What Is Balancer (BAL)?

Balancer is a decentralized exchange protocol, automated portfolio manager, liquidity provider, and price sensor that is community-driven. Additionally, Balancer runs automated portfolio management of tokens on the Ethereum blockchain and other EVM (Ethereum virtual machine)-compatible systems. The Ethereum virtual machine is the software platform that developers use to develop decentralized applications (DApps) on Ethereum. Balancer allows the trade of crypto assets without the need to employ a financial intermediary (an exchange). Balancer incorporates significant features to reduce transaction costs, boost capital efficiency, enable arbitrage with zero-token starting capital, and enable custom AMMs.

One of the important components of the Balancer ecosystem is Balancer Pools. Balancer Pools are the fundamental building blocks of the Balancer Protocol; they are smart contracts that define how traders can swap between tokens on Balancer. Smart contracts are just like regular contracts; however, instead of being drafted on paper, these contracts run in the form of protocols on blockchain. What makes Balancer Pools distinct from those of other protocols is their limitless flexibility. While other exchanges have pools with constrained parameters, Balancer can accommodate pools of any composition. Balancer's architecture allows anyone to develop their own pool type, opening the door for customized pricing functions in trading pools.

In simpler terms, consider Balancer to be a type of index fund, where users establish funds depending upon the cryptocurrencies held in their portfolios. These funds are called Balancer Pools, and any user who wishes to offer liquidity to a pool can do so simply by placing an asset in it. Users who supply liquidity to a Balancer pool are rewarded with a native cryptocurrency called BAL, as well as a share of the trading charge paid to the network for the use of their funds. Additionally, these deposits provide the liquidity that allows users to trade cryptocurrencies on the platform.

Balancer needs to incentivize both components of its market—first, crypto users who want to trade some of their holdings, and second, traders looking for the best potential price for an asset. Balancer functions similarly to other decentralized exchanges (DEXs) in this regard. However, Balancer offers additional features like the ability to bundle up to eight tokens into pools. Balancer Pools are made up of up to eight different cryptocurrencies, similar to how an index fund is made up of several types of stocks. Besides, the value of a Balancer Pool is defined by the percentages of each token in it, a weight established at pool creation.

Self-balancing index fund: Balancer employs smart contracts to ensure that each pool retains the appropriate proportion of assets, even if the prices of individual coins deposited in the pools fluctuate. A Balancer Pool, for example, could begin with 25% ETH, 25% DAI, and 50% LEND. If the price of LEND doubles at some time, the pool automatically reduces the quantity of LEND it holds to keep 50% of the pool's worth. Notably, liquidity providers continue to earn fees while their index funds are rebalanced, as opposed to typical index funds, which charge investors for rebalancing services.

Next, Balancer provides a variety of pools, most notably private and public pools, aimed at customers with varying risk appetites. In a public pool, any user can supply liquidity by adding or withdrawing assets. Before they open, the parameters of public pools are fixed and cannot be adjusted.

On the other hand, a private balancer pool is one in which only the pool creator has the ability to add or withdraw assets. The user can also change all other parameters of the pool,  such as fees, weightings, and the sorts of assets it takes.

Finally, smart pools are a form of a private pool that is controlled by smart contracts. This capability enables pools to be programmed to execute extra operations such as adjusting weights or generating an index fund that tracks a real estate portfolio.

BAL is the native currency of the platform. BAL makes sure that no single entity has control over how the network runs. Additionally, the token also serves as an incentive system, with users earning BAL tokens for depositing assets into Balancer Pools.

History of Balancer (BAL)

Balancer began in 2018 as a research project at BlockScience, a software consulting firm created by Fernando Martinelli and Mike McDonald.

In 2020, the project raised $3 million in investment on its own as Balancer Labs. During the financing, 5 million BAL tokens were sold to investors, while 25 million tokens were distributed to shareholders and employees (out of a total supply of 100 million tokens).

How Are New Balancer (BAL) Tokens Created & Users Rewarded?

Liquidity mining is considered one of the unique and easiest ways to make money from the Balancer platform. Liquidity mining is the mechanism through which Balancer rewards liquidity providers in order to encourage them to provide liquidity to the pools. Thus, for providing liquidity to the pools, two rewarding schemes are available: reward from trading fee and BAL.

To add liquidity to a pool, the user must go over to Balancer Pools and connect it to their wallet. There are different pools available to choose from, and anyone can be selected to add liquidity too. For instance, one can choose 80% wETH and 20% MKR pool or vice versa. Notably, users need to have the correct ratio of tokens required to enter their chosen pool. After everything is in place and transactions are confirmed, users start earning passive income through trading fees. In addition, users are entitled to earn BAL per week in proportion to how much they have contributed in comparison to the rest of the community.

How many Balancer (BAL) tokens are there?

The maximum supply of BAL tokens is capped at 100 million.

How to Buy Balancer (BAL) Tokens

Balancer (BAL) tokens can be purchased on Coinbase's centralized exchange. Coinbase supports Balancer (BAL) on Coinbase.com as well as the Coinbase app.