Balancer V1 in Review
When Balancer launched in 2020, we could not have anticipated how rapidly it would become a core building block of DeFi. Balancer’s growth was largely driven by the focus on capital efficient, customizable liquidity — a premise that underpins the growing Balancer ecosystem.
As of this week, Balancer has grown to:
- $921.4M Total Value Locked
- $9.5B of Cumulative Volume
- $35.9M of Cumulative Swap Fees
- 1,340 Pools
- 24,833 Token Holders
In this article, we’ll review the aspects of Balancer that had strong adoption and look ahead towards what’s next.
A DeFi Building Block
Balancer’s goal is to be the primary liquidity source in DeFi. We aim to accomplish this by providing the most flexible and simple protocol for automated asset management and decentralized exchange trading.
Since launch, Balancer has acted as a key building block in DeFi featuring a handful of innovative products, including:
- Initial Dex Offerings (IDOs): Liquidity bootstrapping pools (LBPs) are Balancer smart pools that allow for fair price discovery and prevent early buyers (advanced bots) from profiting off of retail traders. Several projects have used LBPs so far, with Perp.fi, Nsure, Bankless, and FURUCOMBO being early participants.
- Decentralized Index Funds: PieDAO, the first to build a smart pool, uses Balancer to create index funds that customize the allocation of each asset according to decisions by a decentralized, autonomous organization.
- Liquidity mining: Projects use Balancer to distribute protocol tokens in a fair and equitable way. This was pioneered by Yearn with YFI, leveraging Balancer’s 98% DAI and 2% YFI pools to enable LPs to add liquidity and earn YFI.
- Surge Pricing: Balancer pools, with customizable parameters and the ability to be immediately updated, open up a vast design space for innovation. A simple example is surge pricing pools that adjust their trading fee according to how volatile the markets are — like Uber surge pricing for liquidity!
- Rebasing: Projects like Ampleforth built the AMPL smart pool to automatically update its weights every time there is an AMPL rebase. This ensures arbitrageurs cannot drain value from the pool as they would with other AMMs where the AMPL price in the pool changes abruptly.
Beyond the use cases above, Balancer has been a building block for major DeFi projects like Aave and bZx. These projects leveraged Balancer in novel ways such as Proof of Liquidity and Buyback-and-make models.
With its core flexibility enabling a wide array of liquidity provision strategies, Balancer has consistently ranked among the most used Ethereum protocols in terms of fees consumed. For Balancer LPs, this equates to a lifetime revenue of over $35M to date.
Moving forward, we expect more teams to leverage smart pools to customize their liquidity needs and allow for communities to participate in new ways. The Bankless team provides a great overview of how to get started.
Liquidity Governance
Since kicking off BAL liquidity mining, the community has been increasingly involved with how the 145K weekly BAL allocation is distributed. This includes:
- wrapFactor: Tokens pairs that are soft-pegged (like-kind stablecoins, wrapped tokens etc.) receive less BAL
- feeFactor: Pools that feature lower swap fees receive more BAL
- capFactor: Caps each token’s total liquidity eligible to participate in the program
- Liquidity Staking: Certain BAL pairs receive a higher allocation of BAL
Details on the changes made to liquidity mining through governance can be found here.
The inclusiveness of the program, with almost 400 eligible tokens, helped increase the number of BAL token holders to nearly 25,000 addresses, with ~9,000 liquidity providers participating in the program and earning BAL every week. Starting in November, LPs could claim their BAL directly from the Claim Dashboard, allowing Balancer to save gas and giving LPs the freedom to claim at their convenience.
Positive Sum Games
In DeFi, we share a common goal of revolutionizing finance by focusing on inclusivity and removing costly intermediaries.
With that collaborative mindset, Balancer Labs built Snapshot, an open-source and neutral tool used for gasless voting. There are now over 400 ‘Spaces’ by different teams using Snapshot for off-chain voting.
Our community echoed the importance of providing grants as a public good through their decision to join the Gitcoin Grants matching pool in Round 7 and Round 8! We hope to continue this initiative in future rounds as our industry collectively pushes towards innovative mechanisms to fund public goods.
Governance Matters
Balancer is undergoing a suite of proposals to encourage active participation among the community, best highlighted by the govFactor and SourceCred Engagement incentives.
With the govFactor, all addresses who vote on the latest Snapshot poll see a 1.1x boost in their liquidity rewards, encouraging BAL holders and LPs to visit the governance portal and keep tabs on the latest developments in the Balancer ecosystem.
This was supplemented by a proposal to integrate SourceCred engagement incentives allowing community members to earn BAL by contributing to the Balancer forum and the governance channel in Discord.
To continue improving our ecosystem we have community elected champions, called BALlers, who earn a fixed monthly BAL allocation for helping to steward the growth and education of Balancer.
These ideas set the stage for a wider push to reward active contributions to the protocol with the goal of continuing to empower the Balancer community throughout the coming year.
Balancer V2: The Road Ahead
Now that Balancer has established itself as a core building block in DeFi, with over $900M in TVL, it’s time to keep pushing forward.
In the coming weeks, we’ll be sharing more information about the next chapter of Balancer, showcasing substantial improvements to the protocol. Balancer Labs has been heads down working on this upgrade over the past year, so we’re extremely excited to share more information with the community. Stay tuned!
If you or your team are looking for ways to offer unique liquidity, join Balancer’s growing community on Discord to let us know about your idea!
