Ever heard of Automated Market Makers(AMM)? It’s a well-known word in the DeFi Space. You might also have heard about leading AMMs like Uniswap, curve etc. Automated Market Makers have become the backbone of DeFi space. They allow you to conduct transactions trustlessly whenever you want to and between any cryptocurrencies you choose. Not only that you can also become the market maker by providing liquidity to the liquidity pools and earn for your share of liquidity in the pool after each transaction. Automated Market Makers have made things easier around the DeFi space. While we are on the topic, let us discuss one of the leading AMMs in the DeFi space, Balancer(BAL).
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What is Balancer(BAL)?
Balancer, like we already mentioned above, is an Automated market Maker, built on the Ethereum network. It is a non-custodial, open-source, permissionless, liquidity provider and automated portfolio manager. This protocol allows its users to trade ERC-20 tokens trustlessly, You can also create a market, become a liquidity provider and earn rewards while doing so. Anyone can create pools and add to the liquidity with Balancer. It used SOR (Smart Order Routing ) to provide the best prices possible to its users. In return for your contribution to the liquidity pool, you can earn rewards in BAL, its governance token.
Who are the Founders of Balancer(BAL)?
Balancer Protocol is a product of the Balancer labs, founded by Mike McDonald and Fernando Martinelli. When we discuss the minds behind this wonderful project, we should talk about these four like-minded people.
The first among these is Fernando Martinelli. He is an entrepreneur with work experience of many years, even before he co-founded Balancer. Next is Mike McDonald, the CTO and co-founder of Balancer. He is also a security engineer and also the creator of mkr.tools.
Next is Kristen Stone, the COO at Balancer and Trimur Bardetdinov, the frontend developer.
What makes Balancer(BAL) unique?
You might already have heard about other Automated Market Makers like Uniswap or curve. And we know that these AMMs work by keeping the balance of tokens in the pool no matter the price fluctuations. The liquidity pools adjust according to the weight of the coins to keep them balanced irrespective of the price of the tokens. But balancer is not limited to that 50/50 method and with balancer, you can add more than one coin to the pool and ETH isn’t compulsory. With balancer, you can have up to eight tokens/assets per market, unlike other Automated Market Makers.
How many Balancer(BAL) tokens are there?
The total supply of Balancer(BAL) is 35,725,000 BAL, i.e the number of BAL that exists. Currently, there are 6,943,831 BAL in circulation and the maximum amount of BAL that we will see in this lifetime of crypto is 100,000,000 BAL. Out of the 100 million BAL, 25 Million tokens are allocated to the team, investors, advisors and core developers; 5 million for its ecosystem fund, 5 million for the fundraising fund.
You can earn BAL tokens as a reward for adding liquidity to the pool or you can buy them on the exchanges too. BAL token is a governance token for the Balancer Protocol, this means that whoever hold the BAL tokens, gets to take part in the governance decisions of the protocol, about its future directions, allocation of the tokens etc.
How does Balancer(BAL) work?
The protocol mainly targets three use cases: Trading, Liquidity providers, Arbitrage.
Trading
Like any Automated Market Maker, Balancer(BAL) also works by providing a trading platform to its users. But unlike the others, Balancer(BAL) provides its users with limitless flexibility in trading. Their pools are more or less similar to our traditional index funds. Unlike the index funds where you have to pay fees, here the fees are distributed due to the swaps made by the traders. This platform gives a broad exposure of the crypto markets to its traders and investors.
Liquidity Providers
As previously touched upon, the balancer protocol also lets you be the liquidity provider. You can be one by providing tokens to already existing pools, or you can even create your own pool. The liquidity providers earn tokens just by contributing to the pool. Every time a swap or trade happens from the pool you provide liquidity to, you will get your share of rewards based on your contribution to the pool. We already know that these Balancer pools are similar to the traditional index funds, but here, as a liquidity provider, you will earn their governance tokens as rewards along with the trading fees you get, unlike the index funds where you have to pay fees.
Arbitrage Opportunities
Balancer also provides arbitrage opportunities to its users. If any user finds a price difference between the balancer pools, they can execute a flash swap. The plus side of this flash swap is that they(the user) don’t need to hold any of the said tokens. They just need to notify the vault of the identified difference and receive the profit from the swap. The protocol also provides flash loan opportunities where the loans (uncollateralized) must be repaid in the same transaction as in the one they borrowed. These flash loans can be used for collateral swaps and arbitrage trades.
Wrapping Up
Even if there are other Automated Market Makers(AMMs), Balancer(BAL) has a few unique approaches, that makes it stand out from the rest. The team released version two of Balancer (Balancer V2), which is an upgraded version of the protocol, which also reduces the higher gas fees charged on the Ethereum network. Not only that Balancer has many different pools with varying versatility, flexibility and other features. You can choose the type of pool thus the type of income you receive as a liquidity provider. Found this article helpful? Want to explore more interesting topics? If yes, visit Postling for more such articles.
