What is Balancer?
Balancer is an automated market maker (AMM) protocol based on the Ethereum network that allows users to trade and manage virtual coins. Balancer pools can be thought of as automatically rebalancing portfolios, wherein anyone can create or join a decentralized index fund, and fees go to liquidity providers instead of intermediary fund managers.
The most crucial feature of Balancer is its set of algorithms that control and stimulate interactions between traders, liquidity providers and pools according to two objectives: rebalancing pools and finding the best price across multiple platforms.
The Balancer Protocol can be used in these use cases:
- Decentralized exchanges. With no KYC or signups, anonymity and privacy are upheld.
- Liquidity pools that operate as an index fund or an ETF.
- Liquidity bootstrapping. The idea is to create deep liquidity and a more diverse distribution for newly launched projects. This solution provides a project’s team with more control and flexibility in terms of token distribution.
Balancer was rolled out in 2018 by Fernando Martinelli and Mike McDonald. It was launched as a research system by Block Science, an engineering, R&D, and analytics company specializing in complex systems. Subsequently, the project was spun off as Balancer Labs.
The idea behind launching Balancer was to offer users an opportunity to provide liquidity on their own terms through AMM pools with various assets and customizable weights. This builds a structure that is continuously rebalanced while users get paid for providing capital.
Balancer is a non-custodial platform enabling users to change virtual coins paying fees that are allocated to liquidity providers.
Balancer (BAL) Tokens
Balancer’s native token, BAL, was launched on June 01, 2020, as a means to reward providers of liquidity to the protocol. A total of 7.5 mln BAL was issued, which will be gradually unlocked over eight years. The idea is to build a strong incentive for early participants to increase liquidity and take part in the voting and governance processes.
Like many DeFi governance tokens, there is no economic value to BAL tokens. So, the material value of BAL is far more than nominal, reaching an all-time high of $74.77 on May 04, 2021. At the time of writing, its market cap is around $177,197,811.
Users of BAL are then able to approve or decline the proposals by voting with their Balancer tokens. Since decisions are made by BAL investors, this virtual asset essentially represents ownership of Balancer. A potential future outcome of the voting system is for BAL investors to vote to integrate a protocol-level trading commission on Balancer, which could accumulate value back to the Balancer token.
In addition to being available to buy on open market exchanges, these BAL assets are sent to liquidity providers every week. The more coins, liquidity, and value you provide to the service, the more native coins you have a chance to gain.
In August 2020, BAL holders chose to incentivize providers of liquidity to pools featuring BAL. Out of 145,000 BAL that enter circulation each week, 45,000 BAL are shared among liquidity providers to key BAL pairs, including BAL/ETH, BAL/WBTC and BAL/USDC.
According to Fernando Martinelli, CEO and co-founder of this project, the team aims to become a core building block for any DeFi projects, regardless of their design or liquidity needs.
Is Balancer useful?
Two types of users can enjoy Balancer: traders and liquidity providers. It is important to note that liquidity providers are the ones who own Balancer pools or participate in shared pools. Traders are customers that buy and sell ERC-20 assets on the open market.
Liquidity providers can have controlled exposure to different crypto assets without costly and complicated rebalancing. At the same time, liquidity providers can gain passive income from their ERC-20 tokens.
Users can also profit by arbitraging price differences on Balancer with other exchanges.