Bancor is a system that provides liquidity for small market value tokens, and it has built-in tradable one or more ERC20 tokens as a reserve. New tokens are issued through smart contracts in exchange for reserve tokens. The price of new tokens is automatically priced through smart contracts, so that they can be directly converted between tokens without the need for exchanges, without the need for a second party to participate in the transaction, or the first Three parties come to match transactions. The network effect of the tokens created by the Bancor protocol lowers the barriers to market entry for these new currencies and effectively solves the liquidity problem.
The new currency is backed by Bancor, and Bancor is backed by ETH. Bancor's constant reserve ratio (CRR) is set and maintained at 20%. BNT is issued by sending ETH to the smart contract that Bancor holds reserves, and the ETH sent in the past becomes Bancor's endorsement. Under this setting, users can send 20 ETH to this smart contract to purchase 100 BNT, and this 20 ETH will be forced into the reserve fund by this smart contract. In the same way, BNT can be exchanged back to ETH, as long as the user sends it to the Bancor smart contract, they will get some ETH. The Bancor protocol allows users to generate or destroy BNT every time they deposit or withdraw reserves (ETH). If the price of ETH rises (due to the development of the Ethereum ecosystem), the price of BNT will also rise (because BNT and its reserve token ETH maintain a constant reserve ratio), and the rise in the price of BNT will also increase the price of the new currency.