Many decentralized applications (dApps) have been built on top of Ethereum, a blockchain, to address problems in the cryptocurrency industry.
However, as crypto is still a young business, there are constantly fresh and exciting projects being developed, some of which have already had a profound impact.
To help you make an informed decision regarding the potential value of investing in Balancer, we’ll cover everything you need to know about the project today.
What Is Balancer?
Balancer is a piece of software that operates on Ethereum and aims to incentivize a decentralized network of computers to run an exchange where users can buy and sell various cryptocurrencies. The computers will run this exchange.
The balancer is an emerging decentralized finance (DeFi) protocol that enables trading without needing a financial intermediary such as an exchange. Balancer provides this service through the use of a combination of crypto assets.
It may be helpful to think of Balancer as a type of index fund, in which users create funds based on the cryptocurrencies in their portfolios. Balancer allows users to do this.
These funds are referred to as Balancer pools, and any user who wishes to provide liquidity to a pool can do so by simply depositing an asset in them. Balancer pools are funds that the users of the platform manage.
Users who contribute liquidity to a Balancer pool are afterward eligible to receive a percentage of the trading fee paid to the network for using their funds, in addition to being rewarded with a unique cryptocurrency denoted with the symbol BAL.
These deposits are vital to the operation of the network because they supply the liquidity that is required for users to be able to buy and sell cryptocurrencies on the platform.
Because of this, for Balancer to function, it will need to offer incentives to crypto users who may like to make some of their holdings available for trading and the traders looking for the best possible price for an asset.
In this respect, Balancer operates in a manner that is comparable to that of other decentralized exchanges (DEXs), such as Uniswap (UNI) and Curve (CRV). On the other hand, Balancer comes with several additional features, such as the capacity to pool a maximum of eight tokens together.
How does Balancer work?
Balancer pools, like index funds, can comprise various stocks, with as many as eight different cryptocurrencies included.
The worth of a Balancer pool is calculated by multiplying the total number of tokens in the pool by the weight assigned to each token at the time the pool was created.
Self-balancing index fund
Balancer employs bespoke computer algorithms known as smart contracts to keep asset pools consistently proportional despite fluctuations in the value of their constituent cryptocurrencies.
25% ETH, 25% DAI, and 50% LEND could be a good starting point for a Balancer pool. The pool will automatically reduce the amount of LEND it holds if the price of LEND doubles, keeping 50% of the pool’s worth at all times.
Now, the question is, “Where does the LEND go?” The smart contracts in Balancer make them accessible to investors who wish to purchase LEND at a higher price.
It is important to emphasize that, unlike traditional index funds, where investors pay fees for the rebalancing services, liquidity providers continue to collect fees. In contrast, their index funds are being rebalanced.
Balancer pools
Users of Balancer can choose between private and public pools, catering to their varying comfort levels with risk.
The liquidity of public pools can be increased or decreased by any participant at any time. Before a public pool is opened to the public, its parameters are locked in and cannot be changed.
As a result, they could be advantageous for users with lesser holdings who want to earn fees from the most popular and liquid pools.
When using Balancer, only the pool’s creator can access the pool’s assets, making it private. Users can modify the pool’s settings, including fees, weightings, and accepted assets.
Managers of vast portfolios of assets can benefit from private pools since they allow them to charge fees based on individual holdings.
Finally, smart pools are a private pool format wherein smart contracts serve as the legal owners. Using this function, pools can be programmed to carry out additional tasks, such as redistributing assets amongst themselves or constructing an index fund to follow a real estate portfolio.
What Makes Balancer Unique?
In the same way, as Uniswap and Curve make it possible for anyone to establish pools of tokens, Balancer does the same thing. Regardless of the tokens’ prices, the pool will make the necessary adjustments to ensure that they all have the same weight. On the other hand, Balancer is distinguished from other similar services because it permits the addition of more than one coin and does not mandate using ETH.
The balancer is not the first DeFi protocol to use AMMs; nonetheless, it has brought a new face to the market and a new way of thinking about liquidity.
The one-of-a-kind characteristic of the protocol is that it enables liquidity providers to have up to eight assets per market, each of which is given a percentage-based weighting and is automatically rebalanced.
Users of Balancer are not required to deposit fifty percent of the asset they prefer; rather, they are given the freedom to choose how much of any supported item they wish to deposit.
The ability for customers to generate a high return on assets that are in low demand by taking advantage of arbitrage possibilities and reducing slippage is yet another one of Balancer Lab’s distinctive characteristics.
You’ll find additional information regarding the operation of Balancer here.
How Many Balancer Tokens (BAL) Are There in Circulation?
The Balancer platform did not initially release a native coin. Despite this, in June 2020, they announced the launch of a governance token known as $BAL.
This was done in response to the success of Compound’s token COMP. The token will serve as an incentive for LP and will also make it possible for there to be more decentralization.
The team, core developers, investors, and advisors each received a token allocation of 25 million out of the total 100 million tokens issued.
It was decided to set aside 5 million tokens for the Balancer Ecosystem Fund, which would provide incentives for strategic partners.
Additional 5 million dollars have been set aside for the fundraising fund. Balancer plans to use this fund to assist its ongoing operations as well as its growth in the course of future fundraising efforts.
The liquidity providers on the network will mine the remaining tokens, and the rate at which they are distributed is 145 thousand weekly. If the current pace of distribution is maintained, it is estimated that it will take approximately 8.6 years to complete the distribution of tokens.
How is the Balancer Network protected from potential threats?
Because Balancer places importance on maintaining a secure network, the protocol has been subjected to comprehensive reviews carried out by three organizations: Trail of Bits, ConsenSys, and OpenZeppelin.
As a result, there are no admin keys or backdoors, which makes it a trustless system; also, the pools cannot be upgraded. Even though they may be used on some pools, tokens that do not conform to the ERC-20 standard are not supported by Balancer.
This is despite the fact that the ERC-20 standard is widely used.
Tokens stored on Balancer pools are not under Balancer’s management; smart contracts govern them. However, this does not eliminate the inherent dangers that are associated with smart contracts.
The configurable rights pools, often known as CRPs, are responsible for preventing problematic tokens from being used in pool environments. In addition to this, it guarantees the secure interaction of any other tokens with the protocol.
Where Can You Buy Balancer Token (BAL)?
Balancer allows users to contribute to liquidity pools to earn $BAL, which is then automatically distributed to users on a weekly basis. Binance, ZenGo, Global, HBTC, Kraken, OKEx, and Huobi are among the leading cryptocurrency exchanges that support $BAL.
