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Balancer (BAL)

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The Multi-Asset Automated Market Maker (AMM) Decentralized Solution.

Balancer (BAL) Fact Sheet

  • Balancer is an automated market maker (AMM) decentralized exchange (DEX) and liquidity pool protocol that was built on top of the Ethereum (ETH) blockchain and aimed to let all and any of its users provide liquidity for multiple assets simultaneously.
  • Balancer stands out when compared to competing options out there due to the fact that it allows for custom ratios of assets for each pool.
  • All of the pools that are available on Balancer can set their own customized trading fees, which reward the liquidity providers that risk experiencing impermanent loss due to the fluctuation within the value of the assets that are held in the pool.
  • The native cryptocurrency that is used to power Balancer is known as BAL, and BAL is used as a governance token that aids in the project’s implementation of new features as well as for the issuance of rewards and whitelisted pools for liquidity mining.

BAL Historical Data Price Chart in the U.S. Dollars (USD)

Balancer (BAL) Historical Data Price Chart in the U.S. Dollars (USD). Source: TradingView

What is Balancer (BAL)?

Balancer is an automated market maker (AMM) that was purpose-built to enable users the ability to create liquidity pools that feature up to a total of eight different tokens within any ratio.


Automated Market Makers (AMMs) are a representation of a core technology surrounding the decentralized finance (DeFi) ecosystem, and they are smart contracts that enable the functionality of automated management of the crowd-sourced liquidity pools that essentially fill decentralized exchanges (DEXs) with cryptocurrencies.


Anyone, from anywhere, can also provide their own tokens within an AMM liquidity pool where in return for doing so, they can get rewarded in the form of liquidity pool tokens.


These tokens are the representation of an ownership share of a pool and can be invested elsewhere throughout the DeFi ecosystem.


Balancer pools are automatically rebalancing portfolios in the sense that anyone can create or even join a decentralized index fund where the fees go to liquidity providers instead of intermediary fund managers.


There are Managed Pools, Boosted Pools, and Custom Pools.


All of this is governed by the Balancer (BAL) cryptocurrency, which can be earned through liquidity mining and through the process of depositing cryptocurrencies within Balancer’s liquidity pools.


When we look at the blockchain space historically, the original automated market maker (AMM) is considered to be Uniswap (UNI) which utilized and popularized token pairs that are equally weighted at a 50/50 ratio. Curve, on the other hand, utilizes like-asset optimization that can ensure stability by essentially limiting token pairs to similar assets.


However, Balancer is an evolution of all these AMMs that enables almost an unlimited amount of options when it comes to the customization of token balances as well as fees.


Instead of paying fees to have a broker rebalance the pool, the pools can collect fees as they get continuously rebalanced by the traders making the swaps in the first place, and the high token-count pools have the advantage of numerous token pairs, all of which contributes to the creation of additional opportunities which can collect the trading fees.

How is Balancer (BAL) Used?

Balancer is used by liquidity providers (LPs) that want the best return on any of the assets that they deposit within AMMs. However, Balancer stands out due to the fact that instead of allowing asset pairs with a high level of control associated with them, and severe limitations, it lets liquidity providers execute any of their own strategies and can even balance ratios across the overall network.


Furthermore, there are three main types of Balancer pools that are available, and these include native pools and smart pools.


Native pools are split across two main types, which are controlled or private. The pool's owner is the only actor who can essentially manage the parameters of the pool and add or remove liquidity.


Centralized and private pools are dynamic in the sense that the ratios, weights, and fees and the tokens are altered by the creator. Private pools are similar to actively managed index funds, where you will need to trust the creator to make good decisions in the future as well.


A pool can be made public or even shared, which means that its parameters are final, but anyone can still add liquidity and trade. A finalized Balancer core pool will always remain the way it was originally launched, ensured by a permanently fixed smart contract that exists on top of the Ethereum (ETH) blockchain. These are typically utilized as strategies that do not require active commitment, as anyone can join them at any point in time.


Then there are smart pools, which can also be private but are controlled by automated smart contracts that function at the gateway through which anyone can provide liquidity. Smart pools are a hybrid of private as well as shared pools, and smart pools can feature dynamic fees, liquidity caps, LP Whitelisting, trading pauses, as well as other types of information.

Use-Cases of Balancer (BAL)

The Balancer platform has multiple use cases associated with it, and these include being an exchange for traders, as well as an investment fund for the liquidity providers. The liquidity providers have the main goal of owning a share within the Balancer pool due to the fact that they can profit from the fees generated from the platform instead of just letting their cryptocurrency remain idle in their wallets elsewhere.


Traders, on the other hand, have the additional benefit of finding the best prices through which they can exchange tokens.


Whenever trades are executed on top of Balancer (BAL), liquidity pools that have the most divergent princess will typically be brought closer to the prices of other pools on Balancer. This is just an example of the aligned incentives that get achieved through the procedure of automation, due to the fact that the trader has a genuine belief that they are getting the best prices whilst providers benefit due to the rebalancing of the pool, all of which is automated.


Then there's the usage of the BAL cryptocurrency. As is the case with numerous other DeFi protocols, the Balancer crypto protocol features integrated governance mechanisms into its native Balancer (BAL) token.


The Balancer community is responsible for the procedure of governing the protocol and is responsible for the process of proposing updates or changes to it. What this means is those holders of the Balancer tokens are able to approve or even decline any of the proposals which have been submitted through voting with their token balance. Due to the fact that all of the decisions surrounding the future of the platform do indeed get chosen by the BAL holders, the Balancer token presents ownership of the Balancer project.


The future outcome of the governance process is only the BAL holder's decision, as they can choose what gets implemented to a protocol-level trading fee, which can give value back to them.


Furthermore, the BAL tokens get distributed to liquidity providers weekly, where the more liquidity, tokens, and value someone provides to a pool, the more tokens they will earn as a result of their efforts.

Usability & Primary Features of Balancer (BAL)

The value of a pool within Balancer gets determined by the percentage of each token that is within it, which is a weight that is chosen during the creation of the pool.

Protocol

When we look at how the protocol works, Balancer works similarly to other automated market makers (AMMs) however differentiates itself in a way n which up to eight tokens can get added within a single pool, compared to the two, which can be added on Uniswap for example. Furthermore, Ethereum (ETH) is not a requirement when it comes to the tokens that can be deposited within the pool, while all Uniswap currencies need to be paired against ETH, for example.


In the case of Balancer, the pools are also not limited to equal 50%/50% token weightings; but instead, liquidity providers can open a pool that features a 60% maker token, 20% wrapped token, and  20% stablecoin.

Ledger

Balancer is essentially a DEX built on top of Ethereum, which makes it a lot easier for anyone to use the platform due to the fact that there are many compatible wallets that follow the token standard. They can also invest in pre-existing pools and even earn trade yields.

Smart-Contract Support

Balancer (BAL) does indeed utilize custom programs known as smart contracts, and here, they are implemented as a means of ensuring that each pool can retain the correct proportion of assets, even at the point in time when the prices of individual coins in the pool might vary.

Tokenomics & Supply Distribution

When it first launched, Balancer distributed 25 million tokens to its founders, investors, well as key developers, all of which were subject to an ownership period.


However, the total amount of BAL which was allocated was 100 million.


Five million BAL was donated to the ecosystem as a means of supporting the protocol development, whilst another 5 million was intended for future usage.


The remaining 65 million were allocated to liquidity providers through a split of 7.5 million a year, or 145000 BALs designed to be mined and given on a weekly basis.


The network will supply 1.76 million on an annual basis, based on the liquidity provider’s share from the company.

Team & History

Balancer was originally created as a research project at a software consulting firm known as BlockScience back in 2018. The company was founded by Fernando Martinelli and Mike McDonald. And independently raised $3 million in funding under the name Balancer Labs in 2020.


The project was aimed at providing liquidity on the user's terms and creating an automated market maker pool that was capable of providing diverse assets. This network feature establishes a platform that is similar to Exchange Trading Funds (ETFs), where it can rebalance continuously.


Furthermore, the distinction here is that it can compensate users for providing liquidity and not only for buying or holding tokens.


It launched in March of 2020 and was not decentralized as other DeFi platforms, and throughout 2020, the network managed to create a liquidity mining system where providers to the Balancer pool could earn BAL tokens, and they even introduced staking, where the miners could earn income for holding these assets.


Later on, in August of 2020, BAL token holders voted to reward liquidity providers, which included BAL within the pool, and BAL now lets users vote and control the platform.

Activities & Community

When we go over the community of Balancer, we have the following:

Here we can see that there are a lot more active community members on the Discord channel.

On-Chain Activity

When we go over data from Etherscan, because Balancer is built on top of Ethereum, we can see a lot of interesting statistics and overall data points.

The total supply is 63,073,275**.**04631953228909796 BAL.

Activities and Partners

  • Aave and Balancer partnered to build the first asset manager for Balancer V2.
  • Balancer partnered with Gauntlet to make Dynamic-Fee Pools a reality.
  • veBAL went live, where BAL holders and Balancer Liquidity Providers can receive numerous benefits, as they can lock their BAL into veBAL, which is the new vote-escrowed system, whilst LPs can stake their LP Tokens (BPTs, Balancer Pool Tokens) to continue to receive liquidity mining incentives.
  • OlympusDAO has established OHM as a Liquidity Asset on Balancer, where projects are now able to maximize protocol-owned liquidity using CopperLaunch and PrimeDAO.
  • Balancer Launched Boosted Pools as a means of increasing LOP yields and the first iteration of the product launch was done in collaboration with the top lending protocol Aave.
  • Balancer Labs and Cooper aligned to build the future revenue generation platform, where Copper committed to building on top of Balancer Protocol's underlying codebase.

References & Reports

References

Market Research

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