For those who don’t know Balancer is Uniswap like platform build on Ethereum. An automated market maker AMM, where ERC20 tokens can be swapped on a decentralized exchange where everyone can provide liquidity.
I have posted before about Balancer and my experience providing liquidity on their platform. Balancer is a project that is now years in the making and it has its specifics, meaning not just another Uniswap copy. Some of the specifics in the V1 were flexible ratio between assets in a pool (80%-20% for example), more than two assets in a pool, up to 8, customizable fees for pools, private pools etc.
At the moment of writing this there is almost 1 billion USD assets locked in Balancer pools. The BAL price increased from 20$ to 35$ in few days, with a total market cap more than 350M.
Balancer just announced their V2 version that should come in March 2021.
There is some interesting things and we will go through them here
A Single Vault For All Assets
What this means is that all pooled assets in the balancer protocol will be in one single vault instead of individual pools for each pairs.
Balancer V2 separates the Automated Market Maker (AMM) logic from the token management and accounting. Token management/accounting is done by the vault while the AMM logic is individual to each pool.
With this unique setup Balancer is aiming to increase the gas efficiency, providing trades between multiple pools where only the final net token amounts are transferred from and to the vault.
This should allow more trades and more arbitrages between all of the markets.
Custom AMM Logic
More and more custom made pools and stable pools in the V2 balancer, similar to what curve is doing.
Balancer V2 pioneers customizable AMM logic by creating a launchpad for teams to innovate with different AMM strategies without having to worry about low-level token transfers, balance accounting, security checks and smart order routing. With Balancer V2, this all comes out of the box.
Not an expert on this but it looks like Balancer wants to be an industry provider for custom pools. In the past some other applications like AAVE (98% DAI-2% AAVE) were using Balancer tech to provide rewards for their users. After the launch they will introduce smart pools that should allow ongoing pools parameter changes that should increase trading liquidity.
This aims to address the issue that not all the pooled assets are used at any time. In fact only a small amounts of assets in the pools are used.
Asset Managers are external smart contracts nominated by pools that have full power over the underlying tokens the pool has deposited in the vault.
What this means that the tokens in the pool can be used in many different ways than just for swaps. They can be used on lending platforms as well for example, or any other wat that will increase the use of the tokens/assets at any time and increase the yield.
Governable Protocol Fees
Balancer is aiming to set the fees on the platform in decentralized manner with community votes.
These are the fees that will be controlled by the stakeholders
- Trading fees: A small percentage of the trading fees paid by traders to pool LPs.
- Withdrawal fees: A small percentage of any tokens that are withdrawn from the Balancer Protocol Vault (trades not included). Moving liquidity between Balancer pools does not incur this fee.
- Flash Loan fees: A small percentage of assets that are used for flash loans from Balancer’s vault.
Some other improvements that are to be maid are the price oracles that will be more secure and more resilient then before.
All the above are some very interesting news and concept. The single vault for all assets looks like a really innovative solution. With the implementation of this, the underling assets can be used in many ways increasing the efficiency of the capital. Lower fees will also be in place. The customizable aspect of Balancer and their pools remains in place and it looks like this is something that is more towards the industry applications then the regular user.
Once the assets are in Bal pools the protocol will aim to use them in many different ways, from trading, arbitraging, to lending. Assets that just seat there for one specific purpose, for one specific pool are not efficient. Balancer wants to use the assets in its protocols in many different ways.
This launch is a step towards Balancer’s larger vision to become the primary source of DeFi liquidity.
Interesting times for DeFi!
Read the full announcement with more details here.
All the best