ESZCoin + Bancor Token Relay Explained

EtherSportz joins the Bancor Network to enable the trading of ESZCoin (ESZ) with Bancor (BNT) to provide instant liquidity for ESZCoin with low fees and no trading spread. To learn more read our article “ESZCoin Joins the Bancor Network”.

In this post we will explain how the Bancor Network operates behind the scenes. It is not necessary to understand this to use Bancor. In our last post we explained that users do not directly trade with each other, but instead with a converter smart contract called Token Relay to make trades possible at all times.

You can think of a Token Relay as a vending machine for two token types. Our ESZ Coin “vending machine” will hold both ESZ and BNT tokens. While our token relay will allow for many other conversions such as ETH/ESZ, let’s look at a simple case, BNT (Bancor Network Token) to ESZ (ESZCoin).

For example lets say someone wants to purchase ESZCoins. They send BNT to the Token Relay, which would buy an intermediate token called ESZBNT.

This ESZBNT token would then be exchanged again for ESZ. The conversion fee for each of these conversions would be 0.1%, and since two transactions took place the total fee would be 0.2%.

The Token Relay has a stock of each of the tokens (ESZ & BNT), and they are priced based on the quantity of each token in the contract. If ESZCoin users see ESZ priced slightly cheaper than market value, they’ll have an incentive to purchase it, shifting the pricing back up to normal. If BNT is cheaper in comparison, then users may sell their ESZ at a premium. This way no side of the connectors can ever be fully depleted because the price automatically adjusts.

Who provides the supply?

People that own ESZ or BNT tokens can transfer them into the Token Relay, and receive an “IOU” token called ESZBNT. If you own 1% of all ESZBNT tokens, that means you own 1% of both the BNT and ESZ connector balance in the Token Relay.

The ESZBNT smart tokens have a special property: they collect those 0.2% conversion fees from any trades in the Token Relay. Anyone can place some of their long-term holdings of ESZ or BNT into the Token Relay and provide liquidity while watching their holdings grow.

It is possible to dynamically increase or decrease the supply of ESZBNT which in turn increases or decrease the liquidity for the exchange of ESZ and BNT. This does not affect the ESZ/BNT price as long as you swap the ESZBNT Coins against both ESZ and BNT and not just one of them.

At the moment you need to interact directly with the smart contract to provide extra liquidity by buying the Relay Token. But in the future this will be possible directly through the Bancor website.

With this knowledge, you could earn passive tokens simply by placing some of your long-term ESZ in the Token Relay and withdrawing at a later time! However becoming a liquidity provider on Bancor is only recommended for experienced users that understand the Bancor system well, since there are exchange risks involved. ESZ/BNT holders do not own a fixed amount of BNT or ESZ, but instead a mixture that depends on the exchange rate of ESZ/BNT.

Why is it important to have high liquidity?

Since every ESZ/BNT trade via the Bancor system changes the ESZ/BNT conversion rate in favor of the opposite trade, more liquidity results in better conversion rates for everyone. An Increase in liquidity results in better exchange rates for all users because the more liquidity the less each trade changes the price through the Bancor formula.

Bancor is best for small and medium conversions by users who just want to change their coin at a fair market price. It gives users the ease of not having to compare prices between different exchanges, and avoids hidden exchange fees by market makers.

Bancor Network Tokens

You might be thinking to yourself, “That’s great, but why BNT tokens?” Bancor Network Tokens allow us to take this system one step further and tap into the entire Bancor Network. This is a collection of other Token Relays that each contain BNT as well as their own currency.

Using a transaction path you can essentially trade between ESZ and any other token supported by Bancor! Even Ether is possible, with the following path:

Conversion fees of 0.1% are charged between ESZBNT steps, but the ETH/BNT stage is free, so the total conversion fee continues to be 0.2%

The exact same pathway could also be used in reverse to convert ESZ to ETH!

Conclusion
When our ESZCoin Token Relay launches, it will provide anyone with the ability to purchase ESZ directly from the Bancor web app, and also provide an interesting passive income opportunity for anyone wanting to become a liquidity provider.

Learn more about EtherSportz & ESZCoin
EtherSportz is being developed as an online based eSports tournament platform for popular games. Competitors can participate in prize pool tournaments by registering for EtherSportz hosted events and paying a Cash or Crypto entry fee. The top tournament winners will receive the majority of the prize pool generated by the entry fees!

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