A network of smart token changers
Token changers - the first thing that comes to mind is one of those booths in the airport where one can swap one of their paper currencies into another for a small fee. Usually we have to do this because the country that we are going into won’t accept the country that we are coming from’s money. We utilize the currency exchange rate to determine how many of which currency we should get.
With the increase in availability of up to date exchange rates, we don’t necessarily need a physical store to tell us the rates. Unfortunately bank accounts in their current structure make it almost impossible to effectively swap one currency for another. Our money is stuck in one form that tends to have not much benefit associated with holding it. With Ethereum and Bancor, this can all change.
Let’s assume that we have a group of 20 people who are all utilizing the same 20 Ethereum applications and often need a small amount of the various tokens to utilize the dApps. Everybody has their own portfolios/tools, and earns their income directly in one of the Ethereum standard tokens, but not everyone stores all 20 of the tokens all the time.
So the group decides to utilize the Bancor Network Token as a base for an exchange. They set up a private network of 20 token changers that each can swap between an Ethereum based token and BNT. When people get paid in their respective token, they load up the changer with whatever amount they would like, which provides them the BNT to move into the other changers seamlessly. The BNT acts as the connective mesh.
Not only does this process remove the need for an exchange, but it creates a network of liquidity between a small group of parties. A small fee for access to the network continues to incentivize the existing and new parties to add more liquidity to the exchangers. This is valuable to people if you have a lot of liquidity because it ensures that everyone will always be able to swap their tokens for the ones they want.
Learn more about Bancor Protocol
The Bancor protocol enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains. These “smart tokens” hold one or more other tokens in reserve and enable any party to instantly purchase or liquidate the smart token in exchange for any of its reserve tokens, directly through the smart token’s contract, at a continuously calculated price, according to a formula which balances buy and sell volumes.