The Bancor protocol has made a lot of noise in the environment of cryptocurrencies. If I understand it correctly, it allows these currencies to find a stable value to trade with one another.

In their own words:

“Bancor protocol is an initiative of the Bprotocol Foundation, a nonprofit organization based in Zug, Switzerland. The Bancor protocol enables anyone to create a new type of cryptocurrency called a smart token, which can hold (and trade) other cryptocurrencies. This allows the smart token’s contract to serve as its own market maker, automatically discovering its own price(s) and providing liquidity to other currencies, thereby removing the need for a second party in cryptocurrency trades. Every smart token is always liquid at some price point.”

But does such crypto-capitalism solve any of our fundamental social and environmental problems?

James Quilligan doesn’t think so, and explained why in a Facebook thread:

“This project looks to me to be on firm ground when it comes to tracking the relative value of commodity currencies. It appears to be determining value mostly outside of the world’s sovereign, political monetary systems and HURRAH for that. Time will tell if this new Bancor is a genuine monetary tool; but in the meantime it is well-situated to being a very *useful guidepost for arbitraging in mainstream commodities markets* — but wait! isn’t that what this new Bancor is (theoretically) determined to prevent? What’s happened to the purported independent valuation which is set apart, uncontaminated from the conventional economy? Or is this just another scheme based on generating surplus value?

What’s happening now in the field of crypto-currencies is that blockchain technologies are becoming increasingly disruptive by staking a bigger claim to citizen/consumer access and representative use-value than the Central Banks of sovereign nation-states. Wow! No contest! Argument conceded! This is why blockchain is indeed the future. HOWEVER, precisely because blockchain is so potentially disruptive to the political status quo and has no international support from the Central Banks, it is bound to remain more of a financial product than a monetary product, at least until the present monetary system breaks down in a geopolitical crisis and a new one is created, which is the emerging reality. (And by the way, Central Banks are actively discussing getting their hands on blockchain technology and using it to devise this new international monetary system under a new sovereign banner.) When this happens, will the new Bancor be a player at the table? Or will the new Bancor survive this chaos purely as a financial investment scheme? Or even survive at all? I’m not optimistic on any of these counts – and here’s why.)

Let’s not forget, Keynes’ Bancor stemmed from his proposal for an International Clearing Union, which adjusted the trade imbalances between sovereign states on an annual basis. Keynes’ Bancor (had it been realized) would have expressed a monetary value between sovereign states that reflected the financial adjustments between those nations with fiscal surpluses and those with fiscal deficits. This was necessary, Keynes believed, so that all people would be guaranteed adequate purchasing capacity to meet their everyday needs, much in the spirit of the commons (except that Keynes conflated human need with effective demand.) Is that what this new Bancor has in mind? Not at all. So it’s quite misleading when these new Bancor folks take Keynes’ terminology, then style it as a monetary device which evolves out of his thinking.

Don’t get me wrong, I am the world’s biggest critic of all things sovereign. The Era of Sovereignty has wrecked the world in every way possible. If world society doesn’t soon evolve beyond sovereign states, the ecosystems of the planet will be in major collapse. This is why I’m fully supportive of initiatives that are aimed at creating independent value on a decentralized basis. Indeed so. Yet supporters of blockchain have yet to see the Duality that they are creating in attempting to supplant the centralized, international monetary system with their own centralized, technologically sovereign system. Is this what we really want, another world founded on Technological Sovereignty? Have the Blockchainers actually discovered a new kind of metaphysical value? Uh, no: it’s just the latest version of ‘supply creates its own demand’, detaching society further away from an ecologically-based and more equitable society.

The key to making this transition is devolving real monetary power to decentralized political entities, whether that means citizens, or their participatory decision-making units, in order to increase the purchasing capacity and meet the needs of all citizens. Is that what this new Bancor has in mind? No sign of that at all.

When the new Bancor joins or creates an International Confederation of Commons, with metrics for currency value that are based on both the availability and sustainability of the world’s resources in meeting the needs of everyone, now and in the future.

Let me be clear: commodities markets are not a proxy for either the commons or for meeting human need. The sustainable economic measure of human need is the resources that are directly available to a population within a given ecosystem, not in a given market. When I see those metrics on sustainable value emerge from this Bancor group, I will be persuaded that it understands the political and ecological circumstances necessary for creating decentralized monetary power beyond commodity value differentials. And on that day, I will acknowledge that Bancor’s tool has lasting monetary value, rather than simple financial value. Until then, every time I hear the word BANCOR, it will trigger in my brain the classic meme from the Who, “Meet the new boss, same as the old boss”.:

4 Comments James Quilligan on why the Bancor protocol does not solve any fundamental problem

  1. Jake Vartanian

    I couldn’t really find any coherence within the article related to the title of “Bancor does not solve any fundamental problem” – so let me share a bit about what Bancor actually does and how solves a fundamental problem:

    1. Bancor smart tokens remove the need for traditional exchanges. In a world where liquidity is only in small pockets amongst small centralized exchanges, autonomous price discovery and reserve mechanisms create instant liquidity across all tokens (ensuring a level playing field for everyone). This is a beautiful thing for communities around the world.

    2. “The sustainable economic measure of human need is the resources that are directly available to a population within a given ecosystem, not in a given market.”
    Totally agree with this. And it’s exactly what Bancor does! Not only can people choose which smart token ecosystem they want to be a part of, but they can add value to that ecosystem through the generation of new tokens. Vice versa, those who don’t believe in the ecosystem, can burn their tokens and remove value from it. The valuation of a token is a direct reflection of the resources available to an ecosystem.

    3. “The key to making this transition is devolving real monetary power to decentralized political entities, whether that means citizens, or their participatory decision-making units, in order to increase the purchasing capacity and meet the needs of all citizens. Is that what this new Bancor has in mind? No sign of that at all.”
    Again, it seems like you have missed the whole point and functionality of the Bancor protocol because this is EXACTLY what Bancor does. Everyone can create their own smart token and have a fair pricing mechanism/equilibrium.

    4. Here are just a few use cases for Bancor that I have written personally and an article about how it creates different “states” of money.
    https://medium.com/cryptodex/bancor-protocol-use-case-3-26a8203ed03
    https://medium.com/cryptodex/bancor-protocol-use-case-2-736a6454d358
    https://medium.com/cryptodex/bancor-protocol-use-case-1-308a96ae7031
    https:[email protected]/bancor-the-fluidity-protocol-ac4e026e5f7f

    Happy to discuss this topic further if there is any interest!

    PS – “And by the way, Central Banks are actively discussing getting their hands on blockchain technology and using it to devise this new international monetary system under a new sovereign banner.” – I think someone is missing the whole point of cryptocurrency and blockchains here 😉

  2. Michel Bauwens

    A response by Eyal Herzog, one of the Founders of Bancor:

    “Time will tell if this new Bancor is a genuine monetary tool; but in the meantime it is well-situated to being a very *useful guidepost for arbitraging in mainstream commodities markets* — but wait! isn’t that what this new Bancor is (theoretically) determined to prevent?”

    Answer: This is not what Bancor is (theoretically and practically) “determined to prevent”. Bancor is determined to eliminate the Liquidity Risk for any asset. Your statement is inherently incorrect. On page 7 of our whitepaper, in the chapter entitled, “The Bancor Protocol Ecosystem”, we list four key ecosystem roles (Please pay specific attention to the 4th note):

    End-Users can receive, hold, transfer, request, purchase, and liquidate smart tokens.
    Smart Token Creators can issue new, always liquid smart tokens, that may be used for trading, token changing, as token baskets, or as network tokens.
    Asset Tokenizers (e.g. Tether-USD, Digix-Gold) can issue ERC20 tokens representing external assets, thus enabling smart tokens to use these assets as reserve tokens. (Existing crypto-exchanges that operate under their local KYC regulations are well positioned to provide asset tokenization services.)
    Arbitrageurs are organically incentivized to constantly reduce gaps between prices crypto-exchanges and the Bancor network. Smart tokens work similarly to exchanges in that purchasing them increases their price and selling them decreases it, so that the same arbitrage mechanics and incentives apply.

    We are not trying to prevent arbitrage, but more importantly, arbitrageurs are fulfilling a key role in the Bancor protocol ecosystem, and are relied upon for the ecosystem to function properly.

    “What’s happened to the purported independent valuation which is set apart, uncontaminated from the conventional economy? Or is this just another scheme based on generating surplus value?”

    Answer: “Independent valuation” is not (and never was) the goal of Bancor. There is no “uncontaminated” price that Bancor seeks. The only difference between Bancor’s price discovery and the conventional one are the signals that determine it (Buy/Sell in Bancor, vs matching Ask/Bid in the traditional exchange model). This difference enables smart tokens (tokens using the Bancor protocol) to remove the liquidity risk – meaning that they will always be liquid, and do not need to rely on the trading activity of for-profit 3rd parties in the exchanges, as the traditional exchange model dictates.

    “Keynes’ Bancor (had it been realized) would have expressed a monetary value between sovereign states that reflected the financial adjustments between those nations with fiscal surpluses and those with fiscal deficits.”

    Answer: That is simply incorrect. The purpose of the Keynesian Bancor proposal was to balance trade (between nations) and had nothing to do with their own fiscal policies. From Wikipedia: “In economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy.”

  3. Michel Bauwens

    a new reply by James Quilligan:

    Friends, I did not choose the title to the blog that was under my name. If it were up to me, I may well have titled it: Does Bancor Have Legs? /// Having studied and practiced in blockchain exchanges since the emergence of Bitcoin, and now having pondered New Bancor’s polemical justifications of how their version of blockchain creates the means of greater economic decentralization, my view of this start-up hasn’t changed. The New Bancor folks are obfuscating the meaning of *decentralization and transparency* (we’ll leave their bait-and-switch on sustainability metrics and currency values for another time). /// To give this enterprise the benefit of the doubt, I can only conclude that, while the New Bancor certainly believes that it is capturing a kind of collective consciousness with its model, it entirely misses the *sociology of community* — and thus, the social metabolism that must emerge through the next monetary system. New Bancor just doesn’t get that economic decentralization involves actual political, cultural and ecological decentralization. Despite a bit of emancipatory rhetoric in its essays, nowhere do I read where the metrics of New Bancor are going beyond a (supply-side or demand-side) commodity-based framework into the sunlight of a democratic, participatory process for managing our vital commons through a peer-to-peer economy. What New Bancor views as ‘decentralized’ communities are simply downstream consumers/investors continuing to rely on commodities (both as a fulcrum of value and of consumption), rather than the heart-beating citizens on the ground cooperatively deciding how to produce and distribute the resources on which they depend for their livelihood and survival. /// While blockchain technology is probably our future and I’m really all for it, I’d be careful in discerning whether or not New Bancor’s version of this technology actually goes beyond the old supply-chain economics and is truly capable of generating equitable, horizontal resource provisioning. I think, rather, that New Bancor is based (perhaps quite unconsciously) on yet another mode of the Kantian transcendental analytic, in which the conscious value that moves through a system has it origins in a centralized, although veiled, source, thus providing cover for the illusion of decentralization. Yes, ouch. /// So, here’s a thought experiment to test your faith in New Bancor tokens. Let’s say that someone was to open a hedge fund where investors are invited to place a bet on whether or not (and for how long) these New Bancor tokens will last. On which side would you put your money? Consider: which is actually a better source of value: buying New Bancor tokens or hedging against them? Of course, neither option leads back to the commons; but the process of choosing will require you to evaluate the burden of proof on which the New Bancor rests.

  4. Eyal Hertzog

    We analyse it in much simpler terms:

    Liquidity is what connects networks of value (currencies/assets). If every currency is liken to a local network, liquidity is the internet linking the value transfer between the networks. It what allows converting one store of value to another. Liquidity creates a global digital network of value transfer.

    Currently liquidity is provided by for profit market makers on the various exchanges.

    Smart contracts allow for a better way. By using programmable tokens which can “own” other tokens, liquidity can be provided by the smart token itself, rather by the for profit market makers.

    It is really as simple as a driverless car. Same functionality, only executed by an automated mechanism.

    Would driverless cars carry social and economic implications? Probably yes. Even though the entire innovation is just about automation of a process currently carried out manually.

    Bancor thus enable the long tail of currencies/assets/tokens which cannot stay liquid using current solutions, just like blogger enabled the long tail of publications, and YouTube the long tail of video. These too had cultural implications, even though they just enabled a familiar tool, to a larger group of people.

    In each of those examples, the innovation can be explained in simple terms, however, the social implication carry infinite complexity. That’s why we don’t believe that anyone has the ability to predict the outcome, but we still feel the intuition that its a positive step forward.

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