Yield farming with Balancer DEX project

Yield farming with Balancer DEX project

By fblauer | Yield Hacking with Defi | 18 Jul 2020


Introduction

Balancer is another Automated Market Maker / Decentralised exchange and liquidity provider similar to Uniswap, but expands on the features in a number of interesting ways. 

As per other Balancer article on Publish0x:

"Balancer essentially takes the concept of an index fund and flips it on its head. Instead of paying portfolio managers to rebalance your portfolio, traders rebalance your portfolio by following arbitrage opportunities and you collect a portion of their trading fees". "Balancer liquidity providers can be portfolio managers who want exposure to different assets without worrying about complicated and/or expensive rebalancing procedures."

Balancer advantages over Uniswap

As per other Balancer article on Publish0x:

  • "Has a native governance token - $BAL
  • Liquidity pools have a weighted 2-8 token exposure, ie (80%/20%) or (95%/5%), etc.
  • Does not have a hub currency (eth in thd case of Uniswap V1)
  • Two types of pools: shared and private (both of which act as self-balancing index funds)
  • $BAL token is earned atop of trading fees

Now to emphasize the main difference between Balancer and Uniswap:

Balancer’s powerful DeFi framework generalizes Uniswap’s bonding curve to a multi-dimensional surface to allow Balancer token pools to hold several different tokens, each of which with its own defined share of the total value in the pool."

The UI for swapping and pool management is very good when you get the hang of it. The exchange is pretty simple and straight forward. The pool management is also good, but not obvious or intuitive at first glance. If you know the contract number of the pool that you are looking for, you can append it to the URL in the address bar. If not, you can use a tool called predictions.exchange to find it. Click on it to load the pool.

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From there, you can add or remove liquidity. You can add all the assets in the pool, or an easier way is to click on single asset, and it will automatically spread the asset over the pool in the corresponding proportions. 

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If you want to find pools that you already contributed to, it is on the opening page (before you go to a specific pool:

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Impermanent losses and slippage

This can get pretty technical, so here is blog post which explains it in detail: Calculating Value, Impermanent Loss and Slippage for Balancer Pools and Interest-Bearing Stablecoin Pools Without Impermanent Loss

Bottom line - One thing that is clear. The more you use or chose pools with stablecoins, or assets with similar prices (ex. eth and weth or seth), the lower the impermanent loss will be.

To calculate your ROI yield, you can take the ROI rate from The predictions tool and multiply by your share of the pool. It would be even more convenient if some of the Defi tools like Zapper.fi or Zerion would provide this information. They both told me (on twitter) that they would have this in the future. The yieldfarming tool mentioned below is also useful, but it only gives ROI for balancerpools that also have liquidity mining rewards. 

How to earn money with Balancer

As per other Balancer article on Publish0x:

"Balancer liquidity providers make money in three different ways:

  • They earn a portion of the trading fees from the protocol.
  • They are rewarded with BAL tokens for providing the protocol with liquidity.
  • They benefit from a free self-balancing index fund"
  • Some balancer pools have additional yield farming rewards, as explained below. 

Balancer rewards are paid out on a weekly basis on Tuesdays at 7:00 pm EST. 

Yieldfarming.info - This is the best tool for ROI on yieldfarming investments. Don't be put off by the spartan text based UI. It is the most important tool, if you are using doing Defi/yield farming. All of the key pools are hyperlinked. If you click on any of the 9 pools listed, it will show you the full APR calculation, your pool amount and share, and rewards. The last 5 pools are on the Balancer platform. Credit to Weeb McGee for developing (you can follow him on twitter)

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Yield farming with Balancer

BAL Tokens (Balancer Labs)

  • Provide liquidity on Balancer platform to get some of the BAL token distribution, on the same tokens that you are earning transaction fees from the exchange
  • To double up - combine both Compound and Balancer rewards - deposit coins on compound to get ctokens, then deposit the ctoken on a Balancer pool (see predictions.exchange to find the best ones). But be aware of the high ethereum network fees when using multiple/complex smart contracts.
  • When depositing ctokens on Balancer, be sure to chose a Balancer pool which also supports COMP, or those COMP bonuses will just accrue to the pool, and not you personally
  • You can also do the same thing with Aave atokens. You won't get LEND governance tokens, but you will get interest while you are earning transaction fees and BAL tokens. 
  • Synthetix also has a bonus/reward process on Balancer for the Weth / Seth pool. Here is a good article from the Zerion blog which explains in more detail how to use the Synthetix/balancer incentives
  • You could also use Zapper.fi to contribute to the SNX/USDC liquidity pool on Balancer to collect liquidity fees and BAL tokens. You can stake for the SNX rewards from the same interface. Here is an explainer video.
  • You can also use1inch.exchange/earn to contribute to balancer pools, and it also has a 1 asset feature
  • Here is a hot new one that just became available: This one can earn you YFI governance tokens by providing liquidity to it and staking them on yearn. YFI is the governance token for Yearn, and is growing like crazy in terms of price
  • This is the Pool management interface on Balancer to add and remove liquidity After providing liquidity on the balancer pool, you can stake your BPT tokens at this address: https://ygov.finance/
  • They just created yet another Balancer pool for voting and maximum rewards:
    • Receive the best interest from stable coin deposits
    • Receive trading fees from curve.fi
    • Farm $CRV
    • Receive trading fees from balancer.exchange
    • Farm $BAL
    • Farm YFI
    • Reward members that participate in governance
    • Claim system fees and rewards when you participate in governance without burning your YFI
  • Here is a recent article from Boxmining, which describes the whole process, with all the pools in detail
  • There are musd /weth, Musd / usdc, and  musd / mta pools on balancer that will earn MTA governance tokens for the mtokens project. You can use the link from the blog post to get the balancer pool addresses. For now, the highest ROI is for the musd / mta pool, as per the article
  • This also applies to the DMM governance tokens called DMG. (Its a little confusing since the DMM tokens are also named mtokens)
  • BZX (Fulcrum) - Share of fees for staking BZRX governance tokens on balancer + share of balancer fees. Here is an article on how it works. 
  • Also, keep in mind that each time you double up on yields, you are adding new platforms and associated risk of something going wrong. So increased rewards come with increased risk. Buying smart contract insurance can reduce risk, but also lower net yield

Conclusion

Not everything is perfect yet, since it is still fairly new, and the smart contracts are more complex than Uniswap. There has been a hack involving a deflationary coin, which only affected that pool. Here is the response from balancer - Incident with non-standard ERC20 deflationary tokens

"Next Steps:

  • We will begin adding transfer fee tokens to the UI blacklist similarly to what we have done for no bool transfer tokens. Note that these lists will be non-exhaustive and any new tokens can be added to Balancer at any point.
  • We will be adding more documentation around the risks of how these pools work and how broken or maliciously designed tokens can potentially drain assets from a pool.
  • Balancer has undergone 2 full audits and already has a 3rd planned (before today) that will be starting shortly. We will continue to audit and review the protocol."

Liquidity has been growing quite rapidly due to the farming incentives:

"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" But it still has a long way to catch up to Uniswap, who has been having other problems with scam token projects

And they seem to have good financial backing - Balancer Labs Raises $3M to Supercharge Programmable Liquidity

Overall, I feel that Balancer is definitely a step forward over Uniswap's current iteration, for the reasons discussed above. Now its up to Bancor to show us V2, and I am anxious to see what Uniswap has in store with its Layer 2 solution. 


fblauer
fblauer

Self styled crypto enthusiast. Unbank yourself


Yield Hacking with Defi
Yield Hacking with Defi

This is a blog about the intersection between crypto currency and finance. I have been testing and evaluating various defi (decentralised finance) and opfi (open finance) projects. This includes lending and borrowing markets, decentralised exchanges, automated market making, smart contract wallets, and tools for measuring and monitoring return on investment. All enabled by blockchain technology, with decentralised, opensource and audited smart contracts. These systems are interoperable and composable.

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