‘Hostile’ Market Conditions Force Bancor To Disable This Protection

The DeFi protocol Bancor on Monday said it has paused the Impermanent Loss Protection to protect liquidity providers (LPs) amid extreme market conditions. It will be reactivated once the crypto market stabilizes. Moreover, the Bancor DAO has been asked to pause the Impermanent Loss Protection for rewards on its liquidity pools.

In order to prevent further decline in BNT token prices, Bancor has used the BIP21 to disable swaps and liquidity provision for compromised tokens on the Bancor Network.

Bancor Pauses Impermanent Loss Protection Indefinitely

Bancor Network in a blog post on June 20 reported that its Impermanent Loss Protection feature will be temporarily paused to protect the DeFi protocol and liquidity providers. In fact, withdrawals will not be eligible for Impermanent Loss Protection and deposits are also not accepted.

However, trading will remain active and users will continue earning yields, but the withdrawal will only be possible when IL protection is reactivated.

“As our knowledge of current circumstances has increased, we have observed anomalies, if not manipulative behavior, occurring in the data.”

The recent sell-off of BNT rewards emissions led Bancor to pause IL protection. Generally, BNT rewards have a double cost. It decreases BNT token price, resulting in an impermanent loss. This impermanent loss is compensated to liquidity providers with additional BNT emissions.

The insolvency of two large centralized companies have caused the costs to rise further. The companies were liquidity providers which received BNT liquidity mining rewards. However, the companies continue to liquidate their BNT positions to cover their liabilities. Moreover, another unknown company has opened a large short position on the BNT token on an external exchange. It has caused the BNT price to fall further due to the selloff.

The Impermanent Loss Protection will be reactivated soon as the market stabilizes.

BNT Token Plummets 65% in a Week

BNT token is at risk as it has plummeted nearly 65% in just a week. Meanwhile, the Bancor (BNT) token price is down 95% since the all-time high, and Bancor ROI is down 88%.

At the time of writing, the BNT token price is trading at $0.51, up nearly 6%.

The liquidation risks of Three Arrows Capital and Celsius have caused a major crisis in the DeFi market. The companies are liquidating digital assets to repay their lenders.