Insured or bonded constant product AMMs work exactly as a CFAMM explained above, with one large twist – users only provide one side of the pool’s liquidity. Every single pool has one variable asset and one common asset. The common asset is a token native to the protocol, which is a necessity since the DEX has to have absolute control over supply. As a result, single asset deposits are enabled, dramatically improving the user experience for LPs.
An example of this model is Bancor. This Delphi Pro article explores Bancor v2 in depth. Bancor uses its native governance token, BNT, to provide LPs with protection from impermanent loss. LPs earn swap fees to offset some portion of their IL, and the Bancor protocol guarantees any other losses. It is important to note that this IL protection is offered by the protocol and less so by the native AMM design. As such, Bancor experienced severe dumping of its native token during a volatile period that lead to them suspending IL protection.
