Today we will continue to talk about a decentralized exchange, Balancer. The name of the token is BAL. The current market value is 170 million US dollars, ranking around 140+. It has been falling this year. After my research, I still think it has certain innovations. Let's take a look at it.
Balancer is a non-custodial portfolio manager, liquidity provider, and price sensor. Balancer is an automated market making trading protocol with self-balancing properties that generate weighted portfolios and price sensors. Balancer subverts the concept of index funds: instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders who rebalance your portfolio by following arbitrage opportunities.
Balancer decentralized exchange mainly provides two services, namely decentralized trading and liquidity pool platform.
The token of the Balancer protocol is the native governance token BAL. The Balancer fund pool is its core business. As long as users are willing to provide liquidity to the Balancer fund pool, they can obtain incentives in the form of BAL tokens. Moreover, Balancer is completely open source, and anyone can create a liquidity pool on the platform without restrictions.
Currently, Balancer fund pools are divided into three types of protocols, namely private pools, shared pools, and smart pools:
✔Private pool: A private pool belongs to one owner, who can provide liquidity and complete rights and interests for the pool. The owner can adjust the exchange function and main parameters of the pool at any time.
✔Shared pools: All key parameters of a shared pool remain unchanged: the pool's tokens, weights, and transaction fees are all parameters that cannot be changed. Pool creators do not have any privileges, and anyone can add liquidity to a shared pool. Balancer also uses BPT - Balancer Pool Token to track ownership of pool liquidity.
✔Smart Pool: This is a type of private pool. This type of fund pool uses smart contracts as its control mechanism. Smart pools can accept liquidity from anyone. This type of fund pool uses BPT to track the ownership of funds.
Balancer “Smart Pools” have five main variables that can be changed dynamically by the liquidity controller (or the person who created the liquidity pool). These five variables are:
Approval Tokens: These are designed to control the tokens that can be kept in the pool during the lifetime of the liquidity pool.
Set weights: Control the weights of various crypto assets in the liquidity pool, that is, the percentage of each type of asset held in the liquidity pool to the total value of the liquidity pool.
Exchange Fee: Configure an exchange fee (or transaction fee) for a specific liquidity pool, which affects the returns that liquidity providers receive from a specific pool.
Restrict Liquidity Providers (LP): This parameter allows the liquidity pool controller to whitelist Ethereum addresses, which means that only whitelisted liquidity providers can add liquidity to the pool (it is worth mentioning that Balancer requires its smart pool to have public pool attributes, which means that anyone can provide liquidity to it).
Maximum capital of the liquidity pool: This parameter controls the maximum amount of capital that can be deposited in the liquidity pool.
Outside of the smart pool, users can build a network of smart contracts that will interpret real-time trading data and adjust the liquidity pool parameters to meet user needs. In essence, this solution will make it easier for users to use the Balancer liquidity pool infrastructure while having close to full control over how the liquidity pool operates, especially in terms of executing trades. If the controller wishes to manually manage the liquidity pool during the trading process, it can also manually change the parameters instead of letting the algorithm control the parameters of the liquidity pool.
Fernando Martinelli, co-founder of the Balancer decentralized exchange, hopes to bring better liquidity to the DeFi field.
Balancer allows its trading pairs (called pools) to consist of multiple tokens - anywhere between 2 and 8, with each token having a different arbitrary share in the pool (from 2% to 98%). This differs from 50/50 AMMs (such as Uniswap) that rely on the x*y=k equation, as it allows for different and varying impermanent loss scenarios and capital efficiency depending on the specific use case.
To match trades, it uses a system that intelligently sources liquidity from multiple pools in order to automatically find the best available price from the range of available pools. This system is called Smart Order Routing (SOR).
Balancer pools are extremely customizable, allowing anyone to create a pool with custom fees (ranging from 0.00001% to 10%).
The fee is split between those who provide liquidity to the pool, known as liquidity providers. Additionally, effectively charging zero fees is an advantage over competitors such as SushiSwap, whose rock-bottom fees can be a disincentive for things like high-frequency trading.
This allows Balancer to offer an automatically balancing index fund ETF where you, as the liquidity provider, get paid when the ETF rebalances as the prices of the constituent assets of the ETF inevitably change, and in an inverse ETF, instead of paying a portfolio manager to keep the ETF balanced, you get paid when the ETF rebalances.
This is because market participants are incentivized to rebalance portfolios in order to take advantage of arbitrage opportunities. Their fees are paid to you as an investor in the fund.
Rewards come in the form of Balancer Pool Tokens (BPT) for that specific pool, allowing for composability. You can create Balancer pools of Balancer pools. This can cater to products that want to aggregate across many different products, imagine a project that tokenizes real estate, and each city has a separate Balancer pool - a combined version of that pool could represent an entire state.
Market Maker Model
Rewrite it in a more user-friendly way. Here we assume that there are only 3 types of assets in the pool (that is, t = 3). It looks like this. Then, through transformation, we can actually get the transformation of the uni formula.
This model will not be discussed in detail here (if you want to know more about this formula, you can check the white paper on its official website). Here is the conclusion. In fact, it is also a variant of Uniswap (x*y=k). It can create asset pools of multiple assets, and they can be in different proportions. You can think of it as an upgraded version of Uni, which manages and incentivizes the interaction between liquidity providers, liquidity pools, and traders through two major goals - rebalancing the capital pool and finding the best price between the capital pools. Balancer allows customized asset ratios for each liquidity pool, rather than 50% to 50% for each asset. Each liquidity pool can set its own transaction fee to reward liquidity providers who suffer temporary losses due to fluctuations in the value of assets in the pool.
LBP Smart Pool
Uniswap’s dual-currency pricing model means that even low trading volumes can cause huge price fluctuations, leading to irrational price discovery. It is also not suitable as a token distribution mechanism because bots can preempt community members’ trades and repeatedly pump and dump.
Additionally, this model requires a significant amount of funding from the genesis team (after all, the other 50% of the funding needs to be in a mature token like ETH)
To address this, Balancer offers so-called Liquidity Bootstrap Pools (LBPs) - short-lived smart pools that dynamically change token weights (e.g. 2%/98% ETH/$ tokens change to 98%/2% ETH/$ tokens), allowing founders to create liquidity bootstrap pools with very little capital. The result is that there is constant downward pressure on the token price throughout the sale. When this is combined with moderate buying demand, the price remains stable throughout the sale because whales/bots don’t buy right away.
V2 New Features - Asset Manager
Traditional AMMs operate capital inefficiently because a large portion of a pair of assets remains unused (not enough trades are mining the last ounce of liquidity).
To fully exploit the potential of these assets, BalancerV2 introduces a new revolutionary concept called Asset Manager.
The asset manager, an external smart contract designated by the fund pool, has full control over the tokens of the fund pool.
Therefore, asset managers can lend unused tokens to lending protocols, increasing the yield of the pool by investing funds when they are not used for trading liquidity.
A visualization of blocks of idle capital in a pool, leveraging lending protocols to earn additional yield.
Most excitingly, Balancer has partnered with Aave to build the first asset manager!
The Asset Manager is an innovative new AMM feature that shows the power of DeFi’s composability.
With these latest features, Balancer liquidity providers can earn income from 3 sources:
-BAL for liquidity mining
-Dynamically optimized exchange fees
-Asset Manager
Investment and Financing
In March 2020, it raised $3 million from Acomplice and Placeholder, and in February 2021, it raised a new round of Series A financing totaling $12 million from Three Arrows Capital, DeFiance Capital, Alameda Research and Pantera Capital.
Token Economy
The first issuance time is 2020-06-23, the maximum supply is 96,150,704 BAL BAL, the current supply is 58,974,248 BAL, and the current circulation rate is 54.1%. The current coin price is around US$3.2, and the historical highest coin price is US$74 (in 21 years). In terms of token distribution, you can see that the founders have taken a large proportion of the coins, 22.5%, and currently 45% of the coins are unlocked. Then the TVL on the chain is currently US$700 million, which is still acceptable. Compared with Uni, Uni’s TVL is US$3 billion, but its market value is US$2.5 billion, so BAL’s market value is only US$170 million.
Finally, let's summarize. This decentralized exchange BAL project is still innovative to a certain extent. For example, its concept of smart pool and the strategy of dynamically and flexibly adjusting the pool are very thoughtful. There are also new features of V2, which are innovative based on uni. Although the TVL on the chain has dropped, it has actually only dropped by half, unlike other projects that have dropped by 90%. Because the price of ETH has been halved, it actually still has growth. In addition, the current market value is very low, so the potential is still good. The specific token acquisition situation is still discussed in the planet.