Balancer

Market Making

Balancer is a decentralized exchange characterized for its self-rebalancing portfolios that behave like an index fund. Users can trade assets and provide liquidity to get exposure to all underlying assets of an index fund.

Risk Rating
Good
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Balancer innovated upon the automated market maker (AMM) model with the introduction of multi-asset pools and uneven pools with different token weightings, both of which have potential to lower impermanent loss.
What we like less
The Balancer exchange can be complex and uneven pools have higher slippage costs due to its inherent design, which can result in lower trading volume and yield.
What it means for you
Balancer offers a great way for you to get exposure to a diverse group of crypto assets while earning yield as the pool is automatically rebalanced by external arbitragers.
Information
Info
  • Website
  • Token: BAL
  • Tags: Market Making
Key Metrics
  • TVL: $18.4M (Rank #128)
  • TVL Ranking by Market Making: #0
  • Blockchain: Polygon, Arbitrum, Ethereum
  • Chain TVL
    • Polygon: $111.55M
    • Arbitrum: $20.9M
    • Ethereum: $18.42M
Risk Assessment
Good
Protocol Code Quality
  • Code reviewed by several experienced auditors including OpenZeppelin and Trail of Bits
  • Public team promotes accountability
  • One mitigated protocol hack since launch
Protocol Maturity
  • Core protocol launched in 2021; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 1% by total value locked reduces risk
  • Core contracts require on-chain voting for parameter updates
  • Multisig consists of at least 4 signers, which means the protocol is less susceptible to centralization risks
  • Timelock is at least 48hrs, which provides users with sufficient time to exit if any malicious upgrades are approved
  • Highly concentrated voting power increases risk
Protocol Design
  • No death spiral concerns
  • This protocol is susceptible to risks related to decentralized exchanges (DEXs), such as impermanent loss
  • Balancer pioneered the concept of multi-asset liquidity pools
Things to know about Balancer

How Balancer works

Balancer pools (composed of up to 16 different crypto assets) can be thought of as a self-balancing index fund, whereby the liquidity providers get paid when their deposited funds are automatically rebalanced by external arbitragers. When a Balancer pool is created, the ratio of tokens in the pools is set. This pool is then constantly rebalanced as users make trades within the pool to ensure that each asset maintains a proportional value to the rest of the pool. The Balancer system automatically determines the best available price from its range of available pools via its Smart Order Routing (SOR) system.

How Balancer makes money

Balancer has several sources of revenue including trading, withdrawal and flash loan fees. Pool trading fees are highly customizable, ranging anywhere from 0.0001% to 10%. Trading and withdrawal fees were turned off at inception while flash loan fees started at a small value to ensure there is always a cost of capital to create flash loans on Balancer. Protocol swap fees were subsequently set to 10% following a governance vote in December 2021. This means a small portion of liquidity provider fee earnings are now diverted to the DAO treasury.

How you make money on Balancer

You earn rebalancing fees for maintaining the crypto equivalent of an index fund on Balancer. Some Balancer pools also offer additional incentives in the form of native protocol tokens and the BAL token, which represents voting power in the Balancer DAO.

Balancer Pools
Balancer ETH Market Making
1.9%
Yield
$61M
TVL
Risk
B
Protocol
Balancer
Chain
Ethereum
Balancer ETH Market Making
0%
Yield
$3M
TVL
Risk
A
Protocol
Balancer
Chain
Ethereum
Balancer Tricrypto Market Making
3.5%
Yield
$616K
TVL
Risk
B
Protocol
Balancer
Chain
Arbitrum
Balancer MATIC Market Making
0%
Yield
$543K
TVL
Risk
C
Protocol
Balancer
Chain
Polygon