Balancer V2 Anniversary
It’s been one year since Balancer V2 launched. Let’s celebrate the accomplishments and look forward to what’s to come.
On May 11, 2021, Balancer released V2 of its Automated Market Maker. The upgrade, which was in development for over a year, introduced a generalized Protocol for AMMs operating within DeFi. In the past year, there have been numerous projects building their operations on top of Balancer V2, mass migration of TVL from Balancer V1 to Balancer V2, and much more.
The biggest change that came with V2? The Balancer Vault. The V2 Vault is a single contract that holds and manages all assets added by Balancer Pools. It is the core of Balancer Protocol and the portal through which most Balancer operations (swaps/joins/exits) occur.
Balancer V2 Vault Overview
Separating token accounting and Pool logic
The Vault architecture separates the token accounting and management from the Pool logic. This separation simplifies Pool contracts as Pools only need to calculate amounts for swaps, joins, and exits.
Multihop gas efficiency
Since the Vault handles all assets by all Balancer V2 Pools, assets can shift around without emitting an ERC20 transfer event on-chain.
Versatility
The highly configurable technology of the V2 Vault allows DeFi to scale. Suppose a project wants to design a new invariant for an AMM. In that case, they can do so by focusing on the math while retaining the security and asset management functionality of Balancer’s Vault.
The inaugural year of Balancer V2 came with new Pools, Layer 2 expansions, new products, and more. Let’s take a look back at the first year of V2.
Largest Bug Bounty in DeFi History
Following the release of V2, Balancer set a bug bounty of 1,000 ETH, the largest bounty in DeFi history. The bug bounty covers any of the core smart contracts deployed on the Ethereum mainnet and aims to incentivize ethical hackers to discover and report vulnerabilities in the Balancer V2 Vault architecture.
DeFi platforms are increasingly vulnerable to hacks and theft. Throughout Q1 2022, 78 hacks accounted for a nearly $1.3 billion loss.
Balancer’s bug bounty has grown since the launch last summer. Balancer Protocol friendly-fork Beethoven X announced support of the bounty, committing to a safer, more secure environment for DeFi users across the industry. For any rewards paid out by Balancer, Beethoven X will pay an additional bounty, making the search for vulnerabilities an even more lucrative pursuit.
Immunefi
In conjunction with the one year anniversary of Balancer V2, Balancer Labs is re-launching its bug bounty in partnership with Immunefi. Immunefi is the leading bug bounty and security services platform for Web3, and features the world’s largest bounties and the first-ever operational bug bounty Protocol.
Immunefi provides a secure way for hackers to report bugs responsibly, and projects can fix those vulnerabilities securely. The platform offers access to a White Hat Army, a secure dashboard to receive bug reports, and ongoing communications support as part of the process.
Expansion to Ethereum Scaling Solutions
Balancer deploys on Polygon and Arbitrum
Soaring gas fees have made transactions on decentralized exchanges restrictive for smaller players by limiting opportunities to create, join, or exit Balancer Pools. Gas fees also diminish the possibility of aggregating liquidity across several uniquely composed Pools. Balancer’s expansion onto Layers 2’s like Polygon and Arbitrum has allowed DeFi to scale, and position Balancer as the source for programmable liquidity.
Polygon is a Layer 2 sidechain that is not an “Ethereum killer,” but rather was created to help Ethereum expand in efficiency, security, size, and usefulness. Balancer joined Polygon’s Summer of DeFi, launching support on the sidechain to reduce gas costs.
Balancer later deployed on Arbitrum, another L2 scaling solution built on top Ethereum, to continue to provide easier access to liquidity through optimistic rollups.
Balancer Introduces New Pools
Three new Balancer Pool types were created in the first year of V2: Stable Pools, MetaStable Pools, and Boosted Pools.
Stable Pools
Designed specifically for assets expected to trade near parity consistently, Stable Pools use Stable Math, allowing for significantly larger trades before encountering substantial price impact, vastly increasing capital efficiency for like-kind swaps.
Traders enjoy tighter spreads and lower price impact. These Pools allow for larger trades of assets before encountering significant price impact.
MetaStable Pools
MetaStable Pools are an extension of Stable Pools that contain tokens with known exchange rates. MetaStable Pools use Stable Math in conjunction with this known exchange rate. They are great for tokens with highly correlated, but not pegged, prices.
The most notable use case is the Lido wstETH/WETH Pool with trades between correlated but non-pegged tokens.
Boosted Pools
Balancer launched its first iteration of Boosted Pools with top lending protocol Aave. Aiming to optimize capital efficiency of tokens deposited into Balancer Pools:
- Align incentives between the Protocol and its partners.
- Offset pool creation gas costs.
- Incentivize new markets on Balancer, profitable investment vehicles on Balancer, and more active Pool management.
Boosted Pools are designed to allow for greater capital efficiency, deeper liquidity, and increased yield for Liquidity Providers and offer a cheaper entry/exit into lending protocols for traders. More benefits of Boosted Pools can be seen below.
The current launch of Aave Boosted Pools is only the first iteration of the Boosted Pools product. We are looking forward to adapting this primitive to other protocols and use cases. The Balancer Labs team is also working on the next iteration of our Managed Pools with DAO treasury management and index offerings in mind as the use cases for this Pool type.
Balancer Grants DAO Forms
The Balancer Grants program was formed to aid and fund projects committed to supporting Balancer Protocol and building on Balancer V2. Over 22 projects have #BuiltOnBalancer, seven of which are grantees, with one reaching Mainnet launch in just under a year.
The Balancer Grants program has since transitioned to the Balancer Grants subDAO. The Grants subDAO continues to empower and fund groups/individuals that want to build on the Balancer Protocol or support the development of the Balancer ecosystem. Grants recently announced its fourth wave of funding with 24 current applications of projects looking to further the expansion of Balancer V2.
Balancer-Cow-Protocol
In October, two of Ethereum’s leading protocols Balancer and CowSwap joined forces, creating a new DEX to deliver the best experience for traders.
Benefits of the partnership:
- MEV protection
- Best on-chain prices available
- No gas fees are charged for failed transactions
- Transaction management that a professional third party handles
Balancer Protocol was introduced to CowSwap’s price-finding mechanism based on gasless orders and smart order routing. The batch auctions trading mechanism matches the trader’s liquidity in an off-chain style and taps into all on-chain available liquidity to settle the unmatchable off-chain liquidity, all within the same settlement transaction.
Balancer Announces First-Ever Rev Share Model
On stage at ETH Denver 2022, Balancer announced the first-ever revenue sharing model to standardize Protocol revenue sharing for all liquidity Pool creators.
Check out the full announcement below:
This model applies equally to all new Pool types and is implemented primarily outside the Pool in a FeeSplitter contract that interacts with the ProtocolFeesCollector.
The benefits?
- Aligning incentives between the Protocol and its partners.
- Offsetting Pool creation gas costs.
- Incentivizing new markets on Balancer, profitable investment vehicles on Balancer, and more active Pool management.
The technical benefits of Balancer’s flexible design and the partner-first mentality of the Balancer community has attracted high-value projects that are invested in building innovative solutions using Balancer.
Anyone who creates Pools on Balancer will receive 10 to 50% of the protocol fees generated by the Pool, creating a big step toward permissionless DAOs ecosystem growth.
Balancer Introduces veBAL Tokenomics
February 2022, Balancer Labs CEO Fernando Martinelli introduced his proposal for veBAL tokenomics, following the framework of Curve’s vote-escrowed system. By March 2022, the veBAL tokenomics system went live, creating long-term alignment between the Protocol and its’ users, fully automating the BAL minting schedule, and distributing Protocol fees to veBAL holders.
Aura Joins In
Aura Finance is a Protocol built on top of the Balancer system to provide maximum incentives to Balancer LPs and $BAL stakers through the social aggregation of $BAL deposits and Aura’s native token, $AURA. Aura Finance in Balancer’s Voting-Escrow contract allows Aura to lock $BAL, participate in Balancer governance, and provide additional rewards to Balancer ecosystem participants without immediate disposal of $BAL rewards.
V2-versary Giveaway
To commemorate the V2-versary, Balancer users who trade in a V2 Pool will be entered into a raffle to win a Balancer V2-versary NFT. Follow Balancer on Twitter for more details.
Closing Thoughts
Much has happened during the first year of Balancer V2, and what has been achieved thus far is a testament to Balancer Protocol’s unparalleled versatility and dedication to the community. We’re not only celebrating Balancer’s technology, but also Balancer’s community. So thank you, Balancer community, for being a part of the journey. We are looking forward to doubling down on Balancer V2’s success with another year of groundbreaking innovations.
