Exclusive Details on Bancor Airdrop; Short Positions Jump for Ether, Slide for Bitcoin

Good morning defiers! Here’s what’s going on in decentralized finance:

  • Ether short positions jump amid sell-off, but so do DeFi loans

  • Bancor’s airdrop is a way to bet on a multi-blockchain future

  • MakerDAO founder tries to find middle ground


Ether Shorts Jump Amid Market Bloodbath

Crypto traders are betting the ether carnage isn’t over.

Ether plunged below $170 yesterday after holding above $200 for most of the past week amid a broader crypto market sell-off. Short positions on ether jumped to the highest in three weeks, a sign bears are betting ETH hasn’t found its floor yet.

Image source: TradingView

ETH also fell faster than BTC, pushing the ETH/BTC ratio back below 0.02. Last week the ratio had climbed to as high as 0.022, the highest since July. Meanwhile, short positions on Bitcoin decreased. If short sellers are right, that ETH/BTC ratio should keep sliding.

Image source: TradingView

Tons of Collateral Was Liquidated, But Tons More Loans Sprung Up

The plunge in ether, which is used as collateral for most loans in decentralized finance, forced $3.8 million of liquidations, the highest since July, according to LoanScan.

But that didn’t dissuade DeFi traders as almost four times as much, or $11 million, of loans were originated, of which 82 percent was in Dai. Of the roughly $27 million of collateral added to back these loans, half was in ETH. This signals that while traders on Bitfinex are shorting ether, traders in DeFi aren’t as pessimistic.

Image Source: LoanScan

Bancor Bets on Multi-Blockchain Future With Airdrop

Bancor recently announced it’s airdropping the entire ETH reserve backing its BNT token, or about $2.6 million at the time of the announcement, to BNT holders. Details on the move shared exclusively with The Defiant yesterday highlight how the Tel Aviv-based team plans to reduce reliance on Ethereum.

BNT holders who own tokens at the time of the market snapshot, which will happen some time in December (specific date will only be announced after the fact to avoid market manipulation), will receive their proportional share of the ETH reserve in the form of a BNTETH token. This token represents a stake in the BNT/ETH pool, which means that the more than 60,000 BNT token holders will become liquidity providers and start earning trading fees. They can trade BNTETH for another token or cash out.

BNT is used in the Bancor network to enable trading between any two token pairs, regardless of their liquidity, as it sits in between those trades.

After the airdrop, the BNT/ETH pair will hold the same amount of ETH reserves as before, but instead of just the ETH reserve, it will also be backed by an equivalent BNT reserve provided but The Bancor Foundation. EOS, the second blockchain where Bancor operates, has the same mechanism, where BNT is backed by 50 percent BNT and 50 percent EOS.

Bancor is currently minted and destroyed based on demand, on the Ethereum network. After the airdrop, BNT will have a fixed supply and inflation will be set based on BNT holders’ vote.

“The end result is that it remains an extremely liquid token with millions of dollar in the liquidity pool but it no longer is biased towards any particular blockchain,” said Guy Benartzi, Bancor co-founder in a telephone interview. “It’s not issued and destroyed on Ethereum but not on another blockchain, and uses the same mechanism as EOS, where there’s a BNTEOS token.”

Bancor is running on two blockchains, and in the future it expects to run on many more. This mechanism will be implemented on all the other blockchains.

[Stay tuned for the full interview I did with Guy, where he gives more details on which blockchains these may be, where he addresses the most common Bancor criticisms, and more. Will publish that tomorrow]

Meanwhile, it seems that some traders are already looking to take advantage of the airdrop. ETH locked in Bancor jumped to about 13,000 ETH from under 2,000 ETH in the past couple of days, according to DeFi Pulse.

Image source: DeFi Pulse

The MakerDAO Debate on Non-Trustless Dai Continues

The MakerDAO community is debating whether to add non-trustless assets, like fiat-backed stablecoins, as collateral for its stablecoin Dai and the MakerDAO founder Rune Christensen is trying to find middle ground.

Opinions are divided as the Maker foundation is inclined towards allowing permissioned assets to increase liquidity and stability, while some investors and developers say that unnecessarily introduces the risk of censorship. (For a summary of the debate check out what I wrote here.)

But, Rune asks, what if users could decide what type of collateral they want for their stablecoin?

MakerDAO governance can use it's capability to issue synthetic assets, to also issue an ETH-purity stablecoin (…) Purity assets allow users to select what kind of assets their stablecoin is backed by. And this can be done *without* introducing black swan risk to the asset because they will still be protected by MKR in the same way as any other synthetic asset

The cost of that, he estimates, is that the more restrictive the collateral, the lower the savings rate such an asset would have, since it would not be able to safely support a very large supply.

This would create price differences among the different types of Dai. Some in the DeFi community have gone strongly against a non-trustless Dai, but I wonder if the broader market would price it at a premium or a discount to a “pure” ETH-only Dai. In that case, censorship/failure of the non-trustless Dai while the trustless version survives would be the best way to prove why DeFi is valuable.


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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.