The Balancer Protocol

Balancer Protocol

One of the most well-known decentralised exchanges and automated market makers (AMMs) on the Ethereum network is Balancer. Users can earn fees when they supply liquidity to various pools and instantaneously swap tokens.

Competitors of Balancer include ERC20-based Uniswap and SushiSwap. Both its benefits and drawbacks exist.

The information that follows seeks to address common inquiries about Balancer and explore its key features, customer service, security assurances, etc.

One of the top automated market makers (AMMs) in the cryptocurrency industry, Balancer is a decentralised Ethereum-based exchange. It functions on the Ethereum mainnet and gives customers access to a number of features for building DeFi products.

The Balancer Labs creators, Mike McDonald and Fernando Martinelli, introduced it back in 2019. The two co-founders have previously worked together on various blockchains and DeFi initiatives. They are both seasoned contributors to the cryptocurrency sector.

Balancer’s release in bronze in 2018 marked the start of its evolution. In 2020, the remaining three phases went live. The bronze release came after Balancer raised $3 million in a financing round in March 2020.

About 100 million BAL tokens—utility Balancer’s token—were produced in the early years of the company’s existence. 25% went to the protocol’s shareholders and creators, and 75% were given to miners. 5 million tokens were distributed to the public during the procedure.

Balancer Products and Features

The Balancer Exchange

Users can trade at the best prices thanks to a balancer. By combining crowdsourced liquidity from investor portfolios and leveraging its Smart Order Routing function to identify the best pricing for traders, the system promotes efficient trading.

Users can enjoy intelligent pricing, MEV protection, and gas subsidies/optimizations on Balancer by exchanging any combination of ERC-20 tokens.

The BAL Token

Users can earn BAL tokens by providing liquidity or by trading on the Balancer Protocol.

To participate in the governance protocols of the Balancer, BAL tokens must be claimed. In that instance, voting privileges are granted to liquidity providers based on the quantity of tokens they stake or own in the pool.

The Balancer Pools

Smart contracts are operated by balancer pools, which have two or more ERC-20 tokens and preserve value. Each token in the pool has a weight, and users can trade one token for another. The pool is updated by the smart contracts to maintain an appropriate and balanced level of liquidity.

By doing this, the value of each token is maintained in proportion to the liquidity level across the board. Fees from transactions that take place in the pool are paid to the pool owner. The protocol provides two primary categories of pools.

Public Pools: By adding digital assets to these pools, anyone can provide the Balancer liquidity. Public pool parameters can be predetermined by creators before launch, and even they cannot change them. For small investors who desire to receive fees from their holdings, public pools are essential.
Private Pools: In these, only the creator has the ability to add or remove assets. In addition, the pool’s creator can change the weightings, permitted assets, and fees. For asset managers with huge portfolios who prefer to make money on particular digital assets, private pools are fantastic.
Anyone can develop their own pool type using Balancer thanks to its open architecture, which also gives them a variety of functional possibilities and variable pricing options.

Here are a few samples of the several pools that are an option for various token combinations.

Stable Pools: Stable Pools work well for soft-pegged tokens like DAI/USDC/USDT that have a high correlation coefficient.

Weighted Pools: Weighted pools are made to be used widely, even with tokens like DAI/WETH that don’t have a price relationship.

Pools called MetaStable are made to accommodate non-pegged tokens while maintaining correlation. However, these tokens may diverge with time. A derivative is an excellent illustration.

Managed Pools: These are designed to give fund managers the largest amount of reliable flexibility.

Bootstrapping Pools for Liquidity: These pools can be used to change the liquidity of one token into another.

The Vault

The core of Balancer is the vault. All tokens in each Balancer pool are managed and stored by a smart contract. The vault plays a crucial role in the ecosystem and acts as a conduit for users to perform the majority of transactions including joins, swaps, and exits.

The pool logic in the Vault is segregated from token management and accounting. Balancer asserts Since pool contracts simply need to compute exits, swaps, and joins instead of actively managing assets, they become simpler.

Smart Order Router (SOR)

The Smart Order Router at Balancer assists its traders in locating the most competitive pricing. It determines whether the trades are a mix of transactions across various pools or a pure swap in one pool for a certain set of output and input tokens.

The Smart Order Router expands as the variety of Balancer Pools diversifies and continues to expand when new pool types with novel math are added. This implies that all trades can be executed by the pools in the Balancer ecosystem.

Additionally, any custom pool on Balancer is able to exploit the liquidity capabilities of Balancer by integrating and connecting with the Smart Order Router.

Balancer Gnosis Partnership (BGP)

The Balancer Gnosis Partnership is the default trading interface on app.balancer.fi. To execute trades in batches, it uses the Balancer Vault and Gnosis Solvers. Using Gnosis Solvers, traders can submit swaps by signing a message that starts a gasless transaction.

The Solvers use on-chain liquidity to match transactions and make Coincidence of Wants possible, keeping traders secure for Miner Extractable Value, or MEV. To ensure that traders always receive the best rates, BGP employs a number of Dexes.

Due to BGP’s strong interaction with Balancer’s Vault, complex multi-hop agreements may be executed with little token transfer overhead. By grouping gasless transactions, it prevents fee losses caused by unsuccessful traders.

How to Open a Balancer Account

The process of getting started with Balancer is simple. The platform’s UX makes it easy to access and navigate, and it offers practical and strategically positioned features for trading, investing, and withdrawing tokens.

Traders and portfolio managers can invest or build on the platform to develop brand-new, cutting-edge kinds of decentralised financial apps by utilising Balancer’s special items and features (dApps).

Users can choose to use Balancer’s Invest App, Trade App, or the Build option from the top left corner of the website.

Fees and Commissions on Balancer

Each pool on Balancer levies a different price. A pool’s developer may choose to charge a certain number of fees, and these fees can range from 0.0001% to 10%. Let’s investigate the costs associated with the Balancer protocol.

Balancer Exchange Trading Fees

Trading fees are set by pool developers and are a part of each transaction that cryptocurrency dealers pay to pool LPs. Users on centralised exchanges pay takers fees to takers and makers fees to makers.

When users accept orders that have already been made, takers are users who drain liquidity from the order book. Users who place these orders are makers.

The same flat price can be charged to both the maker and the taker as an alternative to charging separate takers and makers’ fees. There are no trade fees on decentralised exchanges like Balancer. Therefore, Balancer doesn’t charge users for trading fees.

Network Fees

Network fees are not fees paid to the Balancer exchange; rather, they are paid to specific blockchain or cryptocurrency miners. The network fees are not constant; they occasionally change. The load on the network at any given time affects their numbers.

Supported Devices

There isn’t an iOS or Android mobile app for Balancer. However, consumers can access the exchange using its web app on a PC or mobile device.

Customer Support

Customers may speak with Balancer’s customer service, which distinguishes it from many other “decentralised” rivals.

In addition to using the website’s live chat feature, users can also contact Balancer Finance by email at contact@balancer.finance, LinkedIn, or Twitter.

Supported Cryptocurrencies

Even if they are used on some pools, tokens that do not adhere to the ERC-20 standard are not supported by Balancer.

The tokens kept in the Balancer pools are controlled by smart contracts, not the platform. The customizable rights pools, or CPRs, are implemented to ensure that tokens with known weaknesses are not utilised in pools.

For safe transactions, Balancer’s native token is also listed on certain reputable crypto exchanges and trading platforms. These platforms include Crypto.com, Kraken, Binance, Coinbase, and Bithumb.

Security

The Balancer protocol is completely trustless and prohibits users from upgrading Balancer pools because it lacks admin keys and backdoors. The security features of Balancer are listed below:

Balancer Has Complete Audits: Trail of Bits, Certora, and OpenZeppelin have all audited Balancer. To make sure it complies with security and dex standards, it frequently undergoes additional audits.

Bug Bounty Program: Balancer is now operating a bug bounty programme for the V2 release of its core contracts. The severity of the bug will determine the amount of the prize. The Balancer smart contracts, which are in charge of safeguarding protocol funds on the Ethereum mainnet, will be subject to bug bounties.

Because Balancer is permissionless, as we’ve already said, there is always a potential that incorrect or malicious tokens will be added at some point.

Balancer keeps reviewing and auditing the protocol on a regular basis.
Tokens used for transfer fees have been added to the UI blacklist.
Balancer also published further information on the risks associated with how pools work and how fraudulently created tokens could syphon money from a pool.

The Balancer’s Pool Hack

A flaw in January 2021 made it possible for an attacker to take money from two pools of tokens with high transfer fees. Despite Balancer’s repeated warnings regarding unanticipated implications around ERC-20 with transfer fees in its discord, docs, and other venues, this problem nevertheless occurred.

ERC-20-compliant tokens are supported by the Balancer platform. There will always be unpleasant consequences if these tokens behave in an odd or unexpected way. After this incident, Balancer compensated liquidity providers who suffered financial losses.

Conclusion

For cryptocurrency investors who want to exchange digital assets at the best prices or who have idle portfolios they’d like to leverage, Balancer is a convenient protocol.

The platform’s unique private liquidity pools are a feature that portfolio managers and large-scale investors may find valuable. Access to a reliable index of cryptocurrencies that can rebalance automatically is provided by multi-token pools.