Balancer is an automated market maker or AMM, which really serves as three things: decentralized exchange; automated portfolio manager, and platform for development. Balancer interacts with the defi ecosystem as an infrastructural layer for other developers to use for plugging into their protocols and their applications. Balancer is designed as the most flexible and dynamic AMM.
Jeremy Musighi, Head of Growth, points out that the use cases for an AMM goes way beyond what we have used them for thus far in what he considers to be the very early period of DeFi, which is primarily as a decentralized exchange, providing liquidity to traders to swap from one token to another.
“Balancer does that and that is very important,” he said. “That’s what the majority of activity looks like today. But, looking into the future, traders are not the only ones who need access to liquidity; protocols or need access to liquidity applications or need access to liquidity. AMMs are actually a fundamental infrastructural layer of DeFi.” One benefit for developers on Balancer includes a liquidity pool infrastructure.
According to Musighi, this goes beyond having a liquidity pool that contains your project’s token, making sure that you have a liquid market for your token and includes providing some sort of asset exchange functionality that many applications require. Balancer also offers a flexible liquidity pool design.
Balancer liquidity pools can, first of all, contain multiple assets, not just two. They can contain up to 40, in fact, and within that range, you have so many different use cases. Balancer liquidity pools can contain custom weights for each of the assets that they contain. That can be any arbitrary number from 2% to about 98%, and everything in between.
Many of the characteristics of Balancer pools are fully customizable and configurable, such as swap fees, weights, number of assets, types of assets. Furthermore, you can have liquidity pools that can dynamically change their properties, while they’re alive. This has led to a lot of use cases that have really grown for Balancer liquidity pools. Use cases include as a token launchpad or IDO mechanism for projects that are launching a new token onto the market.
Liquidity Bootstrapping Pools
Balancer developed LBPS, liquidity bootstrapping pools, which are a type of pool on Balancer.
LBPS are designed to result in the most wide distribution and fair opportunity for many different types of investors to participate in a token sale, as opposed to a lot of other mechanisms with which tend to end up with whales or the most sophisticated or well capitalized players dominating high value sales and taking the lion’s share of the tokens that are being offered.
When you look at the outcomes of LBPS sales, you’ll see that there’s a wide distribution of
tokens amongst many different types of addresses, small and large, as far as their holdings.
Weighted pools is another Balancer use case. 80-20 pools are pools that contain two assets that are weighted 80% and 20%. One way you can use this is to create a pool where the liquidity providers are actually maintaining a long position, and a bullish stance on a token that is 80% of that pool, while also contributing to the liquidity of that token out on the market.
This is a feature that is being used today by partners like Aave and ParaSwap, and gaining a lot of popularity.
Balancer Growth Strategy
The Balancer Growth strategy entails Dao to Dao or D2D, an evolution of the b2b business model. “We really focus our energy and attention on catering to other decentralized projects, protocols, and communities. Balancer is first and foremost a dynamic flexible infrastructural piece of DeFi,” said Musighi.
Balancer grows over the long term through the growth of the partner projects that build on top of and integrate with Balancer. As they grow, their users indirectly increase use of the Balancer protocol, because it functions as a component of those applications all over DeFi that are growing in their usage.
Balancer partners with many different types of projects, especially projects that are building new AMM implementations and new types of AMM logic. We’ve really provided a no-brainer solution, where instead of going through all of the steps to build and Bootstrap an AMM from the ground up, you can take everything that we’ve already built at Balancer and plug in your custom innovative AMM logic, and launch liquidity pools that will work immediately.
They’ll also be connected to all of the other liquidity pools in the Balancer vault, and saving on a lot of the costs, development effort and getting straight to market. We are working with really any DeFi projects that need a liquidity layer, which is a very wide spectrum.
Balancer has been quite busy. “We just released a product called boosted pools with Aave,” said Musighi. “In short, it’s a liquidity pool that can reallocate assets into other yield generating strategies. We’re working on a very exciting product called managed tools, which I believe are the best solution for launching a defi index fund, as well as for a lot of treasury management solutions that will be very valuable to daos.”
Balancer also recently announced a new, updated tokenomics model, the V bow model, which is inspired by a Curve.