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Our conversation began with a fundamental question — one that gets to the very root of decentralized liquidity:
What inspired the creation of Bancor, and how did it contribute to the development of DeFi?
Dr. Mark Richardson’s response isn’t just about Bancor — it’s about the fundamental problems that existed before DeFi and how solving them led to one of the most- if not the most- pivotal breakthroughs in decentralized finance.
Bancor’s identity as a blockchain project is impossible to separate from the Bancor Protocol (or, similarly, the Bancor Formula): a continuous liquidity price quoting and account-keeping method often referred to as the “constant product automatic market maker” and its associated “pool tokens”. The origins of the Bancor Protocol extend farther into the past than the advent of Ethereum and other second-generation blockchains.
The story begins with Metacafe, an early user video sharing website and competitor to YouTube, founded by Eyal Hertzog. Metacafe focused on promoting the top-rated and most-viewed videos, whereas YouTube catered to more niche interests, allowing its users to explore the “long tail” of user-generated content. The latter model proved to be the more powerful of the two, ultimately seeing YouTube progress towards total dominance of user-generated video sharing services.
After discovering Bitcoin in 2011, Hertzog categorized the phenomenon as “user-generated currency”, and reflecting on the success of YouTube’s model, recognized the potential for a long tail of other user-generated currencies. Today, we might identify these as “meme tokens”.
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