Balancer (BAL)

Balancer is an Ethereum-based Automated Market Maker (AMM) protocol that functions as a decentralized exchange (DEx) and a “self-balancing” portfolio management tool.

Balancer’s AMM provides traders with liquidity for their ERC-20 tokens.

Its smart order routing feature also minimizes gas fees while its decentralized nature means that traders keep the private keys to their tokens.

Meanwhile, liquidity providers (LPs) that build liquidity pools with their tokens have more flexibility using Balancer than other AMM protocols.

For instance, Balancer allows LPs to (a) add up to eight assets per pool, (b) customize token ratios, and (c) customize token fees. AMM competitors like Uniswap and SushiSwap only allow up to two tokens per pool, a 50:50 ratio on the two tokens, and an established fee structure.

Being able to include more assets and customize token weights also allow LPs to manage portfolio-like liquidity pools that can track indices or tokenize a group of assets.

How does Balancer work?

When a user initiates a swap, the AMM rebalances the tokens’ prices so that they still represent the same weights in the pool.

Depositing 100 Token As to buy 20 Token Bs in a 50:50 pool, for example, would raise the prices of Token B even further so that the fewer Token Bs would still make 50% of the pool’s value.

Balancer allows LPs to create three types of pools: Public or shared pools allow anyone to add liquidity but factors such as fees and token ratios can’t be changed after creation.

Private pools enable creators to customize and adjust parameters such as the type and ratios of the tokens, trading fees, which addresses can deposit tokens, and when to pause/start trading in each pool.

Lastly, smart pools are private pools run by smart contracts. Applications include automatically rebalancing token weights while tracking an index, adjusting trading fees depending on volatility, and updating token weights as part of a marketing strategy (like in token launches).

LPs earn fees whenever their pool is used in a swap. This includes swaps made by arbitrage traders who effectively “rebalance” a pool when they take advantage of any difference between the AMM-set price and market price.

They also earn Balancer Pool Tokens (BPT) that represent their share of the pool’s fees as well as BAL tokens that can be used to vote on Balancer governance.

Balancer is currently deployed on Ethereum, Polygon, and Arbitrum and has been awarded grants to develop deployment on Near and Algorand.

Team background

The Balancer protocol was developed by the engineering and research firm BlockScience in 2018 before splitting off the project to Balancer Labs in 2020.

Balancer Labs co-founder Fernando Martinelli is a serial entrepreneur who recruited security engineer Mike McDonald to co-found the company and become CTO.

Martinelli and McDonald remain CEO and CTO at Balancer Labs. They work with Kristen Stone – who was Coinbase’s product manager and Balancer Labs’ COO – and 30 or so other members to increase adoption, optimize the use of AMMs in portfolio management, and introduce DAO features into the project.

What is the BAL token?

Along with trading fees, liquidity providers can earn Balancer’s BAL tokens.

BAL tokens are mainly used as a governance token, so their value is mainly derived from users’ interest in participating in the direction of the protocol.

Also, liquidity pools with BAL in them currently receive more BAL than other pools to accelerate decentralization.

BAL can be traded at major exchanges such as Binance, Kraken, Huobi, and OKEx and is supported by Ethereum-compatible wallets like Ledger, Metamask, and Coinbase wallet.

Token Metrics:

  • Holder Addresses: 42K on Ethereum, 22K on Polygon, 5K on Optimism, 5K on Arbitrum
  • Circulating supply: 44.7M BAL
  • Max supply: 100M BAL but can be revised depending on future proposals

Notable Investors:

  • Alameda Research
  • Blockchain Capital
  • Defiance Capital
  • Pantera Capital
  • Three Arrows Capital
  • Inflection
  • CoinFund

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