Bancor Drops Impermanent Loss Protection
- DeFi
- DeFi Protocol
Bancor v2.1 launched with a flagship promise of impermanent loss protection (ILP) for single-sided liquidity providers who held positions for 100+ days, where the protocol would compensate any IL by minting and distributing BNT tokens. This feature drove massive TVL inflows, as LPs believed they had strong downside protection. The model proved unsustainable in the 2022 bear market: As token prices (including BNT) crashed, rising IL claims required minting more BNT to cover them, which further diluted and depressed BNT's price, amplifying IL and creating a vicious death spiral feedback loop. In June 2022, Bancor abruptly paused ILP withdrawals under `hostile market conditions` (including large BNT dumps and suspected antagonistic behavior), preventing users from claiming promised compensation exactly when market turmoil made it most needed — leading to widespread outrage and accusations of broken promises. Bancor never fully refunded affected LPs: Subsequent v3 upgrades and recovery efforts offered partial mechanisms (like vesting, time-locks, or BNT-denominated recoveries), but many providers still suffered substantial real-dollar losses, as the protocol lacked sufficient value to cover accumulated liabilities amid ongoing token decline.