DeFi keeps gaining popularity. It is opening doors on many levels. For example, institutions and traditional finances (TradFi) are also starting to invest in DeFi.
As a result, DEXs see more money entering their platforms. Many DEXs use an AMM, with liquidity pools made up of two tokens. This is where Balancer is different. The Balancer Protocol offers liquidity pools with up to eight tokens. In this article, you will learn more about this important protocol.
Balancer, An Automated Portfolio Manager
In Balancer, there are no third parties involved. It offers many options to make the most out of your crypto experience:
- Trading in tokens
- Creating liquidity pool
- Participation in existing liquidity pools
This is why Balancer has invested so much in making assets inside pools productive, what we call Boosted Pools: https://t.co/bkK3QMDPFl
They are already expanding to using Yearn, Fuse (with
EIP-4626) and many other yield sources 🚀
— veFernando | Balancer 🦇🔊 (@fcmartinelli) March 11, 2022
The Balancer Protocol team built the platform on Ethereum. However, it is live on Polygon. As a result, it allows trading in Ether and ERC-20 tokens. Furthermore, Balancer is trustless and permissionless. It has a self-balancing weighted protocol. This is what makes it unique. Currently, Balancer V2 is in use.
The protocol offers Balancer pools. You can compare these to an index fund. However, with Balancer, you create funds in your portfolio inside the pool. Instead of stocks, you have a variety of crypto. You can provide liquidity to any available pool. The rewards are a percentage of the trading fees. In addition, you also receive the BAL token.
So, Balancer works similar to Uniswap, Aave, or Curve. However, you can deposit up to eight tokens in a single pool. Balancer seems to be flying under the radar. Nonetheless, for TVL, they take the 12th position of all DeFi protocols. This protocol is well worth your time! Read our article on how to use Balancer here.
Source: DeFi Llama
How Does Balancer Work?
The Balancer Pools are at the core of the Balance Protocol. These pools are smart contracts. However, it’s the Vault that holds and manages all tokens in each pool on Balancer. This is the main smart contract.
Also, you can access Balancer with your MetaMask or with WalletConnect. There are other, browser-based wallets as well. In general, three parties use Balancer:
- Liquidity providers—Create your pool. Furthermore, they can take part in existing pools.
- Traders and smart contracts—They seek liquidity for their tokens.
- Arbitrageurs—Making a profit on price differences between exchanges.
Now, they can start participating in a variety of pools that Balancer offers. Balancer keeps adding interesting and exciting new pools. Here are the Balancer Pools.
- Public pool—These are pretty standard pools. Anybody can add liquidity. Furthermore, you can add or withdraw assets at any time. However, they have fixed parameters. These can’t change before launch. Ideal for smallholding for pools with high liquidity.
- Private pools—These pools restrict adding and withdrawing to the creator. He can add other parameters as well. For instance, weighting, fees, or choosing the allowed assets. These pools fit in with asset managers that hold large portfolios. Their fixed assets will earn them fees.
- Smart pools—Like a private pool but owned by smart contracts. You can program these with more functions.
Unique Balancer Pools
Now, on top of the pools mentioned above, there are more pools. These pools are what make Balancer unique. For example, their flexibility has no limits. Any underlying math or pool composition, it can handle. As a result, they offer almost endless pool variations. Here they are:
- Weighted Pools—General case pools. For instance, for tokens without price correlation. Many options to configure the pool and versatile. Traditional pools offer 50/50 weighting. Weighted pools offer flexible weighting. For example,80/20 or 60/20/20.
- Stable Pools—Ideal for soft-pegged assets. For instance, synthetics or a variety of stablecoins like DAI/USDC/USDT.
- MetaStable Pools—A good match for derivatives like stETH/WETH. They are a stable pool extension. Ideal for tokens that don’t peg, but have high correlated prices.
- Liquidity Bootstrapping Pools (LBPs)—For shifting token liquidity into each other. Token weighting can be dynamically changed. Token X / Token Y to 1/99 to 99/1. The pool owner selects the variables and can pause swaps.
- Managed Pools—They have max flexibility in managing dynamic funds. In addition, they have advanced portfolio strategies. They also offer detailed control.
- Boosted Pools—These pools give access to various lending protocols. Besides Aave, now Yearn and Fuse are presently also available. The protocol sends unused liquidity in pools (up to 90% of a pool) to lending protocols. Here it earns yield for liquidity providers. Furthermore, they have deeper liquidity. In addition, they also have greater capital efficiency. Traders have access to cheaper entries and exits on lending protocols.
Stablecoin-Only Pool Options
In addition, Balancer has over 2500 different pools to choose from. So, we picked some stablecoins only pools for you:
- Stable pool—This is the DAI/USDC/USDT pool with an APR of 8.59%. This number fluctuates, though. At the time of writing, pool fees were $721.17 during 24-hours. Furthermore, the pool volume is $7,211,650 during 24-hours. In addition, the value of the pool is $139 million.
Source: Balancer app
- Boosted pool—Here we found the bb-a-USDT/bb-a-DAI/bb-a-USDC pool. This pool is on Aave, so, as an LP, you can take advantage of it.
- On the Aave side: Their yield and Liquidity Mining Incentives.
- On the Balancer side: Their swap fees and Liquidity Mining Incentives.
- Oracle weighted pool—WETH/DAI. Weighted as 60/40. The APR is 12.47%. Fees were $7,964.58 during 24-hours and the volume was $7.2 million. The total value of this pool was $106.9 million.
We see that Balancer has some very cool tools and a wide variety of pools. The variations seem almost endless. However, this offers many opportunities to get the most out of your crypto. Especially the Boosted Pools give extra earning options.
Finally, for more cryptocurrency news, check out the Altcoin Buzz YouTube channel.
For more crypto news, check out the Altcoin Buzz YouTube channel.