Balancer Protocol — The Self-Balancing Crypto ETF
It all started in 2018 when Balancer was just a research at a software consulting firm known as BlockScience. Later in March 2020, the Balancer protocol was launched and has witnessed an impressive level of popularity within a short time. This platform wasn’t really fully decentralized when it was released. The parent company of this protocol is Balancer Labs and in March 2020, they successfully raised $3 million of investment.
The two individuals behind the project are Fernando Martinelli and Mike McDonald and they created Balancer to offer users a decentralized and trusted future. After raising the initial offering of $3 million, the platform’s net worth has since increased to $16 million within six months. Currently, its worth is estimated to be about $50 million. The automated market maker (AMM) is built on the Ethereum blockchain and allows users to contribute to the platform by providing liquidity with multiple tokens.
In turn, they will earn fees for their efforts. The Balancer Protocol is a second-layer infrastructure platform that some crypto enthusiasts describe as a self-balancing crypto-ETF. Users are allowed to create and manage their personalized index fund by either investing in an existing liquidity pool or creating LPs.
So, what does it mean when funds are self-balancing?
It simply implies that currencies can easily be exchanged without having to exit the liquidity pool. Automated market maker ensures that market making is successfully executed without intermediaries but by using algorithms that determine each trade’s rules.
Users can add or remove liquidity from various pools by using the Balancer Pool Management dashboard. The dashboard also allows them to oversee the trading volumes and liquidity of each pool. It’s possible to swap, enter or even remove up to eight different digital currencies from liquidity pools without friction using the Balancer’s Constant Mean Market Maker (CMMM).
How Balancer Works
The Balancer pool has three variations and currently has a sleek UI with some sophisticated underlying mechanics at work to ensure the proper liquidity pool management. The three variations of the pool include:
· Private pools
· Smart pools
· Shared pools
The first one which is Private Pool, has just one single LP in charge of the pool. On the other hand, anyone is free to add liquidity to Shared Pools. The Balancer Pool Token (BPT) helps to keep track of ownership of the pool. The third variation is Smart Pool and it has several similarities with Shared Pool. Liquidity can be added by anyone and BPT helps to track ownership of the pool.
But what separates the two is that Smart pool is operated by a smart contract that allows users to readjust weighing, balances as well as fees. Pools on the platform are owned by liquidity providers who are capable of creating pools and they make a profit from the trading fees. This system is similar to the Uniswap model, but the major difference here is that LPs on the Balancer platform can use any ERC-20 token they like to create a pool and freely set custom trading fees.
The centralized nature of most crypto exchanges means that users would need to go through KYC. Since this process is straightforward, especially for new users, centralized exchanges have remained relevant. But recently, there has been a significant rise in decentralized exchange volumes, which has actually exceeded that of the regulated exchanges.
So, decentralized finance platforms like Balancer enable users to provide liquidity and trade without KYC from any location around the world.
The Balancer platform has its native token (BAL) which is meant to serve as a governance token like MKR and COMP. It offers users governance rights to make decisions on the platform’s future when it matures into decentralization. The token wasn’t in existence when the Balancer project was launched. The platform was mainly using ETH but later started distributing free 145,000 BAL tokens each week to participants on the network in a bid to improve the frequency of its usage and increase its value.
One of the factors that have made BAL a speculative and highly traded asset is the yield farming hype that has popularized DeFi in the past few months.
Since the Balancer decentralized network doesn’t require users to go through KYC, it ensures that users’ information is well preserved. So, what any user needs to start using the service is to have an online wallet and there are about 20 different assets on the Balancer platform. Here are the simple steps required to start using the Balancer:
· First, visit their official website
· Select the “Connect a Wallet” button
· Choose your desired wallet
· Once you select the wallet you want, then it will request that you choose the preferred account for the service.
· When you choose your preferred account, the process will be complete and you can now begin trading and swapping.
Why Use Bal?
If you’re currently a crypto investor with an idle portfolio that you would like to put to work, BAL may be of interest. If you’re a portfolio manager or an active trader, BAL may be useful to you too. This is because it enables you to purchase units of indices that exist on the protocol. If you strongly believe that decentralized trading of digital currencies would become very popular in the future, then investing in BAL would be a great idea.
While investing, it’s always a great idea to do your own research and one way to learn more about major cryptos is to read “The Digital World of Crypto Riches.” There are over 2000 cryptocurrencies in existence and identifying the ones that have great potentials is always a difficult task and takes a lot of time. The author of the book has spent some time researching the top crypto projects, so all you have to do is go through the summaries and choose the ones that appeal to you the most.
Balancer is a decentralized network that trades with volatile assets that provide high returns. This also means that it involves risks, so it’s often advisable to invest funds you can afford to lose. One thing is sure; Balancer is on the right path to becoming one of the major platforms for automated trading and even a moderator for trading fees for many digital currencies. It has made tremendous progress within the first year of its existence despite the global pandemic.