AMM: Automated Market Maker

Bancor is recognized for its foundational role in the DeFi space, having developed the first Automated Market Maker (AMM). This introduction encompassed the constant product equations and bonding curves, and mechanisms that several AMMs utilize to this day.

Bancor introduced a network of onchain liquidity pools to pair pools of tokens with one another. Users can trade against these pooled token pairs, with prices set algorithmically based on both the size of the user’s trade and the depth of the corresponding token pools.

This novel approach to market making proved to be a paradigm shift within the decentralized exchange (DEX) space. Traders now have guaranteed access to onchain liquidity with transparent, upfront pricing, doing away with the need for a counterparty. Token owners can also turn existing holdings into productive assets through liquidity provision to these DEX pools, earning returns from protocol swap fees imposed on trades that get routed through the platform.

This has turned pooled market-maker liquidity into a new asset class (“liquidity positions”), allowing for broader, more competitive involvement in market making.

Bancor's foundational whitepaper, penned in 2017, lists Eyal Hertzog, Galia Benartzi, and Guy Benartzi as its architects. The name Bancor pays homage to John Maynard Keynes, who, in 1940, introduced the term to conceptualize a supranational currency.

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