How do Bancor Smart Tokens work?

For those not familiar with the blockchain system, the Smart Tokens launch from Bancor suddenly enabled the conversion of any ERC20 token into an alternative token, without the need for manual intervention or liquidity. Before this, users had to rely on a consistent presence of buyers and sellers in order to be able to convert their tokens – with tokens set at a high liquidity able to be sold or purchased at any time, while those with lower liquidity were much harder to acquire or sell off.

By streamlining the process and automating the token conversion, the markets were suddenly decentralized and automatic, built on a set of rules.