The DeFi protocol suspended its temporary loss protection (ILP). Bancor highlighted the liquidation of many positions of its native BNT item and the declining market.

Bancor, an Ethereum-based decentralized exchange (DEX), suspended one of its user protection procedures due to the digital assets market decline.

In a statement on Sunday, Bancor revealed to its customers that it stopped one of its core features named Temporary Loss Protection (ILP). The decentralized finance (DeFi) platform said this is a temporary procedure to shield the protocol and its users, citing the decline of its native token BNT and the problematic market situation.

Bancor Stops its ILP Feature

Released in 2017, Bancor got described as a pioneer in DeFi, as highlighted by The Block. Its ILP feature brings shelter for a type of loss incurred when someone gives two unrelated cryptocurrencies to a liquidity pool.

When a user grants liquidity to a liquidity pool, the ratio of their deposited assets changes, which could leave investors with more of the lower value token; this event gets called a transient loss.

Bancor gives the ILP a contribution through rewards from its newly minted BNT token. Users then choose whether to hold or liquidate those tokens on the market. However, recent price volatility in the broader digital asset market appears to have put further selling pressure on BNT.

Bancor determined that the decision to suspend the ILP feature should give the protocol enough space to breathe and help BNT recover. The team also highlighted that as markets stabilize, they are working to bring the feature back to life as soon as possible.

Measures to Deal with the Crescent Decline

Bancor is not alone in making decisions to shield the network and its users amid the recent steep decline in the market. In the DeFi space, the MakerDAO (MKR) protocol, which issues the DAI stable coin, revealed that it has disabled its direct deposit module (D3M) for Aave (AAVE) as a security procedure against potentially unacceptable risks to the protocol.

Decentralized crypto lending platforms Celsius and Babel Finance revealed last week that they were freezing their withdrawals due to problems in the market. Reports suggest that Celsius is experiencing a liquidity crisis as it has been unable to meet customer withdrawals. Both firms have highlighted that they are working to reinstate withdrawals.

On the other hand, many users in the community expressed their concern regarding the move to stop the ILP. According to CoinTelegraph, Cobie, host of the podcast Uponly Tv, criticized Bancor for stopping the option when liquidity providers require it most. Investment firm Paradigm’s research contributor Hasu also spoke about this issue, expressing how the move could lead to the worst problem.

By: Jenson Nuñez


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