summary: Balancer is an Ethereum-based automated market maker exchange protocol that acts as a non-custodial portfolio manger.
content: Balancer (established 2018) is an Ethereum-based automated market maker exchange protocol that acts as a non-custodial portfolio manager, liquidity provider, and price sensor. The name has been derived from the platform's self-rebalancing liquidity pools. It is essentially the opposite of an index fund. There are no portfolio managers and fees are collected from traders who then rebalance portfolios through arbitrage opportunities. !1_WVrT0HXbzvNyyrDufbpT3gpng.pngBalancer ecosystem In November 2020, Pantera Capital and Alameda Research invested in Balancer through direct purchase of BAL tokens from the company treasury. In February 2021, the Balancer team announced the release of Balancer V2 featuring a host of upgrades centered on security, flexibility, capital efficiency, and gas efficiency. Balancer V2 is expected to launch in March 2021. Overview Balancer is a protocol for multi-token. It enables portfolio owners to create Balancer Pools, and traders to trade against them. Balancer Pools contain two or more tokens, each with an independent weight representing its proportion of the total pool value. The pools provide the Balancer Protocol with liquidity and charge traders a fee for access to it. Pools can be considered automated market-makers, since anyone can swap any two tokens, in any pool. Balancer has Bronze, Silver, and Gold releases that refer to the "base" Balancer Pool cöntract - which actually holds the assets. The Brönze went live on February 26, 2020. Silver is currently in a design phase and will likely be released in late 2020. AMM Protocol Balancer serves as a popular automated market maker (AMM). It provides unique liquidity pools that can contain several assets rather than just two, which is standard for most other AMM pools (on exchanges such as Uniswap). The pools can also be programmed via smart contracts, enabling the implementation of custom rules and strategies. !bal2png.pngFeatures of Balancer As of November 5, 2020, Balancer holds $271 million in Total Value Locked (TVL), making it the project with the 11th highest TVL on Balancer. Its TVL reached an all-time high on September 1, at over $1.5 billion following the launch of the BAL governance token. In October 2020, Balancer partnered with a NEAR protocol. The Balancer team expressed that they will stay primarily focused on the Ethereum implementation of their protocol, however, Balancer Head of Growth Jeremy Musighi said that working with NEAR will give them an idea of how Balancer will perform on a chain with greater scalability. In addition, Balancer and NEAR are offering two grants worth up to $10,000 to incentivize the development of a Balancer front-end for NEAR, as well as an integration of Balancer into the NEAR wallet. The incentive is designed to drive faster adoption and usability of the NEAR iteration of Balancer, allowing for improved accessibility and user experience. Rewards will be paid in NEAR and BAL tokens. Balancer Protocol Governance Token (BAL) The first version of Balancer launched without a native token. On June 1st, 2020, BAL tokens were distributed to users providing liquidity to the Balancer protocol. The Balancer Protocol Governance Token (BAL) allows holders to vote on new features, potential protocol fees, or any other development that takes place around the Balancer protocol. Out of the initial 100 million BAL tokens, 25 million BAL tokens were allocated to founders, stock options, advisors, and investors, and are all subject to vesting periods. 5 million more were allocated for the Balancer Ecosystem Fund. This fund will be deployed to attract and incentivize strategic partners that will help the Balancer ecosystem grow. Another 5 million were allocated for the Fundraising Fund. Balancer Labs raised a pre-seed and seed round. This fund will be used for future fundraising rounds to support Balancer Labs' operations and growth. BAL tokens will never be sold to retail investors. The rest of the tokens will be distributed through a process called liquidity mining. Every week, 145,000 BAL is awarded to users who have liquidity in Balancer pools, totaling 7.5 million BAL per year. On June 23, 2020, the Balancer protocol governance token (BAL) went live on mainnet. On its first day of trading, the value of the token rose from $7 to $22 at one point, giving the token a 235% spike in under 12 hours. Liquidity Pools and Rebalancing Users can create or contribute to liquidity pools, which consist of their weighted assets and a trading fee set by the creator. This allows anyone to own a self-balancing index fund ör invest in someone else’s and earn fees as other users trade against their portfolio. Smart order routing (SOR) trades to the pools with the best rate possible. The creator of the liquidity pool defines the % weight of each asset in the portfolio. When an asset from the pool is traded (ETH for BAT) the % weight of the BAT decreases. However, the price adjusts upwards so that BAT maintains its % weight in the portfolio. If the price of assets in a portfolio drift too far from market prices, arbitrators eliminate price differences. There is no outside price oracle so asset prices in Balancer’s liquidity pools remain stagnant unless a trade is made. Balancer pools aren't limited to only a couple of tokens, they support up to 8 tokens with custom % weight distributions. For example, a pool could be 30% BAT, 30% DAI, 30% USDC, and 10% LINK while another pool is 80% WETH and 20% ZRX. Balancer Pool Constraints Balancer Pools are limited in the following ways: A maximum number of tokens:- pools must contain at least two, and may contain up to eight tokens. Swap fee:- the fee can be set at any number between 0.0001% and 10%. ERC20 compliance:- pool tokens have to be ERC20 compliant. Different Liquidity Pools Balancer Labs recognized that different pools have different needs and released templates for pool designs. Here are a few popular templates: Liquidity Bootstrapping Pools (LBPs):- a smart pool template that lets teams release a project token while simultaneously building deep liquidity. In this scenario, a team would create a liquidity pool and set their project token to start at 80% weight and some other token to start at 20% weight. Over a set duration, the weights are adjusted and eventually flip. This is ensured by the linear formula explicitly described in the controller contract that allows anyone to “poke” the contract to update weights. Additional traders are also attracted by small arbitrage opportunities caused by each weight change. After the weight adjustment period ends, the pool will continue being traded indefinitely. The smart contract template sets the slope of the curve as a configurable parameter, allowing pröjects to adjust token weights acçording to an exponential curve. An exponential curve can be used to control disproportionate hype surrounding a token release. Adjusting wëights down wîll lower the vàlue of the token in the pool ånd discourage price spikes due to early speculation. In September 2020, Perpetual Protocol distributed 7.5 million PERP via a Balancer Liquidity Bootstrapping Pool. The Balancer LBP was live for 3 days and wàs designed to prevent front-running. It stàrted at a high price then went döwn quickly as the wëights of the pool changed. This prevented people from front-running other people. Interest-Bearing Stablecoin Pools Without Impermanent Loss: Balancer stablecoin pool design uses rTokens and automatic weight adjustment to optimize trading fees and lending interests while avoiding impermanent loss. With the exception of Tether (USDT), the liquidity of Ethereum stablecoins is low. As long as none of the stablecoins in the liquidity pool fail, there will be no impermanent loss since the relative price of the stablecoins is expected to remain constant. Since there is less volatility in stablecoin pools liquidity providers are exposed to less risk and afford to charge lower trading fees. Stablecoin pools are designed for volume. Fundraising Balancer Labs secured $3 million in funding through a seed round led by Accomplice and Placeholder, with participation from CoinFund and Inflection in March of 2020. On November 9, 2020, Balancer Labs announced that both Pantera Capital and Alameda Research invested in Balancer Labs through the direct purchase of BAL tokens from the company's treasury. Beyond just providing capital as BAL token holders, both of these organizations provide additional value by being end-users of the protocol. Balancer Ecosystem Fund Since June 2020, the Balancer Ecosystem Fund awarded 95,333 $BAL in grants to teams and individuals for creating meaningful value for the Balancer community. The first batch of grants included 15 different recipients, including those who built key integrations with the Balancer protocol, provided support to Balancer growing global community, developed tools to improve the usability and visibility of the protocol, and built innovations on top of Balancer’s infrastructure. Here are 4 projects that received grants in the first batch: 1. Aave:- by integrating the Balancer protocol, Aave will allow staking of Balancer Pool Tokens (BPT) from the 80/20 AAVE/ETH pool, showcasing Joel Monegro’s idea of proof of liquidity. This pool is anticipated to hold values of $100M+. Aave will also integrate various other BPTs and $BAL as money markets. 2. Pools.Vision:- Pools. Vision is a tool, built by Balancer community member Davis Ramsey, which provides visualizations of Balancer liquidity pools and analytics of their performance, plus stats on the overall Balancer protocol. It serves as a valuable tool for members of the community; especially liquidity providers. 3. Zapper:- Zapp