthe
networktoken,whichbenefitstheentirenetworksincethevalueofthetokensreserves
increases,thustomaintaintheCRR,thevalueofthesmarttokensalsoincreases.Thenetwork
tokenalsofunctionsasatokenfortokens,renderingallthesmarttokensinthenetwork
inter-changeable.

Networktokenscanbeusefulforthosewhowishtocreatemultipleandrelatedsmarttokensfor
differentpurposes(e.g.regionalnetworkofcommunitycurrencies,avideogamestudiowith
multiplegamecredits,agroupofindependantbusinessesissuingajointloyaltyprogram).The
networktokenmodelcreatessynergeticrelationshipsbetweenthemembersmarttokens,
comparabletothewayanysinglesuccessfulEthereumservicecandriveupthevalueofEther,
benefitingallofitsholders.

Anadditionalnetworktokenuse-caseistointerlinkasetoftokenchangers,eachholdinga
reserveinthenetworktokenandasecondreserveinanother,standardtoken.Thisstructure
wouldenableexchanginganytokeninthenetworktoanother,whileincreasingthedemandfor
thenetworktokenwheneveranewtokenchangeriscreatedorappreciates.

AdvantagesofSmartTokens
Smarttokensintroducemultipleadvantagesoverthetraditionalexchangemodel:

1. ContinuousLiquidity-Sincepurchasingandliquidatingisdonethroughthesmart
contract,smarttokensarealwaysliquid,irrespectiveoftheirtradingvolume.
2. NoExtraFees-Theonlymandatoryfeesappliedbyasmarttokenaretheblockchain
platformfees(gas)whicharerelativelylow.
3. NoSpread-Sincethepricecalculationisdonealgorithmicallybythesmarttoken,the
samepriceappliesforpurchasingandliquidatingthesmarttokens.
4. PredictablePriceSlippage-Smarttokensallowpre-calculationofthepreciseprice
slippage,basedonthetransactionsize,beforeitisexecuted.
5. LowerVolatility-Asmarttokenwitha10%CRR(forexample)iscomparabletoan
exchangewith10%oftheentiresupplyofatokeninitsorder-bookatalltimes,forming
substantialmarketdepth.Inatypicalcrypto-exchange,theshareofthesupplyinthe
marketdepthatanygivenmomentiswellbelow1%.ThehighertheCRR,thelowerthe
smarttokenspricevolatility.ThelowertheCRR,themorenewcreditiscreatedrelative
totheoriginalreserveamount.

6
TheBancorProtocolEcosystem
DifferentpartiescantakeondifferentrolesintheBancornetworkecosystem.Theprimaryforms
ofparticipationareasfollows:

End-Userscanreceive,hold,transfer,request,purchaseandliquidatesmarttokens.
SmartTokenCreatorscanissuenew,alwaysliquidsmarttokens,thatmaybeusedfor
trading,tokenchanging,astokenbasketsorasnetworktokens.
AssetTokenizers(e.g.Tether-USD,Digix-Gold)canissueERC20tokensrepresenting
externalassets,thusenablingsmarttokenstousetheseassetsasreservetokens.
(Existingcrypto-exchangesthatoperateundertheirlocalKYCregulationsarewell
positionedtoprovideassettokenizationservices.)
Arbitrageursareorganicallyincentivizedtoconstantlyreducegapsbetweenpriceson
crypto-exchangesandtheBancornetwork.Smarttokensworksimilarlytoexchangesin
thatpurchasingthemincreasestheirpriceandsellingthemdecreasesit,sothatthesame
arbitragemechanicsandincentivesapply.

ASolutiontotheCoincidenceofWantsProblem
Thecoincidenceofwantsproblem5,inthecurrentassetexchangemodel,createsasituation
whereassetsarerequiredtobetradedatacertainminimalvolumeorelsefaceliquidityrisk6.
Thecauseforthislimitationisthatthechanceoffindingasecondpartywithoppositewantsto
exchangewith,correlatestotheassetstradingactivitylevel.Smarttokenssolvethisproblem
throughtheuseofreservetokenswhichembedmarketdepthdirectlyintothesmarttokens
smartcontract.

Smarttokensareatechnologicalsolutiontothecoincidenceofwantsproblemforasset
exchange,ratherthanalabor-basedsolutionasusedintraditional(ordecentralized)exchanges.
Thecurrentlaborersinassetexchangearetheprofessionalmarket-makerswhoprovideliquidity
andfacilitatecollaborativepricediscovery.Inthedomainsofinformationexchangeandtrade,the
technologiesofwritingandcurrencyreplacedlabor-intensivesolutions(speakingandbarter)with
technologicalones,creatingmassefficienciesforsocietiesandunlockingcollaborationona
globalandintergenerationallevel.TheBancorprotocolproposestosimilarlyadvancethedomain
ofassetexchangebyreplacingtheneedforlaborwithatechnologicalsolutiontotheexisting
coincidenceofwantsproblem.

SmartTokenInitiationandCustomization
Newsmarttokenscanbecreatedsimplybydepositinganinitialreserve/sandissuingtheinitial
tokensupply.Alternativelysmarttokenscanbeinitiatedthroughacrowdsale,whereapartofthe
proceedsisallocatedastheinitialreserve.

5
https://en.wikipedia.org/wiki/Coincidence_of_wants
6
https://en.wikipedia.org/wiki/Liquidity_risk
7
TheBprotocolFoundation
BprotocolisaSwissnonprofitfoundationwhosecoreobjectiveistheestablishmentofthe
Bancorprotocolasaglobalstandardforintrinsicallytradeablecurrencies.

BycontributingtotheBprotocolFoundation,userswillgenerateBNT-thefirstsmarttokentobe
deployedusingtheBancorprotocol,establishingtheBNTnetwork.TheFoundationwill
collaboratewithdifferentcontractorstoachieveitsgoals,aswellasgovernments,businesses,
academiaandNGOscommittedtorealizingcollaborationpotentialincommunitiesaroundthe
world.

BancorNetworkToken(BNT)-TheFirstSmartToken
TheBNTwillholdasinglereserveinEther.Othersmarttokens,byusingBNTas(oneof)their
reserve(s),connecttotheBNTnetworkusingthepricediscoverymethodoutlinedinthispaper.
TheBNTnetworkwillincludeuser-generatedsmarttokens,tokenchangers(formingaglobal
decentralized,highlyliquidexchange),decentralizedtokenbasketsaswellassubnetworks.

TheBNTestablishesnetworkdynamicswhereincreaseddemandforanyofthenetworkssmart
tokensincreasesdemandforthecommonBNT,benefitingallothersmarttokensholdingitin
reserve.Naturally,itisalsosusceptibletodecreaseddemand.TheBNTwillbesoldina
fundraiserscheduledforJune,12,201710:00GMT.

BNTCrowdsaleObjectives
AportionofthefundsraisedwillbeusedastheEtherreserveforBNT(detailsontheCRR
willbeoutlinedinthecrowdsalelaunchannouncement),enablingcontinuousliquidityto
EtherforanyBNTholder,aswellasanyholderofasmarttokenusingBNTasareserve.
Aportionofthefundswillbeusedtodevelop,promoteandsupporttheopen-sourced,
blockchain-agnostic,Bancorprotocolimplementations,andsupportrelatedtechnologies
andapplicationssuchasanopen-source,user-friendlywebservice(desktopandmobile)
toprovidewallet,marketplace,token-conversion,newsmarttokencreationand
crowdsalesolutions.
Aportionofthefundswillbeusedtoset-upandpropelthefirstbatchoftokenchangers
forpopularERC20tokens,whichfunctionasadecentralizedsolutionfortokenexchange
betweenalltheincludedtokens.Thismodelintroduceskeyadvantages,incentivizing
assettokenizerstorepresentadditionalreal-worldassetsasEthereumtokens.
Aportionofthefundswillbeusedtoparticipateinandsupportinnovativeandpromising
futuresmarttokencrowdsalesintheBNTnetwork.Thesemayincludenew,
location-basedandvertical-specificsmarttokeninitiativessuchasregionaltoken
networks,communitycurrencies,crowdfundedprojectsandotheronlineoroffline
token-basedecosystems.

8
ExamplesandIllustrations

Example#1:SmartTokenTransactionFlows
Inthisexample,acrowdsaleforanewtoken(BNT)hascollected300,000ETH.

300,000BNTareissuedata1:1ratioandtransferredtothe
crowdsaleparticipants.240,000ETHweredirectedtowards
fundingtheBNTprojectsdevelopmentand60,000(20%
CRR)werekeptintheBNTsmartcontractasareserve.

PurchasingandliquidatingBNTbecomespossibleas
soonasthecrowdsaleiscompleted.Theopening
priceisthelastcrowdsaleprice,inthisexample1
ETHforthefirstBNT.

BNTliquidatorsgetETHfromthereserveofBNT,the
liquidatedBNTaredestroyed,andtheBNTprice
decreasesrespectively.

BNTbuyersgetnewlymintedBNT,theirpaymentin
ETHisaddedtothesmartcontractreserveandthe
BNTpriceincreases.

TheETHreservealwaysremains20%oftheBNTmarket
cap.

LinktoSpreadsheet

9
Example#2:TokenChangerTransactionFlows
Inthisexample,aBNTGNOsmarttokeniscreatedtofunctionasatokenchangerbetweenBNT
andGNO(Gnosis),holdingbothinreservewitha50%CRReach,foratotalofa100%CRR.

Assumingacurrentmarketpriceof1
BNT=2GNO,thecontractcan
definetheinitialpricesas1BNT=2
GNO=1BNTGNOandinthis
example,10,000BNTGNOareissued
tothedepositorsoftheinitial
reserves.

Theopeningpricesare1
BNTGNO=1BNT=2GNOas
wassetinthecontract.
TheBNTGNOcanbe
purchasedwithBNTorGNO.
TheBNTGNOpricewillincreaseforthereservetokenitwaspurchasedwith(BNTor
GNO),anddecreaseintheuninvolvedreservetoken(duetotheincreaseintheBNTGNO
supply).
BNTGNOcanbeliquidatedbacktoBNTorGNO,decreasingtheBNTGNOpriceinthe
liquidatedreservetoken,andincreasingitintheuninvolvedreservetoken.

Thisscenariodemonstrateshowa100%backedsmarttokenwithtwo50%CRRreservetokens
canfunctionasadecentralizedtokenchanger,openforanyonetouse,withitspricesorganically
balancedbyarbitrageurs.Boththetokenchangerandthetokenbasketautomaticallymaintain
theirCRRratios.

LinktoSpreadsheet

10
IllustrativeMapofaPotentialBancorNetwork

BNT-TheBNT,backedbyEther
ETH,DGD,DGX,REPandGNTarestandardEthereum-tokens
NEW-Newsmarttokenscreated(e.g.crowdfundingcampaign,acommunitycurrency,
etc.)
Smarttokensholdreserves(arrowspointtothereservetokens)
Tokenchangersare100%backed,andholdtwoormorereserves

11
PriceCalculationPerTransaction
Theactualpriceofasmarttokeniscalculatedasafunctionofthetransactionsize.

R-ReserveTokenBalance
S-SmartTokenSupply
F-ConstantReserveRatio(CRR)

T =SmarttokensreceivedinexchangeforE(reservetokens),givenR, SandF
F
T = S ((1 + ER ) 1)

E =ReservetokensreceivedinexchangeforT(smarttokens),givenR,SandF

1
F T
E = R(1 S )

Mathematicalproofavailable7

Summary
TheBancorprotocolstandardizessmarttokens,enablingasynchronouspricediscoveryand
continuousliquidityforcryptocurrenciesusingconstantratiosofreservetokensheldthrough
smartcontracts,actingasautomatedmarketmakers.TheBancorprotocolenablesthecreation
ofhierarchicalmonetarysystemswithnoliquidityrisk.TheBNTwillbeusedtoestablishthefirst
decentralizedinterconnectedcurrencyexchangesystemwhichdoesnotrelyonmatchingbid
andaskorders,thusremainingliquidirrespectiveofitstradingvolume.Thissystemproposesthe
firsttechnologicalsolutionfortheCoincidenceofWantsProbleminassetexchange,enablingthe
longtailofuser-generatedcurrenciestoemerge.

Acknowledgements
Wewouldliketoexpressourgratitudetothemanypeoplewhosupportedusaswewrotethis
paper.AspecialthankstoMeniRosenfeld,YudiLevi,AmatziaBenartzi,RonGross,AssafBahat,
SefiGolan,JoshuaAlliance,BrianSingerman,AdiScope,DoryAsher,TalKeinan,Wings.ai,
TheFloor,ArieBen-DavidfromtheIsraelMonetaryChangeMovement,ScottMorrisofIthacash
andtheBancorteam,Ilana,Asaf,Or,Omry,ItayandMati.Yoursupportandfeedbackweretruly
importanttousinimprovingthisdocument.Thankyou.

7
The mathematical proof is available online at https://goo.gl/HXQBUr
12