Decentralized Finance (DeFi) has been continuing to revolutionize the future of global finance as people’s interest in this space has exponentially increased over past years.
Officially launched in 2020, Balancer is a DeFi protocol and decentralized exchange. The platform has grown rapidly and offers a range of features.
DeFi is working to decentralize traditional financial services, therefore, decentralized exchange platforms are becoming popular ways for exchanging cryptocurrency assets and for those who are looking for a way of earning passive income from cryptocurrency holding.
New platforms offer complex solutions that can help users access comprehensive tools.
Users can benefit from multiple features on Balancer which are there for creating DeFi products. The most significant benefit from the Balancer protocol is the freedom that users will have in managing their liquidity.
What is Balancer?
Balancer protocol is an Automated Market Maker (AMM) which is a handy tool in the DeFi space. Automated Market Makers allow decentralized exchanges to function in a more efficient way.
Liquidity pools and complex algorithms are used to price assets as well as allow trades to take place without requiring centralized permission. In other words, an AMM makes the process of pricing and trading more comfortable for users.
Balancer is a protocol focusing on multi-token AMMs. It allows liquidity providers to act as portfolio owners. Also, they can create pools in the platform that makes it possible for traders to trade against them.
The Balancer protocol was developed by co-founders Fernando Martinelli and Mike McDonald through Balancer Labs. Both co-founders are well-known for developing successful companies in the blockchain space.
Balancer has not only risen to become one of the largest DeFi apps on Ethereum by total value locked (TVL) since its launching but also has been one of the top 15 DEX platforms that appealed to most trading volume.
The Balancer DEX was built on the Ethereum blockchain and uses an AMM and liquidity pools. It allows users the ability to swap cryptocurrencies and earn interest on idle crypto portfolios.
Balancer users can swap ERC-20 assets by making use of liquidity pools without relying on a centralized entity. In addition, they also provide liquidity and earn a share of trading fees.
One of the things that Balancer is different from other platforms in the market is that its users have the flexibility to create their own private liquidity pools or create pools with more than two cryptocurrency assets. There are other many incentives offered to increase the liquidity on the Balancer Protocol.
Most recently, Balancer has integrated with the Gnosis protocol to leverage Gnosis’s price finding mechanism. Therefore, Balancer users now can also enjoy more benefits such as on-chain liquidity, MEV protection among others like better trading prices, and optimized gas costs.
Fernando Martinelli, Balancer Labs CEO & Co-Founder, stated,
“Gnosis brings unparalleled transparency and value to DeFi, focusing on user experience and enhancing industry growth. The combination of these two protocols will allow users to obtain the best benefits of Gnosis and Balancer, such as gasless trading, better overall prices, and MEV protection.”
Users will sign an off-chain message with their intent to trade instead of sending an executable transaction with a predetermined execution path as before, then, third parties will excuse trades with MEV protection, off-chain liquidity matching, and gas cost savings.
Balancer offers two types of pools including public pools and private pools.
Public pools are where anyone can provide liquidity to Balancer by adding digital assets. The parameters of these pools are set before launching and cannot be changed, even by their creators.
These pools most appeal to investors who would like to earn fees from their holdings.
Private pools are only for the creator to add or withdraw assets. Besides, it allows the creators to adjust other parameters of the pool including the acceptable assets, fees, and weighting.
A subsidiary of private pools is smart pools which are private pools owned by smart contracts. Smart pools are programmed to perform additional functions such as creating index funds and changing weights thanks to smart contracts.
The Balancer Token (BAL)
Like other DeFi apps, Balancer also has its own native cryptocurrency token which is known as BAL.
BAL token holders have a right to participate in the development of the protocol through voting on the implementation of layer two solutions, the deployment of Balancer in other blockchains beyond Ethereum, and the ability to adjust fees at the protocol level.
The maximum total supply of BAL tokens at 100 million coins, but there are just approximately 42 million existing.
The 100 million BAL tokens will be distributed as follows:
- Stakeholders in Balancer Labs including the founding team, investors, and advisors: 25 million
- The Balancer Ecosystem Fund: 5 million
- The Fundraising Fund for Balancer Lab: 5 million
- Rewards: 65 million with 145,000 BAL tokens will be distributed every week
In order to earn BAL, users have to lend cryptocurrency assets to a liquidity pool in the exchange and they will receive BAL rewards each week which is the trading fee that other traders paid to the network for the use of their funds.
How Does Balancer Work?
Each Balancer pool or AMM can be included in up to eight tokens. The liquidity provider determines the weight of each token during the creation process of the pool. The pool’s value will be determined by the percentage of tokens.
Serving as the backbone of Balancer protocol, smart contracts calculate and govern the correct proportion of tokens in pools. In basic words, they balance the ratio and weight of tokens when their price changes.
When a token’s price increases, the smart contract automatically decreases its amount aiming to maintain the value proportion of that token in the pool. Then, the decreased tokens will be sold to traders who want to buy the token when its prices go up.
Balancer is Different from Other AMM platforms
The balancer team has developed the platform with a unique algorithm, which is different from other AMMs.
Traditional AMMs use a constant 50-50 ratio in pools and pool creators are limited to two tokens in the pool. Meanwhile, the smart contracts in Balancer pools use a constant mean formula allowing more than two assets to be added to the pool with the ratio not limited to 50-50.
This unique approach of Balancer pools makes it possible to determine adaptive fee structures which work against market forces. As a result, it allows Balancer to manage volatility and change in demand in its smart pools over others in the DeFi world.
Closing Thoughts on Balancer
Decentralization has opened the new modern financial world for everyone to enter and benefit from earnings or valuable services.
Among others, Balancer is standing out as one of the most innovative platforms on Ethereum in the space because of its efforts to remove some of the burdens of liquidity providing and token swapping.
Balancer is a market leader with its innovative multi-token pools helping to increase the opportunities available to traders and liquidity investors.
Its smart pools are great options for those who are looking for more options in trading and contribute to the modern financial sector. Also, the platform is useful for those cryptocurrency investors who look to exchange cryptocurrencies at optimum prices or who look to potential with an idle portfolio.
At the present, Balancer is available for traders from Canada, United States, United Kingdom, France, Germany, Norway, Sweden, Italy, Denmark, United Arab Emirates, Saudi Arabia, Kuwait, Luxembourg, Qatar, Australia, Thailand, South Africa, Singapore, Hong Kong, India, and many other countries.
The post Balancer Review: Automated Portfolio Manager & Trading Platform appeared first on Blockonomi.