Balancer is a generalized automated market maker (AMM) protocol built on Ethereum. It allows anyone to create or add liquidity to customizable pools and earn trading fees. On one side there are liquidity providers (LPs) that generally seek to balance their holdings, and they get rewarded with trading fees. On the other side, traders that are looking for the best rate possible.
One way to look at Balancer is as a generalization of Uniswap, however Balancer pools aren't restricted to the same 50/50 split between 2 tokens. A Balancer pool can support up to 8 tokens with any weights. It supports smart order routing which ensures trades get sent to the pools which provide the best rate possible. They can be seen as self balancing index funds which pay you for contributing liquidity to the platform. Instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who continuously rebalance your portfolio by following arbitrage opportunities.
The inner workings are quite complex but CEO & Co-founder of Balancer, Fernando Martinelli, breaks down the token economics and governance of the protocol for us.
Topics covered in this episode:
Fernando’s background and how he got into the spaceBalancer's connection to MakerAn introduction to liquidity mining and some of the problems with thisThe connection to the Uniswap formulaWhat Balancer is and how the protocol worksHow does this work as a Portfolio Management tool and how dynamic are the feesHow smart pools wok - The network of pools and the offchain set upHow the weighting system works on BalancerThe options for users - keeping it simple and the data that is available in your Balancer accountGovernance tokensHow the BAL token is designed and how it worksHow finance for the protocol is raisedThe future plan of dissolving BalancerHow they plan to attract volumeWhat’s coming up in Balancer V2Episode links:
Balancer WebsiteBalancer White PaperBalancer DiscordBalancer BlogBalancer TwitterFernando TwitterThis episode is hosted by Sunny Aggarwal & Meher Roy. Show notes and listening options: epicenter.tv/350