Balancer weighted pools
Tokens with staking/reward systems tend to suffer from low market liquidity and extreme volatility when high percentages of the total supply are staked (or locked).
Today let’s talk about a new liquidity providing model that solves the problems associated with traditional staking systems and market liquidity.
Classic pools
Pools are the fundamental elements of decentralized exchanges; they are smart contracts that define how traders can trade between tokens.
Most exchanges offer to provide 50/50 liquidity between two tokens. This means that at the time of deposit and withdrawal you have two tokens of equal value (half — half like LUCHA/MATIC LP Cometh).
What makes Balancer’s weighted pools unique compared to other protocols is the flexibility. While most DEX offer 50/50 2-token pools with fixed fees (limited parameters) Balancer can accommodate pools of any composition and any underlying mathematics.
Balancer’s architecture allows anyone to develop their own pool type, opening the door to custom pricing features.
Weighted pools
For pools that heavily weight one token over another, there is far less impermanent loss, but this doesn’t come for free; very asymmetric pools do have higher slippage when making trades due to the fact that one side has much less liquidity.
Balancer Pool Tokens (BPTs)
All pools in Balancer are also ERC20 tokens known as BPTs, which represent proportional ownership in the pool’s liquidity.
When users add liquidity through joinPool or joinswap* they receive BPTs proportional to the amount of assets they are adding to the pool.
The 80/20 pools have emerged as a happy medium when it comes to balancing liquidity and mitigating IL. Taking the example from the article on the impermanent loss, we can see from the graph below that the IL is almost halved thanks to the Balancer weighted pool.
Using the 80/20 LUCHA/MATIC BPT rather than 50/50 LP Cometh could solve the liquidity and high volatility problem we will face with the in-game spending
Use Cases
veBAL (vote-escrowed BAL)
veBAL is a vesting and yield system based on Curve’s veCRV mechanism considered for voting power.
Instead of locking pure BAL, users obtain veBAL by locking 80/20 BAL/WETH Balancer Pool Tokens (BPTs). This ensures that even if a large portion of BAL tokens are locked, there is deep trading liquidity.
veBAL’s maximum locking period is 1 year, a decrease from veCRV’s 4 year period. The minimum locking period is 1 week. DeFi moves quickly, and in the event governance decides to use a new voting system, this allows for a shorter, but still sufficiently long, waiting period to transition.
Aave Safety Module
Aave is a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers. Aave uses pool tokens from the 80/20 AAVE/WETH Weighted Pool to lock funds in their Safety Module (SM) while still providing liquidity for the AAVE token.
