According to Hacking Distributed, Bacor proposed a scheme to provide liquidity for digital assets, using a smart contract.
Bancor proposed a public algorithm by which Bancor can always propose a bid/ask price for other people's coins.
Hacking Distributed detailed some immediate problems with the code below.
Red flags :
-Bancor uses lots of mumbo jumbo terminology.
-The core problem they want to address, "Double Coincidence of Wants" is not a real problem.
-One can always use ether as a medium of exchange.
-Bancor is essentially a central bank strategy for automatically setting a dynamic peg for new coins.
-That's it. That's the whole idea.
-Everything Bancor can do for you on chain, you can do by yourself off chain.
-It is much better to manage the reserves manually than to commit to the Bancor strategy.
-The Bancor strategy sets prices independent of the market.
-The Bancor strategy fails to capitalize on excess value
-The algorithmic dampening provided by Bancor isn't desirable for already liquid assets whose value is unstable.
-The Bancor strategy will not do anything to find or maintain the true equilibrium value of an asset.
-Bancor thus acts like a dynamically adjusted currency peg.
-Bancor presents an arbitrage opportunity. It does not lead the market towards equilibrium, it trails the market, always and by
definition.
-Bancor does not "eliminate labor" in price discovery.
-There is no indication that the Bancor strategy is an optimal, or even good, use of reserves to discover the price.
-Bancor is a net negative in markets with substantial liquidity.
-Bancor claims to provide liquidity, but does not.
-Bancor is open to front-running.
-Bancor's suggested fix to front-running is broken.
-Bancor reimplemented math.
-Bancor did not test their own math.
-Arithmetic errors can be fatal.
-Bancor does not support the notion of supply caps for Bancor-based tokens.
-Bancor does not scale.
-Bancor shortchanges its users.
-Bancor code is "difficult to prove correct."
-Bancor code has a reentrancy problem in the sell() function.
-Bancor code has a different reentrancy problem in the change() function.
-Bancor code assumes that ERC20 tokens based on Bancor are cooperative.
According to Hacking Distributed the current Bancor approach is fundamentally inefficient. Assuming that there are no immediately exploitable issues in the code, and assuming that miners play nice and avoid front-running, Hacking Distributed expect that we will see Bancor-based coins discover the limitations of the Bancor approach.
Source: http://hackingdistributed.com/2017/06/19/bancor-is-flawed/
There is more criticism on Bancor. Buyers beware...
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