How Balancer Saves Users ETH
Through strategic integrations and sidechain expansions, Balancer’s tech helps mitigate ETH transaction fees
Though declining, Ethereum transaction fees still add up to eye-popping amounts over time. Throughout most of 2021, the average cost of a transaction ranged from $20–40 and peaked at a whopping $196 on May 1, 2022, amid NFT hype. You may not have to spend $100+ for a simple DEX swap today, but it’s possible exorbitant L1 fees could make a comeback.
Solving network throughput bottlenecks is a significant priority for Ethereum developers, and solutions such as Layer-2’s, side-chains, and eventually sharding aim to ease users’ frustrations — but these are all still works-in-progress for the network. Balancer aims to mitigate the transaction fee issue for users now.
Partnership with Cow Protocol
In Q4 2021, we announced a partnership to form the Balancer CoW Protocol (BCP) — a new DEX that delivers the best experience possible to traders. This partnership combines Balancer Vault technology with Cow Protocol’s price-finding mechanism, enabling new features such as gasless trading, favorable swap rates, and MEV protection.
By implementing Balancer’s tech on the back end and CoW Protocol on the front end, the BCP functions as a “dex-aggregator of dex-aggregators,” collecting orders and executing them as a batch across all available dexes. It also implements a method called “coincidence of wants” (the “CoW” in CowSwap) to match buyers and sellers together in a batch if possible, allowing CowSwap to offer even more favorable trading rates than its competitors with little to no fee.
Because it places orders through a batch auction system, it allows users to place trade orders through signed messages — verifying data on-chain without requiring interaction from the network. This method of data verification eliminates gas requirements to place and execute trades. A user is simply required to approve CowSwap’s vault relayer contract, which executes trades on their behalf once a message is signed.
Deployment on SideChains and L2s
Balancer’s technology is deployed across four networks: Mainnet, Polygon, Arbitrum, and Optimism.
Polygon is a network and smart contract platform that utilizes a fast and scalable Proof of Stake network. It implements a “side-chain” strategy that allows its throughput to scale up to millions of tx per second during periods of high demand. The network also borrows Ethereum’s robust security, employing its staking contracts on the Eth network and running validator nodes.
Arbitrum is a true “Layer 2” solution to the Eth network. When users interact with Arbitrum, their transaction data is added to a batch processed on the main Ethereum network. However, the transaction data that Arbitrum sends to Ethereum is sent as a “roll-up” to maximize its throughput while simultaneously minimizing transaction costs. A roll-up can be thought of as sending a .zip file. All the data is stored on the main Eth blockchain but in a condensed form that saves size and cost. This allows Arbitrum to scale up to nearly 40,000 TPS (compared to ETH’s ~14 TPS).
Balancer’s tech is now Optimism, with the help of Friendly Fork, Beethoven X. Optimism functions similarly to Arbitrum, utilizing roll-ups to process transactions — offering the security of mainnet in a more scalable package. The main difference between Optimism and Arbitrum is how they verify transaction authenticity. Optimism uses single-round fraud proofs, and Arbitrum offers multi-round fraud proofs. In effect, single-round proofs offer faster transactions ( at a slightly higher gas cost), making Optimism faster but more expensive than Arbitrum.
Launching on these alternate networks gives users a low-cost alternative to Ethereum network’s trading fees. To switch the app to a different network, simply click the drop-down menu at the top right and select your desired network. Users will have to bridge their funds to the appropriate network to trade, however.
Unique Balancer Tech
Two unique in-house innovations make the Balancer tech-stack stand out from its peers. The Protocol implements an original vault mechanism that separates token accounting and management from the pool logic, lightening the gas requirements for interacting with its AMM pools. The vault itself simply keeps track of internal pool balances. This also makes multi-hop swaps (A->B->C) roughly equal in gas cost to a simple swap, allowing traders to jump from A to C. This is where the SOR comes in.
Balancer’s smart-order-router (SOR), is an off-chain optimizer that takes all Balancer Pools into account, considers all factors (such as slippage, trading fees, and gas costs), and forms the optimal trade path for the user. On traditional DEXes, a large, multi-hop trade path may yield a good rate but with high gas cost. By accounting for gas in the optimization process, the SOR ensures that users get the best price at the lowest gas possible. Combined with the unique v2 vault logic, the SOR can create superior trading paths for users that would not be possible on other dexes, offering multi-hop swap rates with the gas consumption of a simple swap.
For a deeper dive into Balancer’s SOR, check out the below article.
Traversing the Balancer Vault with Smart Order Routing (SOR)
The flexibility of Balancer Protocol’s SOR ensures any custom Pool built on Balancer can benefit from all Balancer…
ETH fees are an annoying reality, but more solutions arise every day to help users get around them. Through a combination of SOR, unique Vault architecture, deployment on battle-tested L2s, and strategic partnerships — Balancer is leading the way in providing the best options for traders to fit their needs. As the industry continues to evolve and adapt to growing scalability requirements, Balancer will continue to innovate and lead the cutting edge of DEX tech.
Balancer’s mission is to accelerate innovation in DeFi by providing access to secure infrastructure for liquidity applications. As a core building block of DeFi, Balancer Protocol is community driven and is reliable, open-source, and permissionless. Projects build on Balancer to create new, innovative types of pools and financial dApps.
Communications from Balancer Labs OU are intended solely for informational purposes, and should not be construed as investment or trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any tokens mentioned. All figures are estimated and unaudited unless otherwise noted. As a technology company, Balancer Labs OU provides access to software.