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.

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.

“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.”

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://medium.com/@jakevartanian/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 😉