Balancer (BAL)

From CryptoWiki

Balancer
Total supply100.000.000 BAL

From Our Network (11-5-2020):

"Balancer is a generalized AMM (Automated Market Maker) that enables a wide variety of configurations: up to 8 tokens per pool, distributed in any proportions (aka weights) of the pool’s total value, and any custom trading fee. The configurations of the pools created so far reveal users have been extensively experimenting with the protocol’s flexibility."

Basics

"Balancer is what you’d get if Uniswap and Set had a baby.

It’s like Set because it can be used to bundle any group of assets into a single ERC20 token—say an index fund token composed of 50% ETH + 20% MKR + 30% DAI—and it auto-balances to always maintain the same proportion.

And it’s also like Uniswap because it’s an automated-market maker that can be used as as liquidity infrastructure for the entire DeFi economy

This means that each Balancer pool is a self-balancing index fund itself. But it gets better. In a conventional index fund the investor has to pay a fee for the rebalancing service, but in a Balancer pool the liquidity provider is actually rewarded for their service of providing liquidity to the protocol. They earn fees while their index funds are continuously rebalanced for them."

"Balancer is like Uniswap, except instead of 1:1 markets, where one asset can only be traded for one other asset, Balancer is ‘N-Dimensional’, or, able to host any amount of tokens in a single pool. With Balancer, you can buy and sell any of the assets in the pool and be able to access the pooled liquidity of the total sum of the assets. At genesis, Balancer is launching with 8-token pools and plans to scale up pool size with further R&D.

Balancer is an asset-aggregator and liquidity gadget. It allows for assets to be combined together into a generalized pool, and issues a secondary token that represents an index of assets. While doing this, it also aggregates the available liquidity of every asset inside a pool. 

Being able to combine many assets into an index, and able to simultaneously access pooled liquidity, are powerful tools for satisfying the requirements of good collateral for DeFi apps."

History

"Balancer was born from the early days MakerDAO community. Balancer was born in early 2018, so over two years ago. My motivation was to find ways in which AMMs could be serving as an index fund mechanism or protocol. So how can an AMM not only be an exchange. I had the idea of Balancer even before Uniswap was launched, but then Uniswap took more the exchange side of things. I had more the idea of having more flexibility to allow people who are providing liquidity to use the AMM as a portfolio management tool. So this is more or less how Balancer was born."

Audits & Exploits

  • Bug bounty program can be found here. Max payout is $25,000 (29-6-2020). Updated it with v2 (20-4-2021): "Balancer Labs is offering the biggest bug bounty in history - up to 1,000 ETH or $2,000,000 (whichever is higher) - for critical bugs that allow attackers to drain the Balancer V2 Vault."
  • Used Certora's Prover tool with formal verification technology to complement/assist their manual audits (2-10-2022).
  • Scored 94% on DeFi Safety (27-4-2022):

"An in-depth report of Balancer's testing methodology is documented here. Balancer has undergone formal verification. There is currently no visible code coverage of the Balancer v2 Monorepo. The Coveralls report from 8 months ago indicates a 96% code coverage, but we will not include this outdated report within this review. Balancer has been audited by Trail of Bits, OpenZeppelin and Certora before the protocol's v2 deployments."

  • V1 scored a 74% (9-2020). Its V2 scored a 99.63%, the highest score until then (8-7-2021): "Certora did a Balancer V2 audit on April 19th 2021. OpenZeppelin did a Balancer V2 audit on March 15th 2021. Trail of Bits did a Balancer V2 audit on April 5th 2021. Balancer V2 was launched on April 20th 2021. Most issues found were fixed and solutions implemented." With the comment: "On a positive note, Balance V2 is up with a perfect 100% ALL TIME (OK, it is 99.63 and we rounded up)  Beautiful example for Access Controls and Test Reports. Just awesome effort ticking all the boxes."
  • From their website (8-4-2020):

"Balancer has worked with Trail of Bits throughout the development process. A report for the full audit can be found here."

Bugs/Exploits

  • From Blockthreat (19-5-2022):

"Balancer patched a DoS vulnerability after it was responsibly disclosed through Immunefi."

"A hacker used a $23.4 million flash loan to drain a Balancer pool of close to $535,000. One token in the pool was deflationary and burnt 1% of the total amount in each transaction, but Balancer didn't account for these burns, giving the hacker a vector to exploit. Balancer’s co-founder took responsibility for ignoring a previous bug report regarding this same attack vector."

A further explanation by DeFi Weekly can be read here (30-6-2020).

Governance

Admin Keys

"As we are currently past the initial 4 months of Balance v2 contract deployments, the contracts are effectively "unstoppable" i.e. immutable. This is because the MultiSig can only interact with protocol fees and arbitrary parameters that have nothing to do with the underlying logic or execution. Either way, this MultiSig has no admin rights and cannot operate without first going through a governance vote. Paired with the fact that Balancer is absolutely non-custodial, we consider the contracts immutable." Balancer no longer uses a pause control. This is adequately explained and justified here.

This protocol has limited timelock documentation which can be found at this location. Although a duration is specified, this timelock does not seem to pertain to any governance-level activities. This information is also relevant to Balancer V1, and it is unclear if it persists throughout V2 As such, we will not be awarding points for this duration. However, the presence of a timelock functionality within Balancer is clear."

"Everything is detailed perfectly. The majority of contracts are immutable as indicated, with some contracts being upgradable (which is also described in depth). Pause control explained."

  • From their docs (4-2021):

"To enact the off-chain votes on Snapshot, Balancer Protocol uses a Multisig to solidify these changes on-chain. Balancer’s Multisig signers are a diverse set of widely respected community members. The multisig does NOT have decision making power, as its role is to simply enact on-chain the decisions BAL holders make via off-chain voting.

"Its n-of-m configuration will start as 6-of-11. Both parameters n and m may evolve and are ultimately defined by BAL holders with protocol security in mind. These are the initial signers:

  1. Alexander Lange (Inflection)
  2. Ash Egan (Accomplice)
  3. Davis Ramsey (pools.vision)
  4. Fabien Marino (Snapshot Labs)
  5. Jake Brukhman (CoinFund)
  6. Kain Warwick (Synthetix)
  7. Kevin Owocki (Gitcoin)
  8. Mariano Conti (Ethereum)
  9. David Hoffman (Bankless)
  10. Trent McConaghy (Ocean Protocol)
  11. Cooper Turley (Fire-eyes)"

"Balancer makes every effort to be as trustless as possible. There are no admin controls, upgradeability, or shutdowns built into the smart contracts."

DAO

"Instead of pure BAL, BPT of the 80/20 BAL/ETH pool will be locked into veBAL, similar to how CRV can be locked into veCRV. This has the big advantage of keeping BAL liquid as well as setting a precedent for other teams to do the same with their 80/20 Balancer pools. Alternatives to veBAL have been considered, like vebptBAL. The simplicity of veBAL — even though what is locked is not pure BAL — has however been the preferred option. All votes, onchain or on snapshot, will be done considering veBAL balances instead of BAL balances as happens today. This ensures long-term alignment as only users locking BPT will have a say in Balancer’s governance. To get veBAL, anyone will be able to lock BPT of the 80/20 BAL/ETH pool for any amount of time between 1 week and 1 year."

"Balancer V1 launched without a native token, and confirmed our assumption that Balancer’s approach would resonate with the community. However, in order for the protocol to keep up with the fast evolving Ethereum and DeFi space, we are convinced that many new versions and continuous development of the protocol will be essential.

BALs are a key way of decentralizing the governance of the protocol such that it can remain resilient over time, protected from the failure of any single stakeholder. Our governance needs to be as resilient as our technology infrastructure.

We expect token holders to help guide the protocol to its fullest potential through experimentation and active participation, for example: implementing new functionalities, deploying the protocol on additional smart contract blockchains other than Ethereum, using layer 2 solutions for scaling, introducing a protocol level fee, etc. Anything contentious will certainly go to the BAL token holders for review."

"The addition of the BAL tokens may mean network stakers may be able to earn governing rights in a proof-of-liquidity model. In such a model, instead of reducing inherently liquidity by staking a network token for time t, users stake a Balancer LP token that represents their a particular number of the network’s native token. The implications of this is that network stakers can be simultaneously contributing to the liquidity of Balancer pools while also becoming governing members of Balancer."

  • From Formal Verification (24-7-2020):

"The first proposal incentivises BAL liquidity on Balancer itself by allowing holders to contribute BAL to pools through the implementation of a new balFactor (set at 1.5). The second reduces the BAL reward penalty (feeFactor) for higher fee pools allowing for long-term pools to outpace impermanent loss that exists for smaller fee pools. The third proposal aims to reduce compensation for lower risk pairs (soft-pegged pairs like USDC and mUSD) in order to attract more useful liquidity which can drive trading demand. The proposals were voted with 300k BAL which equates to 35% of the total BAL distributed so far."

  • From their docs (8-2021):

"The main responsibilities of Balancer Governance are voting on new proposals on changes to the Balancer community and deciding on whether/how the protocol fees will be used. The three current sources of voting power are:

  1. Holding BAL in your wallet
  2. Holding pool tokens in your wallet for a Balancer Pool with BAL in it
  3. Getting voting power delegated to you by another wallet

It is worth noting that Balancer Governors have the ability to vote on adding/removing strategies of how to assign voting power. Voting takes place on Snapshot, an off-chain, gasless voting system."

Treasury

  • From this blog (27-3-2021):

"As Balancer continues to transition toward a community-driven protocol, V2 will implement three new types of protocol-level fees that fuel the treasury, entirely controlled by BAL token holders.

  1. Trading Fees — a small percentage of the trading fees paid by traders to pool LPs.
  2. Withdrawal Fees — a small percentage of any tokens that are withdrawn from the Protocol Vault. Note that trades and moving liquidity between pools are not included.
  3. Flash Loan Fees — A small percentage of assets that are used for flash loans from the Protocol Vault.

At inception, the first two (trading & withdrawal) fees will be turned off. The flash loan fee will start at a small value solely to ensure there is always some cost of capital for creating a flash loan on Balancer. Initially, all protocol fees will be kept in the Protocol Vault, setting the stage for the community governance to decide whether/how these fees will be used."

  • Voted for a token swap with Fei (11-2021):

"200,000 BAL from the Ecosystem Fund would be exchanged for the equivalent USD value of TRIBE and FEI in equal proportions from Fei DAO Treasury."

"Holders of Balancer’s governance token, BAL, are considering two proposals now, from mStable and PrimeDAO, likely, another proposal, for MIST (the token behind the DAO that built copperlaunch.com), is coming. The idea would be that Balancer would then participate in mStable governance with its MTA tokens. Meanwhile, PrimeDAO wants to get Balancer directly involved in its operations."

  • From the forum (4-2-2022):

"75% of protocol revenues collected by the protocol fee collector will be distributed to veBAL holders. The other 25% of the fees will be kept by the DAO treasury as a reserve."

Token

Launch

Token allocation

"The total supply of BAL tokens will be 100M. 25M BAL tokens are initially allocated to founders, core devs, advisors and investors, all subject to vesting periods.

The remaining 75M tokens are intended to be mostly distributed to liquidity providers in the coming years. In the future, and with governance approval, tokens may also be distributed to strategic partners in order to foster the development of the protocol and its ecosystem.

The proposed amount of distributed BALs to liquidity providers is 145,000 per week, or approximately 7.5M per year. This means in the first year of BAL’s existence there would be 30% supply inflation off the initially allocated supply of 25M tokens. This high rate of supply inflation is meant to kickstart the distribution of governance rights of the protocol out to those who earn it.

The schedule of BAL distribution for the following years is going to be extensively discussed by the Balancer community, and we plan for it to ultimately be decided by BAL holders."

"The amount of BAL a pool receives is determined by both the USD value of the pool as well as the feeFactor. The addition of the feeFactor in the calculation will mean pools that have lower fees are given a heavier weighting, receiving a greater proportion of BAL tokens than those pools that have higher fees. The theory here is to grant pools that are encouraging network participation the most larger stakes in the network through the governance structure."

Utility

"Instead of pure BAL, BPT of the 80/20 BAL/ETH pool will be locked into veBAL, similar to how CRV can be locked into veCRV. This has the big advantage of keeping BAL liquid as well as setting a precedent for other teams to do the same with their 80/20 Balancer pools. Alternatives to veBAL have been considered, like vebptBAL. The simplicity of veBAL — even though what is locked is not pure BAL — has however been the preferred option. All votes, onchain or on snapshot, will be done considering veBAL balances instead of BAL balances as happens today. This ensures long-term alignment as only users locking BPT will have a say in Balancer’s governance. To get veBAL, anyone will be able to lock BPT of the 80/20 BAL/ETH pool for any amount of time between 1 week and 1 year."

"BAL tokens are not an investment; BAL token holders should be people that interface with the protocol in some way, are committed to its future development, and want a seat at the governance table."

Token Details

  • When people create pool or add liquidity to pools, they get BPT's in return (Balancer Pool Tokens).

Coin Distribution

"What most people often don’t fully realise is the idea that liquidity mining is effectively token distribution model. From this perspective, what’s interesting to note is the high concentration of BAL distribution to the top 5 LP (by contribution) which collectively earned 40% of total number of BAL distributed to date. The top contributor has over 1/5 of the total rewards distributed. The increase liquidity provision has also come with a corresponding surge in the number of LPs coming to the network - we are starting to see an increasingly diverse set of unique LPs being entering the network. There were 436 LPs joining the network on Wednesday alone, a sharp increase from the 40-60 typically seen in the prior 2 weeks."

Tech

"At 900 commits and 7 branches, it's clear that Balancer's development history is well balanced."

Implementations

Friendly Forks

  • Balancer has a structure in which it collaborates with other teams in deploying forks on different chains. The first of these was in 2021 with BeethovenX on Fantom and afterwards Koil Finance announced in Early 2022 on the Fuse Network. Also got deployed onto Optimism by Beethoven in Q2, 2022.

How it works

  • From this blog (27-3-2021):

"Balancer allows for its trading pairs (called pools) to consist of multiple tokens — anywhere between 2 and 8, each token with a different arbitrary share of the pool (from 2% to 98%). This is different than how 50/50 AMMs (e.g Uniswap) rely on the x*y=k equation in that it allows different, varying impermanent loss schemes and capital efficiency according to the specific use case. To route trades, it uses a system that intelligently sources liquidity from multiple pools so as to automatically figure out the best available price from the range of available pools. This system is called Smart Order Routing (SOR).

Balancer Pools are extremely customizable, allowing anybody to create a pool with custom fees (ranging from 0.00001% to 10%). This fee is split between those that provide liquidity to the pool, called liquidity providers (LPs). Further, allowing effectively zero percentage fee is an advantage over competitors (e.g SushiSwap) whose minimum fee can be a deterrent for things like high-frequency trading.

This allows for Balancer to offer a sort of self-balancing index fund — the inverse of an ETF, where instead of the TradFi way of paying a portfolio manager to keep balancing the ETF as prices of its consisting assets inevitably change, in the inverse ETF you, as a liquidity provider, get paid when the ETF is rebalanced. This works because market actors are incentivized to rebalance the portfolio so as to take advantage of arbitrage opportunities. Their fees are what pays you as the investor in the fund.

The rewards come in the form of Balancer Pool Tokens (BPTs) for that specific pool which allows for composability — you can create Balancer pools of Balancer pools. This can fill the need of products that want to aggregate across many different products — imagine a project which tokenizes real estate and has separate Balancer pools for each city — a composed version of that pool could represent a whole state.

A Balancer pool has the following variables:

  1. Change Tokens — add or remove tokens from the pool (2 to 8)
  2. Change Weights — change the weighting of any token in the pool (2% to 98%)
  3. Change Fee (0.00001 to 10%)
  4. White/blacklist LPs — limit the particular addresses that can become LPs in the pool
  5. Limit Max Deposited Value — limit the maximum value LPs can deposit
  6. Start/Stop Trading — pause trading for the pool.

With that, there are three types of pools:

  1. public pools (also called shared)— anyone can add liquidity (and get Balancer Pool Tokens in return), but all the pool parameters are fixed forever. (trustless, finalized)
  2. private pools — all the parameters are flexible — only the owner can change them but also only the owner can add liquidity (trusted, unfinalized)
  3. smart pools — anybody can add liquidity to them and the parameters can be fixed or dynamic controlled through smart contracts. (trustless, flexible).

All of this extensibility opens up a wide array of use cases beyond simple trading."

  • From their docs (8-2021):

"In general the AMM logic determines the prices that traders pay. For example, Weighted Pools, use a constant product formula and Stable Pools, use a StableSwap formula."

Different Pool Types

Asset Managers / Managed Balancer Pools (MBPs)

  • From their docs (8-2021):

"Asset Managers are external smart contracts nominated by pools that have full power over the underlying tokens the pool has deposited in the vault. The Asset Manager can follow any arbitrary investment strategy. For example, it could lend tokens to a lending protocol to improve the pool’s yield. They are very powerful, and will need careful auditing and review. Pools with asset managers are therefore less trustless than core pools."

"Still in development, MBPs intend to provide a framework for fine-grained control for Pool management. These Pools will support up to 50 tokens and the ability to add or remove tokens from a live Pool."

Boosted Pools

"Boosted Pools are different because they focus stablecoins all in one place, preventing fractured liquidity between DAI/USDC/USDT. This innovation leads to deeper liquidity and greater capital efficiency. Boosted Pools build on top of MetaStable Pools and solidify their place in the Balancer ecosystem.

Curve has pools where all of the pool tokens (DAI/USDC/USDT, etc.) remain in Curve and the aTokens (aDAI/aUSDC/aUSDT) trade in the pool. That pool deposits all of the tokens in Aave, and each swap must go through wrapping/unwrapping which adds to the gas cost of trades with that pool. Boosted Pools are innovative in that they keep a small percentage of the tokens in the pool so not every swap needs wrapping/unwrapping, making Balancer liquidity much more gas efficient while still being capital efficient."

Custom Pools

"Since Balancer is permissionless, anyone can #BUIDL their own Custom Pool Type and integrate it into the Protocol. Custom Pool Types are ideal for any team developing custom trade equations and strategies."

Linear Pools

"Pools that facilitate the trades between two tokens at a known exchange rate. In the AAVE Boosted Pool, there are three Linear Pools: DAI/aDAI, USDC/aUSDC, and USDT/aUSDT."

Liquidity Bootstrapping Pools

"The use of AMMs for initial token listing was recently pioneered by UMA. While Uniswap as the chosen platform felt familiar to most Ethereum users, Balancer’s LBPs (Liquidity Bootstrapping Pools) could have arguably achieved a broader token distribution under a more inclusive and organized process.

An LBP could start at 80/20 weights (80% project_token & 20% ETH) and gradually turn into a 50/50 pool over the course of a week (or any other desired period). With such parameters, the token ends up 4x cheaper (a 75% discount) than its initial price, so the team can set a very high starting price (no FOMO) and let the token slowly devalue, similarly to a reverse auction. Participants may buy the token at any point in time (whenever they individually find the price attractive), effectively counteracting the downtrend and hence contributing to a much smoother price discovery process. Whales are still welcome, but not at the expense of excluding retail users. More about LBP mechanics and possible configurations are explored in this blog post."

"One of the unintended use cases of Balancer which I didn’t think would become popular but could be in the coming months is their Liquidity Bootstrapping Pools. The idea is pretty simple but elegant in the problem it solves. Basically you start of with a Balancer Pool which starts off with the following configuration:

  1. 90% Native Token, 10% USDC/stable currency
  2. What this fundamentally means that the price of the native token starts off super high since selling the token with little USDC results in very little of the native token sold

Now, here’s where the twist comes in. Every few hours the weight of the pool changes from being 90/10 to 80/20, 70/30 until it reaches a certain weight. What this changing weight fundamentally means is that the token is now cheaper as time goes on." 

"In March 2020, Mike McDonald from the Balancer team introduced the idea of Liquidity Bootstrapping Pools (LBPs). In September, Perpetual Protocol became the first team to leverage a LBP when it launched $PERP. Balancer LBP's offer teams flexibility in that they can supply an unbalanced ratio of tokens (e.g. 80/20 XYZ/USDC).

The pools are also designed to avoid front running—they generally start at a high initial price and fall over time as participants are incentivized to wait until the price falls. For example, Perpetual Protocol started with a PERP:USDC 90:10 pool and then slowly adjusted it to a 30:70 pool over a three day period, ensuring that the price would come down gradually. LBP's have proven popular because they give teams control over parameters in order to ensure a smoother distribution. It also creates a liquid market and is fairly effective at price discovery."

"Balancer Liquidity Bootstrapping Pools (LBPs) are growing as a platform for IDOs, with 5 of the token sales in February (xHDX, RAZOR, HOPR, RAD and MASK) combining for $236M USD in volume."

  • From their docs (8-9-2021):

"PrimeDAO is building the IDO Launchpad, which will streamline the process for a smoother experience. Other partners are building UIs as well."

MetaStable Pools

"While Stable Pools are important for tokens with a 1:1 value, MetaStable Pools are great for tokens with highly correlated, but not hard-pegged, prices."

"An extension of Stable Pools that are used to facilitate trades between tokens with known exchange rates. Our WETH/wstETH pool on #ETH mainnet is a MetaStable Pool that enables trades between $WETH and the interest-bearing $wstETH."

Stable Pools

"Stable Pools use Stable Math to amplify liquidity around a certain price increasing capital efficiency for swapping between like assets. staBAL3-USD is our 3pool equivalent, containing $DAI/ $USDC/ $USDT."

Weighted Pools

"A generalization of the xy=k constant product formula, Weighted Pools are the OG V1 Pools, improved for V2. They allow for more than 2 assets at custom weightings giving LPs finely tuned exposure to certain assets and impermanent loss."

Fees

  • From their blog (6-9-2022):

"BIP19 — “Incentivize Core Pools and L2 Usage” introduced a new fee distribution on interest-bearing Core Pools. A Core Pool is a Pool that contains at least 50% yield-bearing tokens that Balancer earns a fee on."

  • From the forum (4-2-2022):

"75% of protocol revenues collected by the protocol fee collector will be distributed to veBAL holders. The other 25% of the fees will be kept by the DAO treasury as a reserve."

"Like Uniswap, Balancer charges fees to those that come to the protocol to swap assets. If you add your asset to the Balancer pool, you allow others to trade against the assets in the pool… for a fee. While the balance of assets in the pool may change, liquidity providers, in theory, receive more value than they put in due the trading fees. Uniswap charges a flat 0.3% fee to all markets. With Balancer, specific pools can have their own unique exchange fees."

  • With V2, there came the introduction of "Community-governed protocol fees". The details can be read in their docs (8-2021):
  1. "Trading fees: A small percentage of the trade paid by traders to pool LPs, set by the pool creator or dynamically optimized by Gauntlet. Additionally, Balancer governance can vote to introduce a Protocol Trading Fee, which is a percentage of the Trading Fee.
  2. Flash Loan fees: A small percentage of assets that are used for flash loans from Balancer’s vault. This is the protocol fee - it accrues to the protocol, for allocation by governance.

All protocol fees were set to zero at launch, and can only be changed through governance. Balancer Pools are extremely customizable, and each pool can have a different fee. It is up to the pool creator to decide how high the fees should be, ranging from 0.0001% to 10%. When using the Smart Order Router, the fees will always be taken into account when finding the best price.

Some pools have Dynamic Trade Fees that are algorithmically set by Gauntlet. The pool detail page on the UI shows you which type of pool it is, and how the fees are managed.

Protocol trading fees are set by governance, and will be turned on whenever they are voted to be active. The fees can be set from 0 to 50% of the existing pool swap fee. All protocol fees will be kept in the Protocol Fees Collector contract. It is up to Balancer’s governance to decide whether and how these fees are used."

Upgrades

  • From their blog (22-3-2022):

"In his forum post, Balancer Labs CEO Fernando Martinelli introduced his proposal for veBAL tokenomics. Curve’s vote-escrowed system will be used as a framework for Balancer Protocol tokenomics. Since its inception, the BAL token has successfully defined important parameters of the Balancer ecosystem. While successful, there is room for improving the tokenomics of BAL through staking and locking.

Staking of Balancer Pool Tokens (BPT) received community approval. The current proposal contains details of a concrete implementation of locking BPT.

BPT of the 80/20 BAL/ETH Pool will be locked into veBAL, Keeping BAL liquid while setting a precedent for other teams to do the same with their 80/20 Balancer Pools.

veBAL differs from Curve’s model in a few areas:

  1. The maximum locking time for veBAL is one year (as opposed to four years with Curve)
  2. Users lock up 80/20 BAL/WETH BPT tokens instead of just BAL
  3. veBAL is geared towards DAO2DAO use cases versus retail investors"
  1. "Protocol Vault for all Balancer pool assets
  2. User Balances (like a personal "wallet" inside the Vault)
  3. Improved gas efficiency
  4. Flash Loans
  5. Flash Swaps (arbitrage trading with no initial investment)
  6. Custom AMM formulas
  7. Capital efficiency through Asset Managers
  8. Low-gas-cost and resilient oracles
  9. Community-governed protocol fees"

Staking & veBAL

  • From their blog (6-9-2022):

Projects have two main options to increase their liquidity. One option is to reward liquidity providers with their native tokens. The second option is via veBAL votes, assuming the tokens are in a Balancer Gauge (Pool). To incentivize veBAL votes, any project can add voting incentives / ”bribes” to a Gauge. Through incentives, protocols try to influence the voters to decide in favor of their Liquidity Pool, such that the Pool gets more rewards. This has led to competition for bribes. The more BAL someone locks in, the more power they get over the emission of BAL, along with boosted rewards. Projects are luring BAL holders via attractive returns for staking in their Pools.

"Balancer recently launched the veBAL governance system. VeBAL is a unique ve-derivative where instead of locking BAL tokens, holders can lock up LP or Balancer Pool Tokens (BPT) to receive veBAL. More specifically, they need to lock their BPT in the 80BAL/20WETH pool (80% BAL Tokens paired with 20% WETH Tokens). Having these BPT tokens locked will create liquidity depth for BAL as more of its BPTs are taken out of circulation. VeBAL can be locked for a duration of 1 week up to 1 year. This is a sharp contrast to Curve’s veCRV max lock of 4 years. Within two weeks of its introduction, 30% of BPTs (80BAL/20WETH pool) are now locked and have boosted the supply of BPTs from 2.82M to 3.11M representing a 9.3% increase.

However, this means that BAL token holders will not receive voting power unless they deposit into the BPT pool, which subjects veBAL holders to impermanent loss. To counteract I.L. and token dilution from emissions, 10% of liquidity rewards will be allocated to the veBAL gauge. On top of the liquidity incentives, veBAL holders are also allocated 75% of all protocol revenue. In addition, they will start and distribute liquidity mining rewards on Ethereum Mainnet (56% of rewards), but also on Polygon (16%) and Arbitrum (7%). This will make cross-chain veBAL wars possible and Polygon/Arbitrum native protocols will be able to participate."

Liquidity Mining

This has been partly changed due to the new veBAL mechanisms, which you can read more about above.

"Regardless of the venue, early liquidity providers take on more risks and opportunity costs: contract risk, low initial pool profitability, etc. We believe that these protocol users should get to participate early on in deciding how the protocol evolves. This is why we are proposing to implement the concept of liquidity mining: Balancer protocol would distribute BALs to liquidity providers, starting imminently.

In line with the permissionless and non-custodial ethos of Balancer Protocol, there won’t be a whitelist of eligible pools. All liquidity providers will receive Balancer Protocol Governance Tokens as long as a USD price can be extracted from CoinGecko for at least 2 tokens present in their liquidity pools. Liquidity from tokens without such USD price is not eligible. Only Balancer pools containing 2 or more tokens with a price listed on CoinGecko will be eligible for BAL liquidity mining."

"Balancer’s liquidity mining started in May with the initiative to distribute BAL, the protocol’s native governance token, to liquidity providers. The mechanism distributes tokens pro-rata based on total liquidity provided. The kicker with the incentive design is that liquidity pools which elect to charge a lower trading fee, earn more BAL than a pool with identical liquidity and a higher trading fee."

Scaling

Interoperability

Other Details

User Balances

  • From their docs (8-2021):

"Balancer V2 consolidates each pool’s assets in the Vault, which holds the assets for all Balancer pools. Even though trades can be carried out in batches against multiple pools, only the final net token amounts are transferred from and to the vault, saving a significant amount of gas in the process.

User Balances are tokens that you have inside the Balancer Vault. You can supply the Vault with tokens, and once they're inside, you'll be able to trade without needing to move ERC20 tokens, saving you a lot of money on gas fees. The only ERC20 token transfers you need to perform are when you're initially putting your tokens in the Vault and withdrawing them later. If you are trading ETH for DAI but know that you’ll trade DAI back to ETH in a few hours, you can keep both tokens in the vault and use them for your next trade without the need for a useless intermediate ERC20 transaction."

Oracle Method

Balancer's oracle source, Uniswap TWAP, is fully documented at this location. In addition, contracts that use these oracles and the associated data refresh rates are identified. Balancer documents front running mitigation techniques through leveraging accumulators which is documented at this location. Balancer documents no flash loan manipulation countermeasures. They justify this in identifying that flash loans are beneficial to its operation via Flash Swaps.

Two-Token Weighted Oracle Pools

"Weighted Pools with two tokens that act as on-chain price oracles."

"Balancer V2 introduces price oracles that are resistant to sandwich attacks by leveraging accumulators. There are two types of oracles that can be queried:

  1. Instant — A more up-to-date price but less resilient to manipulation
  2. Resilient — Less up-to-date but more resilient to manipulation"

Compliance

"Implements TRM"

Investors Club Smart Pools

  • From the docs (7-2021):

"With Smart Pools, it is possible to restrict liquidity providers to a defined group. For instance, accredited investors, or those who have complied with a KYC process (e.g., for STOs). However, the privileged addresses could be determined by anything - holders of certain tokens, those who participated in community building or voting, winners of a "lottery" for investment slots, etc."

Their Other Projects

"Aragon and Balancer Labs are collaborating to launch Snapshot, an off-chain voting platform. Through the implementation of Aragon Agreements and Aragon Court, Snapshot will enable DAOs to take their off-chain voting and record it on the Ethereum blockchain."

Balancer Gnosis Protocol (BGP)

"Balancer and Gnosis are launching an Ethereum-based DEX called the Balancer-Gnosis-Protocol (BGP). Through combining (28-4-2021) Balancer V2’s Vault system with Gnosis’ price-finding mechanism, the new DEX aims to protect traders from MEV."

Smart Treasury

  • From the docs (7-2021):

"Here we have a network of producers and consumers, where users pay for services with a fee token, and that income is used to pay producers in project tokens. Since the treasury is a Smart Pool, excess ETH would raise the price and cause the market to swap in project tokens for ETH until it the treasury is rebalanced - effectively an automatic buyback.

The treasury can also buyback on a schedule by adding liquidity (e.g., depositing reserve currency income), and replenishes the market supply through issuance to producers. Maintaining the treasury as a Balancer pool means the market has guaranteed liquidity through the protocol itself."

Roadmap

  • Can be found here (25-1-2022).
  • From The Defiant (4-2-2021):

"Balancer unveiled its  V2 protocol upgrade, offering a generalized AMM solution for DeFi liquidity. Balancer allows users to create token pools with flexible constituents, weights and trading fees. With V2, Balancer will aggregate all its liquidity in one vault, while  users will maintain an internal balance of the tokens they hold. The change is meant to optimize on gas costs and increase capital efficiency.

The new mechanism, which  separates liquidity from each pool’s logic, allows creators to design custom strategies such as stable pools for soft-pegged assets like Curve. Projects looking to offer custom liquidity solutions, can get familiar with the specs prior to the March upgrade with Balancer’s launch partner program.

Baked into the upgrade are levers for protocol fees, giving BAL token holders a way to turn on trading and withdrawal fees through governance. V2 will also include a flash loan fee, set at 25 bps at launch."

Usage

"Launched on the last day of Q1, Balancer has already surpassed $2.5M in liquidity provisioned to its pools. Balancer has attracted its first MKR whales"

"Despite liquidity mining only going live just a few days ago, we are starting to see early signs of its effectiveness in attracting participation in the network. As of today, there have been 62 new Balancer pools created in June so far which already marks a 40% increase in the number of pools created in April and May. The number of new unique liquidity providers already contributing in June has already reached 223, a 70% increase from May’s numbers."

"Balancer’s daily volume surged to $1.23M from ~$129k on the day of launch. Since then, the protocol has averaged ~$708k in 24H volume over the past two weeks, a 670% increase compared to last month’s average. While this growth is a positive signal for the future of Balancer, it still pales in comparison to Uniswap where daily volumes are over $10M.

On an annualized basis, this results in an estimated $736k in earnings for Balancer liquidity providers over the course of the next year. Again, while this growth is impressive, Balancer still has some distance to go before competing with Uniswap where liquidity provider revenues are on track to earn 2x more at $1.6M this year as of writing."

  • From Our Network #22 (22-5-2020):

"With increased liquidity, Balancer has been able to attract more volume. Cumulative volume has reached $14M since launch (in 70 days), with the most active pool (“MKR Bull”) accounting for 10% of that ($1.4M) just in the last 24h. This trend should intensify as liquidity grows and as more user-facing dapps integrate with Balancer to tap into its liquidity, finally bringing strong retail volume. And with the recent surge in volume, LP revenue (from trading fees) is starting to look really promising.

Experimentation around new pools has also been on the rise. There are now 236 pools, up from ~70 a couple of weeks ago. The flexibility of the protocol allied with powerful incentives seems to be waking up dormant liquidity: portfolios that were just sitting in a hold strategy are now beginning to see the opportunities of joining a Balancer pool. One good example is the currently most liquid pool: a 90/10 RPL/ETH whose tokens were just being held prior to joining a Balancer pool. The uneven weights configuration is a great way to kickstart liquid venues especially when there’s limited ETH or fiat at the LPs’ disposal."

  • From Our Network #33 (7-8-2020):

"Since Balancer's mainnet launch on March 31st over $500,000,000 in cumulative volume has occurred. This volume has already generated over $6,000,000 in fees for liquidity providers. In early June Balancer was averaging less than $1,000,000 in daily volume with less than 100 unique traders. Now Balancer is averaging $10,000,000+ in daily volume with more than 1,000 unique traders. (Source)"

"Balancer’s launch and liquidity mining campaign drove deposits and trade volume followed. Over the last 6 weeks, however, volume has plummeted. Balancer pools are more appealing to liquidity providers of volatile assets because of higher fees and flexible asset ratios, but it does not have consistent retail flow. It’s a secondary liquidity layer to Uniswap that arb bots can access when the price on Uniswap strays far enough to justify the higher trade fees."

"Total Value Locked in Balancer V2 continues to grow. Virtually all liquidity expected to migrate from V1 to V2 has moved over, the exception being V1 pools that are deeply integrated with other protocols. Balancer pools on Ethereum mainnet currently hold ~$2.5B, roughly equally split between V1 and V2. In addition to that, the V2 deployment on Polygon holds ~$240M in assets.

Balancer V2 has also achieved a higher utilization ratio than V1. While V2 TVL only just surpassed V1, weekly volume has been consistently higher on V2 since late July. This can be explained by the fact that liquidity on Balancer V2 is less fragmented than in V1, and also lowers gas fees."

Projects that use or built on it

Pros and Cons

Pros

  • Works well for automated token balancing.
  • User Balances (like a personal "wallet" inside the Vault) which makes it gas efficient.

Cons

"A centralized exchange FTX attempted to game the BAL distribution by providing a very large amount of liquidity (roughly 50% of the total Balancer liquidity) in the form of their own exchange tokens (USDTBER and USDTHEDGE). Following FTXs addition of these tokens to Balancer, a lot of discussion started happening in the Balancer Discord server and some community members were asking the team to blacklist FTXs addresses and not pay out any rewards to them as they believed it was unfair (since, in theory, FTX can print as many of these tokens as they want and price them at 0 risk). After hours of deliberation in the server, Balancer Labs posted a tweet stating that they will honor the distribution of BAL tokens to FTX (and all contributors) up to Ethereum block #10331138 but implement a whitelist of “eligible tokens” after that block number. This decision was made because the founders and core team members believed that changing the rules retroactively to deny FTX their accrued rewards goes against the “code is law” principle of these systems.

Shortly after this decision was posted by Balancer, SBF (CEO of FTX) put together a Twitter thread on his thoughts regarding what had happened over the previous few hours. His main points centered around how the “governance” that led to this decision played out - namely that it was done in a Discord channel instead of using the actual governance token. Then later on in the day, he announced on Twitter that FTX would be donating the ~2000 BAL tokens that they accrued to a charity of the Balancer teams choosing."

Competition

"Balancer’s daily volume surged to $1.23M from ~$129k on the day of launch. Since then, the protocol has averaged ~$708k in 24H volume over the past two weeks, a 670% increase compared to last month’s average. While this growth is a positive signal for the future of Balancer, it still pales in comparison to Uniswap where daily volumes are over $10M.

On an annualized basis, this results in an estimated $736k in earnings for Balancer liquidity providers over the course of the next year. Again, while this growth is impressive, Balancer still has some distance to go before competing with Uniswap where liquidity provider revenues are on track to earn 2x more at $1.6M this year as of writing."

"Popular AMM Uniswap currently only supports two-token pools with a 1:1 weighting of assets, while Balancer pools can support up to eight tokens with arbitrary weightings. This model gives liquidity providers more flexibility with how they can earn fees using their idle Ethereum-based tokens."

  • From this blog (27-3-2021):

"Balancer Pools are extremely customizable, allowing anybody to create a pool with custom fees (ranging from 0.00001% to 10%). This fee is split between those that provide liquidity to the pool, called liquidity providers (LPs). Further, allowing effectively zero percentage fee is an advantage over competitors (e.g SushiSwap) whose minimum fee can be a deterrent for things like high-frequency trading."

Team, Investors, Partners

Team

"Currently there are ~25 Balancer Labs employees, mostly on the Development side with a small but mighty Community, Engagement, and Partnership team. Balancer Labs' mission is to create a network and community strong and reliable enough to dissolve the company and hand all the responsibilities to the Balancer Community, creating a true DAO."

Funding

"Balancer Labs announced that Pantera Capital and Alameda Research have made an investment in Balancer, through the direct purchase of BAL tokens from the Balancer Labs treasury."

"The Balancer team’s Series A funding round has risen to $12M thanks to a newly combined investment of $5M from prominent crypto VC firms Three Arrows Capital and DeFiance Capital."

"Balancer Labs Raises $24.25 Million: This fresh round of capital comes from investors Blockchain Capital, Fintech Collective, LongHash Ventures, Fenbushi Capital, Continue Capital, Kain Warwick and Jordan Momtazi."

Partners 

"Is partnering with Gauntlet, a simulation platform for on-chain risk management. Using techniques developed in algorithmic trading, Gauntlet’s involvement in the automated market maker will optimize returns for Balancer V2 liquidity providers."

Balancer Grant DAO

Basics

  • The Balancer community voted in favor of establishing a DAO (19-8-2021). This DAO's first task would be to distribute grants towards Balancer Ecosystem participants. Later on it grew out to a more generalized DAO with the Grants becoming one of its subDAOs (12-2021).

Funding

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