Balancer (BAL) is seen as one of the best DeFi projects of the moment. So it is a promising project! The BAL governance token was able to explode shortly after Compound and therefore attracted a lot of attention in the crypto community. Unlike Compound of Aave, Balancer is not a loan protocol, but a kind of decentralized exchange (DEX), an automated market maker (AMM).
But what exactly does this mean? What are the advantages compared to normal exchanges? How can DEX be used? What are liquidity pools and how can I benefit from them? In this article we tell you everything you should know about Balancer!
What is Balancer (BAL)?
Balancer Labs is the company behind the protocol of the same name. The company was launched in 2019 by Mike McDonald and Fernando Martinelli and in its startup round ( ICO $3 millionToday, we mainly know Balancer from the AMM protocol or the decentralized exchange they offer. We’ll be right back with a detailed explanation about this. Let’s keep it simple first.
Balancer provides a decentralized exchange for the market makers, providing liquidity to the traded assets. In order to trade on an exchange, there must be supply and demand. Market makers ensure that both are available in the market, so that the tradability of an asset is guaranteed. Without them, you wouldn’t be able to buy anything or sell on a crypto exchange .
But what is different about Balancer? The main difference from normal market makers is that Balancer automates and decentralizes this process, eliminating middlemen. As a result, the market is much more efficient. This is achieved through liquidity pools on the platform, which anyone can join to generate passive income.
In principle, however, Balancer can also be considered as a DEX (decentralized exchange), just like Uniswap for example . The most important thing Balancer does is take out the middleman. It’s something we always see in blockchain projects, and the reason why blockchain is so popular. It saves the user a lot of time and money when blockchain is used instead of a service with an intermediary.
Liquidity pools are not a new invention, and there are already other DEXs, such as Uniswap, that operate on this principle. But the difference with Balancer is that users can create these pools themselves. This also means that the composition of up to 8 cryptocurrencies ( ERC20 tokens) can be chosen at your discretion and the trading fees for this pool can be charged. That is an advantage over other decentralized exchanges.
The user can then use the pools for themselves as follows:
- Deposit and earn money with the trading fees (+ BAL tokens) from the pool.
- Trade and use the pools through the DEX Balancer to exchange tokens.
Different needs, different pools
We mentioned earlier that there are several options for designing pools. Users can do this themselves. Something that is not possible with other DeFi exchanges. The number of tokens (up to 8), weight and fees can be determined by the user creating the pool. The same goes for the visibility of the pool. The pool can also be made invisible by the maker . For example, the owner of the pool can decide whether users can add themselves or whether the owner can invite others. This ensures that there are two different types of pools on Balancer:
- Controlled/Private Pools . Also known as private pools, these are for private purposes and are not allowed to admit outside liquidity providers. The pool’s configuration is determined solely by the pool creator, and can only be modified by them.
- Shared/Public Pools . These pools are open to all players, are final and cannot be modified in their configuration. So there is a lot less to regulate by the users of Balancer.
In addition to these two pool categories, Balancer offers other special furnishing options with various models. However, adjusting these pools is a lot more complicated and difficult than the above types. That is why it is recommended that you read yourself thoroughly before you decide to create a complex pool.
For example, liquidity seed pools (LBPs) allow teams to free up a project token while creating high liquidity. Other examples are stable currency pools with no temporary losses.
So you can already see that the subject of the pool can quickly become very complicated and complex. It is relevant to the end user in rare cases, but it also shows how cumbersome a DeFi application can be, and wants to decentralize as many services from the financial world as possible. This ensures that many functions are included in such applications that are often not necessarily relevant for the end user. That can of course cause problems, since you just need to understand these things.
The BAL Token
The Balancer Token called BAL is still quite young, and not long on the market at all. Still, it has become a rocket launch, in the wake of COMP (Compound’s governance token). BAL, like COMP, is expected to play an important role in driving and controlling the platform. As a result, the token is sequentially distributed among liquidity providers, resulting in a low initial circulation volume of BAL tokens. And that is very important for the price increases of tokens. Also for BAL tokens.
It is worth noting that, as with COMP, there is no economic value behind BAL. BAL is a governance token (also known as a governance token). This means that it ensures the employee participation rights to participate in decision-making on the development of the Balancer protocol. Owners of the token can therefore help determine what the future of Balancer will look like.
But what exactly are owners allowed to vote on? This mainly includes new functionalities, protocol costs or important structural adjustments to the protocol. You see more and more blockchain projects that use a governance token. This makes Balancer, like those many other DeFi protocols, a decentralized autonomous organization (DAO).
Yet you see that BAL’s governance tokens are very valuable. Why would that be, if there is no economic value behind the tokens, and they are only used as a governance token?
Token distribution and payment – The trick in DeFi
As with Compound, the maximum number of tokens is fixed, but in principle never needs to be reached. And that is also would with Balancer, which is quite exciting. The distribution of the desired DeFi tokens often leads to a price explosion because there are only a few tokens in circulation.
The same goes for Balancer and BAL. There are 100 million BALs, of which 25 million tokens have gone to the team, developers, advisors and investors. An additional 5 million BALs are in the Balancer Ecosystem Fund, and another 5 million BALs are earmarked for further fundraising. The remaining 65 million BALs will be used to reward liquidity providers (sellers).
Of the 65 million BALs, 145,000 tokens per week or 7.5 million per year are currently being distributed to liquidity providers. Thus, the share of team and investor tokens is becoming more and more diluted and so should decentralize the project more and more.
But there is also a caveat to this. With 145,000 BAL tokens per week, all tokens will not be distributed for 8,666 years. Thus, the distribution of voting rights will remain centralized for a long time and supply will be limited. Nevertheless, the voting rights can be adjusted at any time and, for example, the issuance of tokens can be increased. But this in turn would likely also drive the price down due to over-inflation – benefits associated with voting rights.
It seems that symbolic governance is very popular, and even a real hype. And we see that not only with Balancer, but also with many other blockchain projects. The degree of sustainability of this process will be determined by the holders of the tokens, and the market they are in.
You see that blockchains increasingly allow their users to contribute to the future of the project. This is also known as a decentralized autonomous organization (DAO). More and more projects are doing this because they want to work as decentralized as possible. It attracts a lot of new users, which in turn works to the advantage of the project. Voting can always be done with the so-called governance tokens.
Trading on Balancer – Clear guide
Before we get into how to earn BAL and fees, we want to show you how to set up and use Balancer as a decentralized exchange (DEX). The advantage of a decentralized exchange is that you do not need KYC and can immediately start with an Ethereum wallet. For this we recommend a Web 3.0 portfolio such as Metamask.
Once you have that, you can start right away by going to https://balancer.exchange/#/swapet, and connecting your wallet to Balancer in the top right corner. Here you can choose from a wide range of cryptocurrencies (ERC20). A lot of coins are supported. Think Ethereum (ETH), DAI, MKR, USDC, REP , WBTC, WETH, BAT , SNX , ZRX, LINK, DZAR, UMA , LRC, REN , LEND, KNC , COMP, OCEAN , and many others.
Trading on a DEX is called a “swap” and describes the simple exchange between two assets. Balancer uses the liquidity offered by the different pools and automatically puts together the best offer and price for you.
If you wish to execute a swap, you can select the corresponding trading pair and then confirm the transaction via your wallet. The controls and interface on the DEX side are very easy to understand and use. The liquidity, or “pool” side, is a little different. Let’s see how you can make money with Swap.
Earn money with Balancer
Perhaps this is the part you are most interested in. Because how can you start earning money yourself with Balancer? It’s a lot easier than you’d probably think. It is important that you have linked your wallet to Balancer before you can actually start with this.
You then deposit ERC-20 cryptocurrency into one of the many pools available, after which you contribute to the liquidity of the platform. As a reward, you will then receive some Banacer tokens (BAL), on top of the fixed fee. We also call this process (BAL) liquidity mining or yield farming.
Decentralized Exchanges (DEX)
From the very beginning, cryptocurrency has been used to decentralize financial systems. Unfortunately, the industry has long been led by centralized players such as Binance , Coinbase , ByBit or Kraken, just to name a few. These are vulnerable to computer and legal attacks due to their centralized nature.
The problem is, until recently, we didn’t have the technical means to decentralize exchanges while still maintaining the qualities of centralized exchanges. Still, the demand for these decentralized systems grew, so eventually there was an offer for those who asked for them.
Year by year, more and more projects have sprung up aimed at decentralizing crypto exchanges. Initially inefficient, the recent rise of Automated Market Makers (AMMs) has led to the proliferation of decentralized trading platforms, this time offering remarkably good features and benefits. Uniswap, Curve, Swing, Balancer or Loopring are some of these DEXs.
In practice, most DEX are hosted on the Ethereum network. Among the top-10 DEX with the most volume, 9 of them come from Ethereum and only one from Tron . So we have to wait and see until more decentralization can be found here.
Balancer Price and forecast
How can I buy BAL?
Do you want to buy BAL? This is possible on various crypto exchanges. For this it is best to go to the most popular crypto exchanges such as Binance, ByBit and Gate.io . You can then choose to buy Balancer tokens here, after which you can store them in a wallet that supports ERC-20 tokens. That is the protocol that Balancer uses for its tokens.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com