BAL - Is Balancer Token a Good Investment?

Introduction

Decentralized Finance (DeFi) emerged as an alternative to the traditional financial system, aiming to empower individuals by shifting control away from large institutions. Its decentralized and secure nature enables universal accessibility, eliminating the need to place trust in centralized third parties.

In the beginning, the technology was already revolutionary, but still simple. However, as time passed, the entire industry improved and began providing users with a wider range of diverse and flexible services.

In this article, we'll talk about Balancer, a partner of Kassandra and one of the biggest DeFi platforms out there.

What is Balancer

Balancer is a decentralized Automated Market Maker (AMM) protocol. It was originally created on the Ethereum blockchain, but now it's also available on five other chains, including Polygon (PoS) and Arbitrum.

Here's how it works: Balancer separates the smart math part from the core swapping part. This way, it can include all sorts of different swap curves and pool types. Some examples are traditional 50/50 pools, pools with custom weights like 80/20 for more controlled exposure, stable swap curves, managed pools (Kassandra), and even boosted pools.

With Balancer, swappers, aggregators, and arbitrageurs can easily access all the combined liquidity. This is great because it keeps gas costs (fees) and the amount of capital needed very low. Also, many projects and pools built on Balancer benefit from the large liquidity, which means there are more opportunities to trade and get better prices.

With Balancer Protocol, you can trade different tokens, create liquidity pools, and invest in existing pools. When you invest, you can earn rewards from trades that happen in those pools. 

The big goal for Balancer is to become the leading platform for programmable liquidity, making it easier for people to trade and manage their assets in a decentralized way.

What are AMMs?

Automated Market Makers (AMMs) are a vital part of decentralized finance (DeFi). They function like smart computer programs through smart contracts that manage pools of tokens on decentralized exchanges. These pools are created by people putting their tokens into the AMM, and in return, they get a share of the trading fees and liquidity pool tokens.

The main Types of Pools on Balancer

Many different types of Pools can be created leveraging Balancer’s flexible technology. Here are the main ones:

• Weighted Pools

Weighted Pools are an extension of the classic AMM pools popularized by Uniswap v1 back in the day. They use Weighted Math, which makes them really useful for many situations, even when tokens don't have a direct relationship in price (like DAI and WETH).

The cool thing about Weighted Pools is that they allow users to create pools with more than just two tokens, and they can customize the weight of each token. For example, they can make a pool with 80% of one token and 20% of another, or even more complex combinations like 60% of one token, 20% of another, and 20% of a third token.

These Weighted Pools give users more control over their exposure to specific assets while still providing liquidity. If a token has a higher weight in the pool, it means it will be less affected by sudden price changes, which is a good thing if someone expects that token's value to go up.

• Composable Stable Pools

Composable Stable Pools are a special type of pool designed for specific types of assets. These pools are perfect for tokens that are expected to swap at or very close to the same value (near 1:1). They use Stable Math, which is based on a popular method called StableSwap, originally used by Curve. This Stable Math allows for large swaps without causing significant price changes, making it very efficient for swapping similar or related tokens.

Composable Stable Pools are ideal for two main types of tokens:

Pegged Tokens: These are tokens that swap at nearly 1:1 with each other, like two stablecoins of the same currency (for example, DAI, USDC, USDT) or synthetic assets (for example, renBTC, sBTC, WBTC).

Correlated Tokens: These tokens have a known and slowly changing exchange rate with each other. An example of this is the wstETH.

• Boosted Pools

Boosted Pools are special pools that help both those who want to trade (Swappers) and those who provide liquidity (LPs). Swappers get better rates with less impact on prices, and LPs can earn more rewards from their idle money in other protocols like Aave. This makes the pool more appealing to LPs, attracting more money and offering better rates to swappers. Boosted Pools are efficient, letting LPs use their money wisely, and they allow easy swaps between stablecoins and other tokens. It's a win-win situation for everyone involved!

• Managed Pools

Managed Pools offer remarkable flexibility within Balancer, making them a great choice for implementing advanced portfolio strategies and having precise control over assets.

With Managed Pools, users can create pools with up to 50 tokens, making them especially useful for fund managers who want to track a diverse range of cryptocurrencies. Additionally, these pools include a time-based weight-shifting feature.

In summary, Managed Pools empower users with enhanced control and a wide range of options for managing their assets. Kassandra Finance utilizes this technology to provide sophisticated portfolio strategies and fine-tuned control for improved DeFi management.

Who Uses Balancer?

Balancer is an incredibly useful tool for a diverse range of participants in the DeFi space.

• Swappers benefit from Balancer's ability to swap between any two ERC20 tokens. They can do this directly through the Balancer Dapp or use aggregators like 1inch, Matcha, or Paraswap for seamless swaps.

• Liquidity Providers (LPs) can add liquidity to pools, allowing them to earn swap fees, liquidity incentives, and other types of rewards.

• Passive LPs have the option to use boosted pools, which lets them earn additional rewards on top of the interest they already receive from compounding Aave tokens.

• Arbitrageurs can take advantage of Balancer's features like batch swaps and flash loans to make profitable trades against the pools.

Furthermore, a wide range of DeFi protocols also leverage Balancer's technology for various services, including Kassandra.

The BAL Token

BAL is the core token in the Balancer ecosystem. According to the founders, alignment between governance token holders and protocol stakeholders is crucial for successful decentralized governance, and BAL tokens are the vehicle to drive this alignment.

BAL holders must deposit their BAL tokens and WETH into an 80/20 BAL-WETH pool. By doing this, they get a special "B-80BAL-20WETH" token, which they can exchange for veBAL. This makes them eligible to vote on governance proposals and receive protocol fees.

Users can choose how long they want to lock their tokens, and this affects their voting power. The longer the tokens are locked, the more voting power they have.

Governance proposals are significant because they decide which pools get incentives through Liquidity Mining. This makes BAL Tokens very appealing to active Liquidity Providers. The Aura Finance protocol was created to boost rewards for depositors, thanks to this economic model of the Balancer protocol.

The idea of veBAL was inspired by Curve's veCRV, but with some differences. On Curve, users only need to deposit CRV tokens, while on Balancer, they need to deposit both BAL and WETH in a special pool. This ensures that there's always enough liquidity, even if many BAL tokens are locked.

Also, veBAL's maximum locking period is 1 year, shorter than veCRV's 4-year period. This allows for faster decision-making in case a new voting system is needed.

Tokenomics

The distribution of the 100M BAL Tokens is as follows:

• Community: 65 Million Tokens are available, with 47.5 Million reserved for emissions decided by veBAL Holders.
• Founders, Options, Advisors, Investors: 25M tokens were set aside for founders, options, advisors, and investors, all subject to vesting periods.
• Ecosystem Fund: 5M Tokens are allocated to incentivize the development of the Balancer ecosystem. veBAL Holders decide how this fund is used.
• Fundraising Fund: This is reserved for future funding rounds.

The Release Schedule is the following, according to Balancer’s Documents.

Final Thoughts

While not a pioneer, Balancer took inspiration from existing DeFi concepts and created innovative products that attracted many new users. As a result, they've gathered billions of dollars in liquidity since their launch.

If you're interested in investing in Balancer, there are several options available. You can buy it on centralized or decentralized exchanges, or you can also participate in Kassandra's managed pools by either creating your own or investing in existing ones.

Currently, you can get exposure to the BAL token through the Polygon Social Index, Polygon Ecosystem or community pools!