Balancer is fuelling growth on Polygon zkEVM
Polygon Labs has recently launched its zkEVM Mainnet Beta in its first step to exponentially improve the scalability and finality of Ethereum with an EVM equivalent Layer 2 ZK scaling solution. As an essential and notable piece of DeFi infrastructure, Balancer is deploying its technology onto the network to bootstrap liquidity growth and accelerate development across the ecosystem.
Ethereum L2 scaling solutions
Providing the web3 world with a decentralized computational network, Ethereum has seen a rapid increase in network activity and development throughout the past few years. As growth inevitably continues, ensuring transaction costs and finality stay optimized without faulting on security and decentralization has proven to be a focal point for the next stage of Ethereum’s development.
Layer 2 solutions are designed to help solve this scalability dilemma by batching and processing computational transactions on a separate layer and submitting the compressed rollup as one single transaction to the Layer 1 network. This mechanism effectively spreads the cost of a single Layer 1 transaction across multiple Layer 2 transactions, ensuring cheaper gas fees and faster throughputs for both chains.
While there are ongoing and exciting blockchain developments such as Proto-danksharding to effectively scale the network, many people believe Ethereum’s decentralized and secure infrastructure will be utilized for data storing, while the majority of transactions will be processed on Layer 2’s. We have already seen a rapid rise in activity and development on Ethereum L2 Optimistic Roll-Ups such as Arbitrum and Optimism, as well as side chain implementations like Polygon POS with nearly $4 billion of Liquidity deployed across all three chains. Zero Knowledge proofs are the latest up-and-coming technology that is gaining rapid attention.
Zero Knowledge Proofs
Quite the mind bender, a zero-knowledge proof (ZKP) is a cryptographic action in which one party can prove to another party that they can verify or prove knowledge without revealing any information about the knowledge itself. This magical action makes them extremely efficient, secure, and scalable. Intertwined in a Layer 2 network, they offer some exciting opportunities.
With this ‘mind reading’ ability to prove validity, the main difference between Optimistic and ZK rollups is the process in which they validate transactions. Optimistic Rollups such as Arbitrum and Optimism do not prove transaction validity and instead assume “Optimistically” that all rolled-up transactions are valid, participants are then able to question the submitted validity of transactions with fault proofs within a challenging week window of transaction finality. Alternatively, zk-rollups validate all transactions with cryptographic Zero-Knowldge proof.
How come we haven’t seen ZK ecosystems expand at the same pace as Optimistic rollups?
As with any new technology, the developmental process takes time, especially when the new technology is as mathematically complex as ZK proofs. An additional hurdle has been the inability to seamlessly integrate with Ethereum. The Ethereum Virtual Machine (EVM) wasn’t designed to work with zk-proof-computation. Executing complex transactions like smart contracts with zk-proofs is an extremely hard task and requires additional technology to integrate. This is where Polygon Labs is spearheading a solution.
zkEVM combines Zero Knowledge Proof Computation into an EVM equivalent Layer 2 to offer users and developers a seamless cryptographically prooved scaling solution. Polygon Labs believes this technology is primed to offer the same code and apps but with better performance, higher throughput, lower latency, and lower cost than alt-L1s, optimistic, and other ZK-Rollups.
As a notable protocol, and with a bustling ecosystem with means to efficiently bootstrap liquidity across the network, Balancer is launching on Polygon zkEVM!
The Balancer Ecosystem LaunchPad
Balancer is uniquely positioned as a prominent protocol to help facilitate network-wide liquidity growth on Polygon zkEVM. Whether symbiotic and interconnected boosted pools that bootstrap swap liquidity and lending markets simultaneously or efficient 8020 pools that unlock the next generation of protocol governance positions, Balancer technology hosts core infrastructure that facilitates liquidity growth for every chain. As Ethereum looks to take the next step in its Zero-Knowledge future, Balancer is primed to help ignite its growth.
LST Liquidity Flywheel
Since the successful Ethereum Shapella upgrade, users have harnessed newfound freedoms to seamlessly stake and withdraw capital from the network. With it, a vast degree of complexity and uncertainty has been removed from the system. The outcome of this is that in just 2 months, there has been an inflow of 3,380,524 ETH staked onto the network, with the current ratio of ETH on the network at an all-time high of 19.04%. With this reduction in risk profile, Liquid Staked Protocols have seen an influx of liquidity as users actively seek staked yield exposure hosted within a liquid and composable token.
Balancer technology offers these protocols an extremely efficient and unique cohort of technology to facilitate this ongoing growth of Liquidity. Compared to a typical stable pool that most DEXs implement for these tokens, Composable Stable pools are programmatically tailored to ensure that the full power of these Yield Bearing tokens flows to Liquidity providers. How? Composable Stable Pools harness an inbuilt rate provider that constantly queries the blockchain, updating the token to the correct ratio and feeding the yield accrual back to liquidity providers. Without rate provider technology, the two assets trade at 1:1 with any appreciation in staking yield leached out to arbitrage traders.
This innovative technology also unlocks an incredibly efficient Liquid Staked Token incentive flywheel. With the benefits of these tokens actually flowing to users, Balancer can take a fee on this otherwise lost advantage. Integrated into a strategically implemented core pool mechanic, this fee is then fed back into the pool as voting incentives igniting a flywheel of efficient and ongoing liquidity growth.
Built to scale and grow the Ethereum ecosystem with cheaper and faster finality, Polygon zkEVM is primed to host a hub of LST liquidity and Balancer Technology is positioned to play an important part in enabling users to obtain exposure to the benefits of these tokens.
Boosted Pools intertwine the power of Liquidity Pools and single-sided yield markets into one powerful LP position. In a typical Liquidity Pool, less than 20% of the liquidity facilitates swaps, Boosted Pools wrap and route idle liquidity to external yield-generating protocols, unlocking an additional source of sustainable Liquidity Mining incentives for users.
But this unique pool type offers far more:
- Optimized swap routing
- Nested interconnectivity
- Protocol — Protocol liquidity symbiosis
A brilliant example is Balancer Boosted Aave V3 USD on Ethereum. This Tri-Stable Boosted USDC/USDT/DAI pool offers protocols instant access to efficient swap paths for multiple USD tokens at the onset of pairing alongside an additional boost in efficiency for users. Furthermore, with the power of the boost building of the benefits of swap fees, pool parameters become far more flexible.
This bb-a-USD stable pool has recently been tweaked for volume generation. In one day, the pool facilitated $94,924,281 in swaps at a 1055.70% Utilization rate!
Via actively growing trading liquidity alongside aiding lending market growth, this technology is uniquely positioned to help bootstrap growth on any new chain that integrates it. On Polygon POS, over $20 million of MATIC liquidity was routed to Aave from both Boosted stMATIC and maticX boosted pools. With it, Aave’s 66 million MATIC supply cap, 30 million stMATIC supply cap, and 17.2 million xMATIC supply cap were all hit.
Boosted Pools play a powerful role in facilitating token growth across the whole ecosystem and Balancer is primed to help enable this on Polygon zkEVM.
The 8020 Initiative
Noticing the shift in the governance tokenomic tides, we are starting to witness a new governance paradigm entering the space. With the adoption of multiple notable protocols, Balancer is proud to bring the next stage in efficient and streamlined protocol governance technology to Polygon zkEVM — 8020.
The majority of DeFi protocols implement a native token single-sided staking mechanism. Governance tokens are acquired and staked in return for governance voting power, and while incentivizing single-sided staking successfully increases governance participation, it effectively reduces the circulating supply available for swaps as more liquidity is staked. As a result, a smaller portion of capital is supplied to liquidity pools and this lack of liquidity leads to several issues:
- Increased slippage
- Inability to facilitate larger trades
- Higher price volatility for the underlying tokens
To address these challenges and encourage swap liquidity growth, protocols often resort to providing additional incentives for their token, not only to multiple liquidity pools but also across multiple decentralized exchanges. This action entangles protocols in an inefficient, expensive, and complicated incentive program. Combined with vote escrowed mechanics, this drastically locks away the majority of a token’s available supply to swap.
By leveraging Balancer weighted math, protocols can implement a two-asset pool with 80% of one asset and 20% of another. The 8020 initiative proposes using this 8020 pool BPT token as the governance token instead of a single token, with a pool configuration of 80% of the protocol’s native token paired with a chain’s native token (ETH) or a highly liquid stablecoin such as USDT or USDC.
This model hosts a range of benefits including:
- Deep Liquidity
- Asymmetric upside and reduced impermanent loss
- Efficient incentive programs
- Hedging and price appreciation
By utilizing a liquidity pool BPT for governance an additional stream of incentives automatically presents itself — Swap Fees. Every time a trade takes place on the protocol, a swap fee is denominated in the pool’s respective BPT. Take Radiant Capital as an example. After adopting the 8020 model and drawing in a TVL of almost $43M, the pool facilitated 44,046 swaps and generated $644,744 in swap fees in the first 28 days. To date, Liquidity Providers have earned an additional $751,529 that would never have been possible with a single-staked model.
What’s more, via combining the 8020 BPT into a Vote Escrowed position, protocols can leverage an extremely concentrated source of liquidity that only requires a singular focal point of incentivization. Whereas every vote escrowed single staked position is effectively making liquidity redundant for trading, ve8020 has the opposite effect. Every time users lock into governance positions trade liquidity increases!
This is taken one step further with Balancer’s core pool mechanics and BAL grants. The 8020 initiative is at an inflection point for continued growth and adoption, and with the deployment onto Polygon zkEVM, the network is primed to offer protocols the next stage in DeFi governance positions.
Code Less. Build More. Balancer is a powerful base layer that allows other protocols to innovate effortlessly. Developers can streamline the building process saving time and resources while harnessing an interconnected hub to support the launch of any primitive. Look at Gyroscope; the protocol built a unique E-CLP concentrated Liquidity model with the optimized Balancer tech stack. The pool instantly plugged into all existing Balancer liquidity and has facilitated $4,100,262 in concentrated swap volume since deployment.
With Zero-Knowledge proofs integrated into an EVM equivalent network, Polygon zkEVM is paving the way for the next iteration in the continued growth and scaling of the Ethereum ecosystem.
Balancer is united in the network’s efforts to offer users and protocols a seamless and interconnected experience. Alongside a budding community, the Polygon zkEVM network can now harness Weighted Math, Boosted Pools, 8020, and an efficient LST liquidity hub!