Bancor’s DeFi protocol team has suspended the Temporary Loss Protection (ILP) feature due to “hostile market conditions.”

Due to adverse market conditions, Bancor’s Temporary Loss Protection has been temporarily paused. IL protection will be re-enabled in the protocol as market stabilizers.

More information: https://t.co/pHrdO4sTFd

We’re hosting a community AMA in 15 minutes: https://t.co/xgh8UmfNoL

— Bancor (@bancor) 19 June 2022

“The measure of suspending the IL defense should give the protocol some time to breathe and recover. While we wait for the markets to stabilize, we are working to re-enable the option as soon as possible,” the blog writes.

ILP compensates for possible temporary user losses when investing assets in the liquidity pools of the protocol at the expense of BNT tokens. The coins come from rewards for placing funds in Bancor-owned pools or an additional issue.

The protocol team noted that the recent sale of rewards accumulated in the last 18 months by users has led to the need for new BNT issuance.

Additional pressure on the token price was exerted by the “bankruptcy of two large centralized entities”, the developers of which are not named. These institutions were the main beneficiaries of liquidity mining pools as “long-term providers” in Bancor V2.1.

“They quickly liquidated positions in BNT to meet their obligations, and while withdrawing large sums of money from the system, an unknown person opened a large short position in the token on an external exchange,” the team said.

Bancor explained that “there are no attacks in progress at this time”, the funds in the protocol are safe.

Deposits are also temporarily suspended. Withdrawal of funds is possible only through Bancor V3, without compensation for losses. The team said that users who left assets in their liquidity pools will be able to withdraw their assets later with the ILP feature when reactivated.

“What’s the point of having Bancor’s ILP disappear when it’s most needed,” said opinion leader Cobie.

He noted the developers’ remarks that the option’s suspension was due to the ways they “designed and built”.

What’s the point of permanent loss protection if it disappears when you need it most lol pic.twitter.com/GAJyhr6Tib

– cobie (@cobie) 19 June 2022

“Bancor’s fake game to cover up IL is failing,” said an analyst known by the pseudonym Hasu.

Bancor’s IL hide game crashes. They print new BNT to compensate for their underwater LP and call it “IL protection”. The cost is passed on to BNT holders through inflation, which causes more IL to all other BNT pairs and leads to more inflation. A spiral of death. https://t.co/MbqPiL3sKB

— Hasu⚡️🤖 (@hasufl) 20 June 2022

“To compensate, they issue new BNT and call it ‘IL protection’. Value is passed on to token holders through inflation, which causes more loss and depreciation for all other BNT pairs. The spiral of death,” he added.

On June 13, amid the crypto market slump, major crypto lending platform Celsius Network suspended withdrawals, swaps and transfers between accounts.

Since then, the price of BNT has almost halved from ~$1 to ~$0.52 (Bitfinex).

After the market crashed, there were reports of a possible bankruptcy of the Three Arrows Capital hedge fund. The company’s co-founder, Su Zhu, did not directly confirm the rumors, but stated that they are “determined to resolve the issue.”

Recall that by June 18, the amount of funds in the DeFi ecosystem fell 71% from the December 2021 peak to $70.72 billion.

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