How does Bancor Impermanent Loss(IL) protection work?

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Bancor is designed so that a liquidity provider always gets back the same value as if the tokens were held in the user’s wallet (plus trading fees & rewards) through a novel concept called Impermanent Loss Insurance.

To support that, the Bancor protocol uses its protocol-owned BNT to jointly fund pools alongside user deposits:

When a user deposits $100,000 in a 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 pool tokens (LP tokens)

If the user has suffered any IL, fees earned by the protocol's pool tokens are used to compensate for the IL.

This is different than External Impermanent loss protection, which third party projects can offer TKNs to their liquidity providers, while providing liquidity at the same time.

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