Balancer is a protocol that is designed to reduce the cost of trades between different cryptocurrencies. This is an automatic market maker that can be used by different decentralized trading platforms with the goal to determine the best rate. It allows any member of the community to provide liquidity turning the portfolio into a Balancer pool or add it to the pools that exist already. The platform allows anyone to create a personal self-balancing index fund, or invest in somebody's fund.
The mechanism employs Smart Order Routing (SOR). The protocol is a liquidity provider as it delivers necessary funds for completion of the trade employing the funds of Balancer Pools supported by the traders of the system.
The company behind the platform is BalancerLabs that was established in 2018 as an initiative under BlockScience, which is a US-based data analytics company. It was launched within the frames of the research that grew into a large project afterward. The founders were inspired by the success of Uniswap when they started working over it. They felt that it was a good time for the mobilization of retail liquidity thanks to the introduction of P2P lending options. Thus, they created the protocol that included public and private pools. As a result, a powerful mathematical framework appeared that became the basis of a future protocol. The team continued to design, test, and simulate the Balancer protocol until it achieved the desired result.
The Balancer Pools were launched within the frames of Balancer Finance, the project that started its work in September 2019 after a successful seed round having raised 3 million USD.
The mission of the company is to deliver a flexible, trustless platform for programmable liquidity. The partners and investors point out a democratic approach of the team that brought something new to the world of decentralized finance, while the platform has become a sandbox for developers who can get new experience building their asset portfolio.
Balancer that calls itself a non-custodial portfolio manager is created on the basis of the Uniswap DApp. It enables users to earn with DeFi yield farming, which is a process when users provide liquidity to DeFi protocols and are rewarded with a return or yield, as it is called that is generally paid in native tokens of the platform.
This concept was initially popularized by Compound and though many platforms followed its pattern later, Balancer was one of the first projects that understood how promising this model is under current market circumstances. The platforms offer a high yield that becomes a brilliant incentive for members of the community to provide liquidity to the protocol, which is an essential part of the procedure as it delivers a hassle-free customer experience.
Compared to other defi protocols, Balancer gives customers the opportunity to create liquidity pools holding numerous tokens. The liquidity pool can simultaneously hold up to eight tokens. Also, it’s possible to customize the percentage of distribution of value for these digital assets.
The pools of the platform present the collections of funds provided by users for transactions and trades. The total amount can reach 11 million USD. There are different categories of pools such as controlled, private pools, and finalize shared pools. Along with them, Liquidity Bootstrapping Pools (LBPs) were created for teams intending to release their own tokens. At the time of writing, the liquidity of pools reaches 30% annual percentage rate (APR) on return on liquidity.
The problem with many defi protocols is their fast launch without the stage of preliminary auditing which may result in millions of dollars spent on resolving security problems afterward. As for Balancer, this open-source protocol had been audited by a security company Trail of Bits before it was launched. A thorough approach of the team helped to avoid the problems of this kind. The developers first came up with a closed beta version and only when they made sure that everything works smoothly, the mainnet became available for the masses. The customers don’t have to pass KYC/AML procedures before they start trading on the platform.
Balancer entered the Ethereum decentralized finance ecosystem in March 2020 by Balancer Labs that managed to raise 3 million in a seed round. However, the platform wasn’t entirely decentralized at that time. The list of its investors includes such notable funds as Accomplice, Inflection, Coinlist, and Placeholder.
The team didn’t plan to launch a token in the beginning, but later they changed their minds, and BAL became a native token of the platform. The token distribution started on June 23rd, 2020. The token doesn’t have a value from the economic point of view as it was developed for governance goals enabling the token holders to vote and express their views on the future of the platform. 25% of 100 million tokens released are allocated to the team, founders, advisers, and investors. It’s possible to earn BAL after creating the pool and reaping benefits of it. The creator of the pool can earn trading fees.
The founders of the project are Mike McDonald and Fernando Martinelli. Mike McDonald is a security engineer and a creator of MKR tools, which is an independent MakerDAO platform data analytics website. Mike takes the position of CTO in the Balancer project. Fernando was previously a CEO and co-founder of PrepLounge.com, the world’s leading interview community, and also co-founded Brazil Mate, the company producing natural drinks. He is a graduate of the Federal University of Santa Catarina, where he specialized in Engineering, Control, and Automation. He also studied Robotics at the University of Paris 1 Pantheon-Sorbonne, Herriot-Watt University, University of Burgundy, and the University of Girona.
The company is small and includes up to 10 employees only according to its public profile. A core team behind the platform includes brilliant mathematicians and engineers. This is one of the factors that attracted Chris Burniske from Placeholder, a major investor of the platform, as well as other companies supporting the project.