In June of 2017, Bancor Network that created Bancor protocol, raised $153M on ICO and made the thing public. This protocol is a forward-thinking solution for crypto finance and we employ it on REGA platform. Here’s how it works.
Tokens and Smart Contracts
Little background story. Technically, any token is realized through smart contract — a program that controls the account balance, i.e. sells and buys cryptocurrency; currently operating only on Ethereum. Here’s a noob guide to smart contracts for those who wants to geek the hell out of the subject.
The idea behind Bancor was to make sure tokens are secured by something: either cryptocurrency, or other tokens. Smart contracts store data about tokens, account balance and address of a member of the network, and is able to issue tokens in exchange for cryptocurrency and vice versa.
Continuous Liquidity
Once the ICO is over and the token is listed, its price is defined by the crypto market. As a token-holder, you may find yourself in a unfortunate situation when no one wants to buy your tokens and your assets loose liquidity. Bancor ensures the ability of different currencies and tokens to be traded.
With Bancor, anyone can exchange tokens at any time with no need to contact another token-holder — directly through smart contract. The brilliance behind this simple solution is that a smart contract basically becomes an in-house exchange. Any token holder can command the smart contract to “sell” — and smart contract will give the holder a certain amount in Ethers in exchange.
If someone wants to issue tokens, smart contract can do it in exchange for certain amount of Ethers.
Price Discovery
Now, the question is: how do we define the price of a token? Bancor resolved the problem of the minimum price with a simple formula, where the reserve sum on the smart conract account is divided by the supply or number of tokens issued multiplied by the reserve ratio. In REGA’s case, we are issuing 200 tokens, 100 goes on sale, 100 stays with us, and we agreed on a reserve ratio of 20%.
Clearly, if a large share of tokens is being sold, the reserve sum shrinks down and the price decreases accordingly. However, and that’s what we call continuous liquidity, even when the price goes down, you will always be able to sell the tokens — they won’t become a garbage asset.
Bancor enabled smart contracts to tell you the price of your asset at any time. At least, the Market Low — the lowest possible price. The rest of the value is, as in traditional economy, i sdefined by how well tokens are traded on the market.
Business + Bancor = 💪
But not only the market defines the price. The business model behind the token emission can influence the price. In this regard, crypto economy is no different: if your business is doing good, your tokens’ price goes up. At REGA, we integrated Bancor in our business model. Users of our crowdsurance platform make contributions to protect themselves against risks. 80% of these conributions go to secure the super pool and cover the pay outs, and 20% — to improve the platform. Certain share of these 20%, after the operational costs flow into the reserve. When we see that the capitalization of the Super Pool allows, we move some funds from there to the reserve, too. The reserve is getting bigger, the tokens — more valuable.
By doing this, we’re saying to our members and the market, that the price of the tokens not only will be defined by market speculations, but also will have a business back up. REGA tokens (RST, crowdsale is on, you can buy them for 0,1 ETH — just FYI) are utility tokens. By buying the tokens, our crowd investors are taking the right to vote on some suspicious or difficult cases of crowdsurance. For that, they are being paid: 3% out of 20% of the contributions are being distributed among the experts. So, by holding the token and helping the community, you help us adjust the model and build more crowdsurance solutions — for everybody’s good.
Thanks to Daria Koshkina for the illustrations.
Text by Nastya Popova
