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Ethereum, Polygon
Balancer Team
What is Balancer?
Balancer is a community-driven protocol, automated portfolio manager, liquidity provider, and price sensor that empowers decentralized exchange and the automated portfolio management of tokens on the Ethereum blockchain and other EVM compatible systems. Balancer Pools contain two or more tokens that traders can swap between. Liquidity Providers put their tokens in the pools in order to collect swap fees. Balancer adopts powerful features to slash gas costs, super-charge capital efficiency, unlock arbitrage with zero-token starting capital, and open the door to custom AMMs. Balancer is a decentralized automated market maker (AMM) protocol built on Ethereum that represents a flexible building block for programmable liquidity. By separating the AMM curve logic and math from the core swapping functionality, Balancer becomes an extensible AMM that can incorporate any number of trading curves and pool types.

Separating Token Accounting and Pool Logic
The Vault architecture separates the token accounting and management from the pool logic. This separation simplifies pool contracts, since they no longer need to actively manage their assets; pools only need to calculate amounts for swaps, joins, and exits. This architecture brings different pool designs under the same umbrella; the Vault is agnostic to pool math and can accommodate any system that satisfies a few requirements. Anyone who comes up with a novel idea for a trading system can make a custom pool plugged directly into Balancer's existing liquidity instead of needing to build their own Decentralized Exchange.

Gas Efficient Batch Swaps
In other AMMs where token accounting is paired with pool logic, multi-hop trading (A->B->C) can become costly since ERC20 tokens must be transferred at each hop. Balancer's advantage here is that all the tokens are stored in the same contract, the Vault. This powerful difference allows for far greater swap efficiency. Instead of transferring tokens on each step of a multi-hop trade, the Vault keeps track of the net balance changes (deltas) of a transaction and sends what is needed at the end. This reduction in token transfers ultimately saves a considerable amount of gas.

Internal Balances
Taking the concept of minimizing token transfers one step further, it's actually possible to execute swaps with no token transfers whatsoever. Similar to how the Vault maintains token balances for pools, it can also maintain balances for arbitrary Ethereum addresses. Users can hold Internal Balances in the Vault and execute trades to/from these balances.

Flash Loans
While the consolidated liquidity in the Vault does not change price impact on a per-pool basis, it does enable Balancer Protocol to leverage that combined liquidity by offering Flash Loans. Flash Loans are uncollateralized loans that must be repaid (with interest) in the same transaction as it is borrowed. Since everything must be completed in a single transaction, there are codified guarantees that make it impossible for borrowers to run away with the tokens. Further, anyone who identifies a price discrepancy in two Balancer Pools can execute a Flash Swap. An arbitrageur who makes a flash swap does not need to hold any of the input tokens that one would normally need to make a trade. Instead, the trader identifies the imbalance, tells the Vault to make the swap, and is rewarded with the profit.
Automated Market Maker
Ethereum, Polygon
Windows, macOS
Balancer Team
Version 2
Balancer is a protocol for multi-token automated market-making. It enables portfolio owners to create Balancer Pools, and traders to trade against them. Balancer Pools contain two or more tokens, each with an independent weight representing its proportion of the total pool value. The pools provide the Balancer Protocol with liquidity, and charge traders a fee for access to it. Pools can be considered automated market-makers, since anyone can swap any two tokens, in any pool.
There are two categories of users who can benefit from the Balancer Protocol: liquidity providers - who own Balancer Pools or participate in shared pools, and traders - who buy or sell the underlying pool assets on the open market. Anyone with two or more ERC20 tokens can be a liquidity provider. For example:
Portfolio managers, who want to have controlled exposure to different assets without complicated and expensive rebalancing
Investors who have ERC20 tokens sitting idly in a wallet, and would like to put them to work earning passive income from fees
Traders can choose from a diverse set of pools, each presenting a unique set of investment opportunities and challenges through its particular configuration of tokens, weights, and fees. The interplay between these settings, pool volume, and external prices generates market forces which incentivize traders to maintain stable token ratios, thereby preserving asset value for liquidity providers.
There are three main categories:
'Retail' traders seeking to exchange tokens with low slippage at favorable rates
Arbitrageurs seeking profit through leveling market inefficiencies between DEXs or CEXs
Ethereum smart contracts seeking liquidity for a variety of reasons, such as liquidating positions on other protocols, trading on behalf of users, etc.
Yes. Balancer Pools cannot be censored or whitelisted. Traders cannot be censored or whitelisted. Balancer Labs does not have the power to halt or edit the smart contracts in any way after they’ve been deployed. The contracts are not upgradeable, and there is no admin functionality or 'backdoor' present in the code.
Of course, Balancer has no control over the contracts of ERC20 tokens placed in Balancer pools. If a centralized token (e.g., USDC) were to blacklist an address or freeze all transfers, that would affect all USDC tokens everywhere, including those in Balancer Pools.
We are working on putting together a more detailed roadmap. The bronze release of V1 Balancer went live on February 26, 2020.
The next step is V2 - set to launch in Q1 2021. It will be a quantum leap forward! We've vastly simplified the interfaces, rewritten the UI from scratch, improved gas efficiency and performance, and added significant new functionality.
Balancer V2 is an open, flexible, generalized AMM launch platform, achieved primarily through decoupling token storage and accounting from pool price computation logic. This allows projects to create new kinds of pools optimized for particular tokens or use cases, without changing the core protocol.
V2 also supports Asset Managers - contracts that can remove tokens from the vault for yield farming, staking, voting, etc. - and flash loans.
No. There is a placeholder for anEXIT_FEE in the code, but it is currently set to zero on V1. (In fact, because it is zero, tokens that do not allow zero-value transfers cannot be held in Balancer pools.) V2 Balancer will have three kinds of protocol fees: a swap fee (charged as a percentage of the pool swap fee, which can be zero), a withdrawal fee (charged only when removing tokens from the protocol entirely, not internal trades), and a flash loan fee.
Not currently. A token will never be required to trade or interact with the protocol. Any protocol upgrade in that direction would be discussed with the community well in advance.
Yes, Balancer Governance Token, BAL, can be used to vote on proposals and steer the direction of the protocol. Every week 145,000 BALs, or approximately 7.5M per year, are distributed to liquidity providers. They are typically distributed directly to liquidity providers on Tuesdays at 2300 UTC. 25M BAL tokens were initially allocated to founders, stock options, advisors and investors, all subject to vesting periods.
5M were allocated for the Balancer Ecosystem Fund. This fund will be deployed to attract and incentivize strategic partners that will help the Balancer ecosystem grow and thrive. BAL holders will ultimately decide how this fund is used over the coming years.
5M were allocated for the Fundraising Fund. Balancer Labs raised a pre-seed and seed round. This fund will be used for future fundraising rounds to support Balancer Labs' operations and growth. BAL tokens will never be sold to retail investors.
The remaining 65M tokens are intended to be mostly distributed to liquidity providers in the coming years.
The fundamental building block of the Balancer Protocol is the Balancer Pool. Pools are smart contracts that implement the Balancer Protocol, and hold value in two or more ERC20 tokens.
You can think of a Balancer Pool as an automated, market-making portfolio. Each token asset has an independent weight, and can be traded against any other token in the pool. For example, you could have a pool with three tokens in the following proportions 50% WETH, 25% MKR and 25% DAI.
The value proposition of Balancer flows from two main features:
Even as the relative unit prices of the tokens vary, the pool as a whole is continuously rebalanced (in an efficient market) to maintain each token's proportion of the total value.
Each trade that takes place in a Balancer Pool generates a fee for the pool owner. The fee is a percentage of the trading volume, and is customizable by the pool owner when the pool is created.
Thus the incentives of both participants are aligned. Liquidity providers earn trading fees, while the overall value of their portfolio is preserved through continuous rebalancing. Traders pay these fees for the opportunity to either swap tokens with low slippage, or profit from arbitrage opportunities between pools and the open market.
Are there constraints for setting up a Balancer Pool?
Only a few. Balancer Protocol limits pools in the following ways:
Number of tokens: pools must contain at least two, and may contain up to eight tokens on V1 (16 on V2 Weighted pools).
Swap fee: the fee must be between 0.0001% and 10%
ERC20 compliance: pool tokens must be ERC20 compliant. Bronze does not support ERC20 tokens that do not return bools for transfer and transferFrom. V2 is a bit more flexible, but will not support some token types, such as tokens that change balances (e.g., elastic supply tokens).
There are a few additional ratio and balance constraints that can be found at Limitations.
We believe this is the main innovation introduced by the Balancer Protocol. Pools are efficiently rebalanced through a multi-dimensional invariant function used to continuously define swap prices between any two tokens in a pool. Essentially, it is an n-dimensional generalization of Uniswap's x * y = k formula.
Imagine a portfolio that contains a certain proportion of token A, and its external market price increases. In a conventional rebalancing process, the portfolio manager would need to take action - in this case, pay a trading fee to sell token A (and probably pay another fee to buy something else to replace it).
In contrast, Balancer Protocol lets rational market actors actively buy token A from the pool, presumably to sell elsewhere on the open market at a profit. The portfolio manager (Balancer Pool creator in this context) does nothing but collect the fees.
So instead of doing work and paying fees to rebalance their portfolio, Balancer Pool creators earn fees while traders do the rebalancing work for them. Conversely, traders benefit in two ways - high liquidity allows low slippage on 'retail trades,' and arbitrageurs can directly profit from swings in external market prices. For further technical details, please refer to our white paper.
Balancer pools charge a percentage of the input amount traded for each trade. The fee goes entirely to the Balancer Pool liquidity providers. In V2, there is a small additional protocol fee, charged as a percentage of the pool's swap fee percentage (which can be zero).
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