Many have come to recognize that one of the core drivers of DeFi is that of liquidity. Whether it be in the form of DEX growth from projects like Kyber or Uniswap to incentives from projects like Synthetix, we’ve seen tons of different initiatives which have driven the depth of liquidity pools in DeFi at large.
We are extremely excited and grateful to announce we closed our seed round!https://t.co/Qb9turhw1i
— Balancer Labs (@BalancerLabs) March 24, 2020
What is Balancer?
“Balancer allows any token holder to provide liquidity with 100% of their assets by turning their portfolio into a Balancer pool or adding it to existing pools. Balancer allows pools with up to 8 tokens, with any custom %-distribution of value for each of them. Anyone can now create their own self-balancing index fund, or invest in someone else’s.”
In essence, Balance provides tools for dApps, funds and even DAOs to diversify their portfolio with the assurance that the weights of that portfolio will always be the same. However, instead of paying fund managers to do this, it all happens algorithmically.
“Thanks to carefully designed mathematical properties and the alignment of incentives with arbitrageurs, Balancer pools will always hold the same ratio of value in each token — even if their relative prices change. This is why we consider Balancer to be a self-balancing portfolio management tool.”
Balancer turns the concept of an index fund on its head: instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who rebalance your portfolio by following arbitrage opportunities.
— Balancer Labs (@BalancerLabs) September 22, 2019
Why Does This Matter?
Across the board, we’re starting to see more and more opportunities for traders to democratize access to liquidity. We’ve previously covered projects like Curve and iEarn – both of which provide income opportunities using the Yield Protocol.
With Balancer, we can envision even more complex use-cases to emerge. The basic premise is that of asset management, namely mitigating impermanent loss and aiding in capital optimization thanks to automatic rebalances, similar to those offered by Set Protocol.
“By exploring multidimensional invariant surfaces, we came up with a powerful mathematical framework that enables any portfolio to continuously self-rebalance while also generating fees.”
Perhaps more important is the ability for users to contribute capital directly to a pool without having to split it 50/50 as we see on Unsiwap today. What this allows for is deeper liquidity which is no longer restricted to DEXs, but that entire ecosystem at large.
“As more investors are drawn to Balancer’s promise to pay people for their assets, these pools will grow, and we expect them to become some of DeFi’s most liquid venues. Since pools are not restricted to 50/50 weighting, the field of programmability with Balancer is vast, and already we’re seeing top tier DeFi teams experiment with the protocol as a way to solve as-of-yet unmet needs.”
If one thing is for sure, Balancer goes to show that capital is still largely being directed towards the DeFi ecosystem.
In the coming months, we’ll be on the lookout for a consumer-facing version of the product for users here at DeFi Rate.
In the meantime, be sure to stay up with Balancer via their official Twitter.
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.