High Capital Efficiency with Boosted Pools
What are Boosted Pools?
To understand Boosted Pools, we need to make an initial stop and review Linear Pools. Linear Pools facilitate trades between two tokens at a known exchange rate. A positive/negative fee mechanism is used to incentivize arbitrageurs to maintain a desired ratio between two tokens. With Boosted Pools, both Liquidity Providers and Swappers can take advantage. Swappers get access to deep liquidity with near-parity exchange rates while Liquidity Providers get their liquidity positions sent to external protocols.
Advantages
Boosted Pools are designed to deliver high capital efficiency by enabling users to provide trade liquidity for common tokens while forwarding the idle tokens to external protocols. This earns an additional yield on top of the swap fees collected from trades.
Balancer’s Vault architecture allows for the creation of Boosted Pools as a series of nested pools. Each parent pool holds BPT (Balancer Pool Tokens — ERC20 tokens that represent your share of a specific pool) of their child pools. The pre-minted BPT, in combination with the multi-pool architecture, allows for a gas efficient system for swaps, deposits, and withdraws.
Consolidated Liquidity
Boosted Pools are a variation of Stable Pools that don’t directly hold the stablecoins themselves. Instead they hold the pool tokens of nested Linear Pools. For example, for Aave, these would be the underlying Token and the aToken (e.g. DAI and aDAI). ATokens are rebasing tokens meaning they change their balances asynchronously. This does not work well with the Vault architecture of Balancer that maintains its own accounting logic and does not expect the balances of tokens to suddenly change. In order to make the two compatible, aTokens need to be first wrapped before they can go into the Vault. For example the aDAI is actually waDAI (wrapped aDAI, using the standard Aave wrapper).
An external aToken operation (passing in an aToken or pulling out one) needs a relayer. For this purpose there are batch relayers for wrapping and unwrapping tokens. However, Boosted Pools keep a small percentage of the tokens in the pool so not every swap needs wrapping/unwrapping.
Creating the Right Incentives
Within a pool, there is a pool balance zone (the Free Zone), where there are no fees. However, a large transaction can create an imbalance, and in this case the transaction has an associated fee, as it gets out of the FreeZone. The fee accumulates until there is a counter-transaction that rebalances the pool and collects the distributed fees for balancing back the pool. By collecting the rebalancing fees, the rebalancers/arbitrageurs are incentivized to go to landing protocols such as Aave to do the wrapping and unwrapping of tokens, such that retail users do not have to.
What can You Build Using Boosted Pools?
- Probably the most straightforward use case that uses Boosted Pools is to deploy your own pool that has the bb-a-USD and another token that you choose.
- Deploy a Metastable Pool with the bb-a-USD and another stable coin.
- Build on top of primitives such as Linear Pools or Phantom Stable Pools to get a different set of yield tokens.
- Create a linear pool from any ERC-4626-compatible wrapped token. Using the newly created linear pool, you can create a Phantom Stable pool to then create a Boosted Pool in combination with any arbitrary landing platform.
- Create a yield generating Forex exchange. Imagine you have a USD MetaStable Pool and a EUR MetaStable one. Out of these two pools, you can create a Forex exchange that generates yield.
