> ## Documentation Index
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# Bancor Protocol: Continuous Liquidity for Autonomous Token Exchange

> The Bancor whitepaper introduces a novel approach to solving liquidity fragmentation in the crypto-asset space through the implementation of a 'Smart Token' mec

# Bancor Protocol: Continuous Liquidity for Autonomous Token Exchange

The Bancor whitepaper introduces a novel approach to solving liquidity fragmentation in the crypto-asset space through the implementation of a 'Smart Token' mec

## Abstract

The Bancor whitepaper introduces a novel approach to solving liquidity fragmentation in the crypto-asset space through the implementation of a 'Smart Token' mechanism. The protocol utilizes a reserve-based model where tokens are backed by one or more other tokens, enabling a constant supply-demand equilibrium. A key feature is the ability for users to perform token conversions directly against a smart contract without the need for a counterparty on the other side of the trade, effectively decentralizing the market maker role. The whitepaper details the mathematical relationship between a token's price and its reserve balance, defining a 'connector' weight that determines the price elasticity of the asset. By providing continuous liquidity, Bancor aimed to solve the 'long tail' problem of smaller-cap tokens that frequently face liquidity shortages on traditional exchanges. This paper is essential for understanding the early shift from order-book-based exchanges toward automated, reserve-based protocols that utilize algorithmic pricing models to maintain constant market activity.

**Authors:** Eyal Hertzog, Galia Benartzi, Guido Schmitz

**Publication:** Project Whitepaper

**Publication date:** 2017-01-01

## Key findings

* Established the use of reserve-backed smart tokens for autonomous liquidity provision.
* Introduced an algorithmic pricing model that eliminates the need for matched orders.
* Addressed liquidity shortages for low-volume tokens through algorithmic reserves.
* Enabled trustless on-chain conversion of tokens without requiring centralized exchanges.

## Citation

Eyal Hertzog, Galia Benartzi, Guido Schmitz (2017). Bancor Protocol: Continuous Liquidity for Autonomous Token Exchange. Project Whitepaper. [https://blog.bancor.network/](https://blog.bancor.network/)

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**Canonical knowledge ID:** `research:bancor-protocol-continuous-liquidity-for-autonomous-token-exchange`