The Bancor Network has introduced a rather intriguing feature now that long ago. Known as the Vortex Burner, this new feature is live on the Ethereum mainnet to burn vBNT tokens. An intriguing approach to creating deflationary pressure on BNT’s circulating supply.
The Vortex Burner Explained
It is a well-known fact that most Ethereum-based tokens have a maximum supply that might prove too high. To correct that aspect, it is essential to come up with creative ways to reduce the supply. Several projects use a method of buying back and burning tokens by sending balances to unspendable addresses. Bancor Network wants to take a slightly different approach.
Although the Vortex Burner is designed to create a deflationary pressure, it is a bit more complex than just that. With its adjustable-fee from swap revenue generated by liquidity providers, there are new opportunities to explore. The Vortex Burner takes a portion of the revenue collected by LPs to buy vBNT from the market. Similar to other projects, these tokens are burned, although in a different manner. The tokens remain locked within the protocol, yet cannot be spent by anyone.
Opting for this method allows Bancor Network to increase the locked liquidity of the platform. Every swap has a portion of the fees permanently locked into the protocol. Secondly, this approach reduces the circulating supply of BNT. The ongoing buying process and removing tokens from circulation will gradually grind down the supply.
Last but not least, the Vortex Burner will help improve the overall lending capacity of Bancor Network. As that remains the main aspect of this protocol, the burning of vBNT will help lower borrowing risks for users exploring leveraged positions. All of these different layers introduce many potential benefits to the Bancor Network and its users.
Earning Better Yield
One exciting aspect of this entire ecosystem is how the liquidity provision system works. When users provide BNT to a Bancor bool, they earn a vBNT liquidity position capable of earning yield from swap fees and liquidity mining. Every BNT represents the BNT stake plus accrued fees. However, users can sell their vBNT for other tokens on the network. Rather than unstaking BNT and swapping it for assets, The Vortex Burner lets users sell vBNT for these assets while BNT remains in the pool.
A crucial aspect of Vortex Burner to consider is how selling vBNT removes the option to unstake the BNT stake. Regaining control over that stake requires buying back vBNT. This approach creates potential arbitrage opportunities, assuming traders can gauge the vBNT price momentum correctly. It is essential to remember that the vBNT/BNT rate is affected by the number of users seeking or closing leverage.
There is also the possibility for users to stake vBNT in the allotted pool to earn swap frees from this token’s trading. For now, the pool is full, but the DAO can cote to increase its capacity. All of these changes make Vortex Burner a rather intriguing addition to Bancor Network, as it enhances the ecosystem’s appeal.
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