How does Bancor support single-sided deposits?

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Contrary to other AMM protocols, Bancor uses its own protocol token, BNT, as the counterpart asset in every pool and trade.

Using an elastic BNT supply, the protocol co-invests in pools alongside LPs with swap fees earned from its co-investments.

In other words, when a user deposits $100,000 in a supported token ("TKN"), the protocol matches the user's deposit by providing $100,000 worth of BNT to the pool. In return, both the user and the protocol receive fee-accruing LP tokens (pool tokens).

When a user withdraws their liquidity, the user's and protocol's pool tokens are both burned. 

Thus, two burning mechanisms place deflationary pressure on the BNT token:

  1. LP Withdrawal: the initial BNT provided by the protocol in addition to the fees it earns (less any IL compensation) are burned when an LP withdraws from the system

  2. Continuous vBNT Burning: a percentage of every transaction on the network is used to burn vBNT (deposited BNT) via the Bancor Vortex

The amount of BNT offered by the protocol to support trading in a given token is governed by the Bancor DAO. 

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