This allows you to price a token for a service without external input, eliminating the need for market makers and providing your users with a simple way to pay your prices with any major cryptocoin. This makes it possible to create trading exchanges for cryptocurrencies without listing fees as well as hedging within crypto-markets by using multiple reserves pegged by different coins/tokens. As an example: You use ETH as your main reserve currency but also want 10% of your reserves in BTC to hedge against ETH/BTC volatility, you would issue a new smart token called "HEDGE" that is pegged to 1 ETH and 0.1 BTC.
The BANCOR network is built on top of the Ethereum blockchain and utilizes this technology to create Smart Tokens. BANCOR aims to be the world's first protocol for liquidity of tokens. The ultimate goal of the BANCOR network is to provide a solution for the liquidity problem that all cryptocurrencies are currently facing.
Cryptocurrencies are still in their early days and as a result, they are plagued by a lack of liquidity. This means that it is very difficult to buy or sell large quantities of these tokens without significantly affecting their price. You can think of it as if you wanted to buy a large amount of groceries only to discover that no supermarket carries your goods and that they cannot special order them for you; this is exactly what we are dealing with in the cryptocurrency space, all items (tokens) exist at each market but one can hardly buy or sell anything without affecting the price. This is why BANCOR comes into play!
Here's how: With BANCOR liquidity-tokens will be able to hold 2 other tokens in reserve (similar to pegged assets such as DGX but on the blockchain) and issue any number of different types of smart tokens with variable ratios between reserved tokens and issued tokens. The value of smart tokens issued by a liquidity-token always match the value of its reserve(s).
To make this possible, BANCOR smart tokens hold a balance in another network-wide token called BNT. A smart token can be seen as a decentralized autonomous system built on top of the protocol and is designed to enable anyone to create a new type of currency. Like "Local currencies" but without needing any agreement between users. It also enables you to convert one smart token into another by simply transferring its reserves into an existing or new smart token contract that has been configured to accept them. In order for this process to work smoothly, liquidity-tokens must have some initial value (e.g from a successful crowdsale) so there is always at least some supply out in the market.
BANCOR is an interesting project with a strong use case and it's backed by some great names in the industry so you should definitely check it out! It also has its own token called BNT which is used for reserving and collateralizing smart tokens as well as to pay fees on the network. There will be 100M BNT created during their ICO with 80% of these tokens sold to contributors. The remaining 20% would become available gradually at an undetermined rate over time, to provide incentives for running nodes once the network is launched.
The base value of one BNT token will be set by multiplying the ETH/USD exchange price (inclusive of any applicable fees) at 4pm London time on the day of the contribution period by 10,000. So for example, if the ETH/USD exchange rate is $250 then each BNT will be worth $2,500. This value will be locked in and never change.
Contributors will also receive a bonus which will be determined according to how much of their selected currency they contribute in relation to the total contribution. The bonus decreases as contributions increase so that those who contribute more receive a smaller bonus.
If you're interested in learning more about BANCOR, I suggest taking a look at their website or reading their whitepaper! You can also join their Telegram channel to ask any questions you may have.