I finally got to read in detail the Bancor Protocol whitepaper. I’ve been wanting to read it since a long time since they were one of the first project to use a bonded curve like mechanism to provide automatic liquidity to their Smart Tokens.
My TL;DR after reading it is that, although the way they approach bonded curves is really smart and I can definitely see a beautiful use case in immediate (exchange-less) token trading, it is not clear to me why people would spontaneously create Smart Tokens. [For those who read the WP] All the Smart Token economics revolves around the “Connector Weight” (CW) factor [NDLR: They also call it “Constant Reserve Ratio” (CRR) in their blog]. The math behind works and is beautiful but the CW is not at all an intuitive value that you can relate to something you know. Here’s an example from their WP:
It took me a long time to wrap my head around it and I still can’t really grasp this CW variable. The CW=100% case is clear (100% pegged coin) but other than that, it is unclear how one would choose a relevant CW value for one’s Smart Token besides the type of price curve you want to achieve. I might very well be missing something but that tells a lot about the difficulty for normal people to comprehend Smart Tokens.
A funny quote I read: " The first thing to understand is that smart tokens are money that hold money" Talking about easy to understand…
To conclude, my opinion is that the Bancor Protocol is a great solution to build alternatives to exchanges but I don’t see why somebody would create Smart Tokens beyond this (very relevant) use case.