About

Balancer is a decentralized finance protocol that functions as an automated market maker, decentralized exchange, and liquidity pool protocol built on the Ethereum blockchain. It enables users to provide liquidity for multiple assets. The native BAL token serves as a governance token, allowing the community to participate in decisions such as rewards issuance and pool whitelisting.

History

Balancer began in early 2018 as a project being incubated by Block Science, an engineering and research firm, before being spun out as a separate company, Balancer Labs. It was started to provide a means to provide liquidity, but on your own terms, by creating automated market-making pools with numerous assets and customizable weights. This creates a structure that resembles an Exchange Traded Fund (ETF) that is continuously rebalanced, except you get paid for providing capital rather than paying fees to purchase and hold it. Balancer is also a non-custodial exchange, so traders can swap assets and pay a fee to do so which then gets allocated to liquidity providers.

There are several use cases that can be applied using Balancer protocol. The most obvious use case is a decentralized exchange, which functions similarly to Kyber and Uniswap and the liquidity provider earns fees for each swap transacted in the pool.

Secondly, the liquidity pools could function as an index fund or an ETF. This use case of collecting baskets of tokens is similar to TokenSets in terms of Ethereum projects. the difference here where TokenSets mostly relies on the creator of the Sets or whether the Sets hit certain technical analysis indicators i.e. RSI, Moving Averages, etc. Compare and contrast this with Balancer, where they use a sophisticated multi-dimensional invariant function to continuously define prices between tokens in liquidity pools.

Thirdly, Balancer could act as a platform for new projects to launch their token, this term is usually known as Liquidity Bootstrapping. The idea for Liquidity Bootstrapping Pool (LBP) is to create deep liquidity and a more diverse distribution at launch. For example, an LBP with 80% project token $XYZ and 20% ETH. Over some period of time, the pool weights are slowly adjusted and ultimately flip with 80% ETH and 20% XYZ hence making the pool have deep liquidity and therefore less slippage. This use case gives the team more control and flexibility in terms of token distribution, which a win-win solution for the community and the team.

Liquidity Mining Begins Started on June 1st, 2020, those who provide liquidity to Balancer protocol will be eligible to receive BAL tokens. There are a total of 7.5M BAL released in the span of 8 years. Since BAL is a governance token, The idea is to create a really strong incentive for early adopters to grow liquidity and get involved in the governance process.

Liquidity Staking Started In August 2020, BAL token holders voted to incentivize liquidity that have BAL in the pool. Since there are 145,000 BAL enter circulation each week, 45,000 of those tokens are distributed to liquidity providers of key BAL pairs like BAL/ETH,BAL/USDC, BAL/WBTC. This is done to incentivize BAL liquidity and to accelerate protocol decentralization.