Asynchronous; when two or more objects or events, not existing or happening at the same time

Market trading is all about obtaining prices. The fact is that a good financial market is an efficient market, where forecasts about future risk and return determine valuation. The price observed at an instant in time on the ideal efficient market is a good assessment of future risk and return. This price is not constant, because new information is being constantly generated in the economy. This could lead to:

Speculators observe new information, form a fresh sense of risk and return, and discover that the present valuation on the market is out of date.

An efficient market must exhibit volatility. When news breaks, prices must change.

Many people dislike volatility because of its financial implications. These people need financial derivatives to hedge away their risk. Their discomfort with volatility should not influence public policy to reduce volatility on the market. In this sense, the advent of derivatives exchanges is important in enabling the withdrawal of government from the role of stabilising prices.

Bancor Mechanism

Bancor’s Asynchronous Price Discovery: the ability of a Smart Token to discover the price of itself or its reserve tokens without having to match a buyer & seller in real time. Over time, the price will stabilize at the point of balance between the purchase and liquidation volumes.

The pricing mechanism works in a way that whenever you execute a buy, e.g. convert your ETH into these crypto-tokens, the price increases. There is a price calculation that is determined by the smart contract on this conversion ratio, which is set at the onset based on how much the reserves are, what percentage of the total are in reserves, and the total number of tokens.

But the beauty of Bancor’s formula is that this price isn’t static, but dynamic. With each buy or sell, the price floats. If people buy these tokens by sending some ETH to the smart contract, the price increases. This means the next buy is more expensive for everyone. On the other hand, if people sell some of their tokens for ETH, they will get it at the stated price. However, the price decreases for everyone, so the next sell would yield less ETH. If there are enough buyers and sellers, then an equilibrium is quickly reached and the price stabilizes.

Bancor based cryptocurrencies can also be listed on an exchange. Now there are two different market prices for the same token, one based on third-party external exchanges and one based on the rate implied by the smart contract. A buyer or seller can use either mechanism to buy or sell these Smart Tokens.

With the Bancor-based Smart Tokens, we can also see an interesting mix of play where one of the exchanges is a smart contract and therefore more trustworthy than a centralized exchange and without fees. We would expect the price based on the smart contract may be a little lower.

Due to this inherent arbitrage opportunity, the trading volume for popular Bancor-based tokens will be higher than usual. This may further provide an incentive for newer long tail cryptocurrencies to use the Bancor protocol to issue their tokens instead of just regular ERC20 standard tokens.