Bancor Comeback? DAO Votes To Use New Carbon Protocol To Buy & Burn BNT

The community behind Bancor will soon be releasing Carbon, a new DeFi protocol for advanced automated trading strategies. Carbon aims to be the first protocol to offer fully on-chain limit orders, a key trading primitive that is still missing from decentralized exchanges (DEXs).  

Recently the BancorDAO governance approved a proposal to use 100% of fees earned by the Carbon protocol to buy and burn the Bancor Network Token, BNT. Similar “buy and burn” designs aim to create positive price action by reducing the total circulating supply of a token, effectively driving protocol earnings to token holders in the form of token deflation. 

If Carbon is a success, its fees could drive significant buying and burning pressure on the BNT token – which has seen its total supply steadily dropping since BNT emissions abruptly ended in the middle of last year.

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The design of Carbon is unique compared to existing DEXs in that 100% of protocol fees can be burned for BNT without necessarily disincentivizing users from providing liquidity to the protocol. That’s because the goal of liquidity providers in Carbon is not to earn trading fees, but to execute trades at specific prices via on-chain limit orders. In other words, 100% of Carbon trading fees can go to buying and burning BNT, while still attracting LPs through the protocol’s core offering, on-chain limit orders and automated trading strategies.

As discussed in the recent governance proposal, the move to burn 100% of Carbon fees for BNT is aimed at alleviating the remaining protocol deficit in Bancor v2.1 and v3. The deficit was caused by a protocol vulnerability that occurred last June, requiring the DAO to trigger an emergency shutdown of BNT emissions. The deficit in Bancor v2.1 and v3 is tied to the BNT price relative to its listed tokens – in other words, if the BNT price rises versus the market, it reduces the deficit.    

Since BNT minting was disabled last year, the BNT token supply has been steadily dropping. The BNT circulating supply is down from around 275M at the time of the minting pause in June 2022 to the current supply of 159M – a 42% decrease. 

According to the latest Bancor dev update and the Carbon twitter, Carbon contracts have been completed and just entered their first security audit, with a beta release of the protocol expected soon. Another Bancor product recently approved for activation is Fast Lane, which would allow the protocol to perform arbitrage against other DEXs and use the proceeds to buy and burn BNT.

Crypto loves a good comeback story – and Bancor’s may certainly be one to keep an eye on.