Decentralized Finance protocol, Bancor has for the time being halted its ILP function (Impermanent Loss Protection) starting Sunday and has cited hostile conditions in the crypto market for its move.
The DeFi space pioneer posted a blog on Monday, noting that the impermanent loss protection would remain paused but termed it a provisional measure that would serve to protect both the users and the protocol.
The blog by Bancor mentioned that this ILP protection would afford the protocol a little time to recover and give it breathing room. Even as they awaited a stabilization in the market, Bancor mentioned that they were occupied with getting the ILP activated again at the earliest.
Every time a user adds liquidity to any pool, the deposited asset ratio changes sometime later. This leaves investors with the potential for a token much lower in value. This is what is termed an impermanent loss.
ILP Function By Bancor First Introduced Back In 2020
The liquidity owned by Bancor’s protocol was utilized in the funding of ILP. This protocol staked BNT, the native token, in pools and reimbursed users with the fees collected whenever they faced a temporary loss.
This process by Bancor in effect burns any excess BNT when the trading fees that are generated are above the cost due to transient loss on any given stake.
This impermanent loss function was introduced initially in 2020. It was later upgraded, and more refinement was added after Bancor 3 was launched in the middle of May 2022.
But the ongoing turmoil has led to a decline of over 70% across the cryptocurrency market and has adversely affected the decentralized finance market also. This forced DeFi protocols to go for multiple critical changes.
Their move evoked mixed reactions. While some realized that the IRL pause would give a breather to the protocol, others were displeased at the decision. They were peeved that while liquidity providers needed IRL the most, Bancor was moving towards pausing it.