Pool tokens are ERC20 tokens that represent ownership deposits in liquidity pools. When you add liquidity to a Bancor pool, you receive single-sided pool tokens in proportion to the amount of tokens you’ve added to the pool.
Bancor pool tokens can accrue value in three ways:
- trading fees generated by the pool
- pool rewards provided by any third party (via liquidity mining)
- pool rewards provided by the Bancor Protocol (via BNT liquidity mining)
"bn" stands for Bancor network. bnBNT or any other bnTKN are pool tokens, and your deposited amount is represented by them. These pool tokens represent the fully protected value of your deposit, including all value accrued on the deposit since start(fees earned from trading). These pool tokens are fungible, composable ERC20 tokens. You must hold the pool tokens in your wallet once you wish to withdraw your deposit, as they are returned to the protocol when you get your deposit and fees back to your wallet.
It's important to note that in order to receive rewards, these pool tokens might be deposited in another smart contract, therefore won't remain in your wallet until you've decided to withdraw. This is labelled as "Join rewards program" when you deposit - enabling it will automatically deposit the pool tokens in their respective standard rewards programs.
Pool tokens from legacy AMMs represent a dual-sided depositing and can lose value due to impermanent loss. On Bancor 3, pool tokens represent the pool’s liquidity, which auto-compounds fees and rewards. They represent a single-sided deposit with IL protection, meaning they are more stable collateral vs. legacy pool tokens. The LP tokens are composable ERC-20s that can easily be integrated in other platforms. Bancor LP tokens behave like AAVE and COMP liquidity pool tokens in the sense that they will also rise in value when denominated in the deposited token.