Balancer Review for 2022

Lily Green — Last Updated on February 9, 2021

Since its debut in the fintech industry, blockchain technology has revolutionised various traditional financial products. One of those innovative solutions is the automated market maker (AMM) technology, aimed to address the liquidity issue that a lot of decentralized crypto exchanges (DEXs) are facing these days. 

To address the DEXs liquidity problem, fintech developers and co-founders of Balancer Labs, Mike McDonald, and Fernando Martinelli, have come up with the Balancer automated market maker, a one-of-a-kind DeFi and liquidity protocol. This review will discuss all features of this cutting-edge trading platform in more detail. 

But first, let’s refresh our knowledge on the automation market maker concept to understand better Balancer protocol’s role in DeFi’s world of crypto exchanges, which will be our primary focus in this review.

What Is an Automated Market Maker (AMM)? 

An automated market maker (AMM) is a fundamental technology supporting some decentralized cryptocurrency trading systems. Essentially, these protocols represent the autonomous trading systems that remove the necessity for a third party to intervene in the transactional process. 

Balancer home page

In this sense, AMM protocols easily outperform centralized cryptocurrency trading platforms (CEXs) and the market-making tactics they use because CEXs require an intermediary to oversee all the trading activities. But the financial independence of traders who prefer swapping coins through a DEX comes with a price. Namely, while DEXs have managed to establish smooth transaction processes without an intermediary, they still have one burning issue to tackle – the low(er) liquidity of their order books.

About the Balancer Platform

Balancer is an open-source automated portfolio manager and trading platform that uses algorithms to present its customers with the best pricing and help them get a more profitable outcome from their trades. You don’t pay fees to a portfolio manager to rebalance your portfolio on this crypto swapping platform. Instead, Balancer fees are paid directly to the liquidity providers.

But, how does this function in practice? Read on.

The Role of Balancer in the DeFi Realm

The Balancer platform has been at the forefront of considerable technological progress in the DeFi domain since 2018, and it is still one of the most commonly utilised liquidity protocols in the industry. This cryptocurrency platform allows experienced investors to identify their exposure to each coin in their portfolio. In turn, crypto traders can generate unique price trajectories and devise an infinite number of distinct trading configurations.

Balancer decentralized trading

Moreover, Balancer utilises Balancer pools, i.e. liquidity pools composed of 2 to 8 digital currencies rather than standard order books. On Balancer, there are three distinct forms of liquidity pools. These are: 

  • Shared pools,
  • Smart pools, and
  • Private pools.

This crypto swapping platform facilitates swift trading operations by aggregating pooled liquidity from its clients’ investment portfolios and employing a Smart Order Routing (SOR) to identify the best overall coin value at the time of the trade. Individual traders may conveniently swap any Ethereum (ETH) trading pair and ERC-20 tokens or add liquidity to a Balancer pool through this platform. 

Aside from that, Balancer collects mining fees from traders who rebalance other traders’ portfolios for a weekly reward of Balancer (BAL) tokens, rather than charging fees to portfolio managers. As a result, Balancer successfully provides traders with financial autonomy, privacy, and complete control over their digital assets. 

What Is Balancer Finance?

Balancer Finance or Element Finance is an open-source protocol designed to address the scalability challenges in fixed and variable yield markets. This protocol, developed on the Balancer V2 blockchain, allows investors to examine and control their liquidity holdings in real-time, directly on Element.fi.

Balancer protocol

To take advantage of this feature of the Balancer exchange, customers must first link their preferred digital wallet. 

Balancer Token ($BAL)

Balancer ($BAL) is an Ethereum blockchain-based governance token. The BAL token holders can vote on proposals and decide on the future development of the Balancer protocol. Also, Balancer investors can earn $BAL tokens as liquidity providers, i.e. in exchange for depositing digital assets into liquidity pools.

In addition, the BAL token is presently available through the Balancer’s pools, Uniswap pools, as well as some CEXs, like Poloniex, Bibox, and FTX.

Supported Cryptocurrencies

The Balancer exchange offers a variety of tokens accessible to trade. These include AAVE, USDC, BTC, MKR, WETH, DAI, REP, LINK, DZAR, WBTC, LEND, OCEAN, to mention a few.

Balancer portfolio

Trading Fees and Limits

In contrast to centralized exchanges, which often have a liquidity taker/maker fee structure, the vast majority of decentralized exchanges do not charge any trading fees to their customers, which is a significant advantage of DEXs over CEXs. 

As a decentralized exchange, Balancer falls into cryptocurrency exchanging platforms that do not impose trading fees or withdrawal fees for their services. There are also no fiat deposits supported by this exchange (not even USD deposits), as is generally the case with most DEXs. 

Balancer trading without borders

However, liquidity mining fees are also a staple for these platforms. The fees go out to the miners of the respective coin as a reward for maintaining the individual blockchain network. Thus, the mining fees depend on the particular blockchain’s busyness and are expressed as a percentage of the traded volume.

Is Balancer Safe to Use?

Because Balancer is a non-custodial protocol, investors’ resources are governed directly rather than controlled by a centralized financial organisation or other intermediaries. Furthermore, this cryptocurrency trading platform makes use of smart contracts created with traders’ safety in mind. Smart contracts enable the setting up of Balancer pools, i.e. index funds based on the cryptos contained in the users’ portfolios. Here, the smart contracts guarantee that each pool preserves the right share of assets even if a particular coin’s price fluctuates. 

In addition, what distinguishes this DEX from its competitors security-wise is a background of security audits conducted by top-tier financial regulatory bodies businesses and a bug bounty of 1,000 ETH (the industry’s highest bounty for detecting irregularities in the platform’s operations or architecture).

Frequently Asked Questions

What are index funds?

Index funds are portfolios of equities that function as a financial market index. Index funds have lower fees and charges than the funds that are actively managed. Moreover, the index funds use a passive investment method where any trader who’d like to contribute to the platform’s liquidity can simply deposit assets in the index fund.

Does Balancer offer a digital wallet?

While the Balancer platform does not provide a digital wallet itself, it is compatible with a number of the most popular digital storage solutions, such as MetaMask, WalletConnect, Portis, and the Coinbase wallet, and Fortmatic

How do Balancer traders put up tokens as liquidity?

Balancer allows you to put up your whole portfolio and supply unevenly distributed liquidity. In contrast, Uniswap requires you to put up your tokens in a 1:1 ratio.

A Few Words Before You Go…

Instead of relying on human brokers and intrinsic charting displaying the market fluctuations, investors may use Balancer’s automated market maker and cryptocurrency trading platform to trade, invest, and build their portfolios. 

The Balancer DeFi protocol successfully matches all trading strategy parameters for crypto investors, incurring no costs during the process. This protocol also reduces slippage in industries where timing is of crucial importance.

Suitable for beginners and seasoned traders, the burgeoning Balancer ecosystem and its DeFi platform are undoubtedly a great addition to the crypto world. They bring unique solutions for asset management and arbitrage opportunities for safer, quicker, and more lucrative trading operations.