In an industry full of drama, Balancer has kept his cool.
The decentralized exchange community was content to grab Uniswap, Curve, and the volatile SushiSwap for headlines. There were times when Balancer seemed to disappear from the DeFi conversation altogether.
Over the last week, that began to change as Balancer’s unorthodox approach to the DEX model produced surprising results.
While Balancer’s TVL on the Ethereum mainnet has remained steady at $1.1 billion, the amount of assets in its Polygon deployment has grown nearly 55% year-to-date to $139.5 million, according to a Dune dashboard Analytics. Meanwhile, BAL, its governance token, is up 4.5% in February, compared to a 0.2% gain for Uniswap.
Cast a glow
So what’s going on? For starters, Aura Finance, a revenue-generating protocol integrated with Balancer, is casting a glow on the placid decentralized exchange (DEX). Deposits into Aura’s smart contracts are up 23% over the past 30 days, and the protocol now has $540 million in TVL, making it one of the top 20 DeFi projects.
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Aura, a nine-month-old protocol designed to maximize returns for users in the balancer ecosystem, is also poised to raise $66 million in funding from a flagship of the short-lived “DeFi 2.0” movement – OlympusDAO – to receive. It has developed a mechanism called “bonding” to acquire liquidity for its own OHM tokens.
Aura’s performance shows the strength of a move Balancer took nearly a year ago to transition its token model. Last March, DEX introduced a new feature that allows users to lock a liquidity token representing 80% BAL and 20% ETH in exchange for a coin called veBAL.
Right now I think it’s LSD season and they’ve positioned themselves really well to be at the top.
OxSami
Meanwhile, Balancer moves in the red-hot staking derivatives market: At $69.5 million, Balancer has the highest liquidity of any DEX for rETH, Ethereum’s third-largest staking derivative, according to DeFi Llama.
And at $250 million, Balancer also has the second-deepest pool for stETH, which is by far the largest LSD at over 75% market share, according to a Dune Analytics query.
“Right now is LSD season in my opinion and they have positioned themselves really well to be at the forefront,” said 0xSami, the pseudonymous founder of Redacted, the project that developed Hidden Hand and is involved in DeFi’s Real Yield. area is involved, opposite The defiant.
product design
Balancer’s story shows how product design can attract DeFi investors looking for new revenue streams.
For example, the veBAL token offers users three options – increased returns on their liquidity positions on balancers, a share of the fees charged to traders, and a vote on which liquidity pools receive new BAL.
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Balancer’s liquidity pools also offer certain customization options that Curve and other DEXs do not offer. These offerings include Boosted Pools, which deposit unused tokens from liquidity providers into revenue-generating protocols like Aave, the lending platform. Balancer also offers weighted pools, allowing for liquidity configurations outside of the normal 50-50 for assets on DEXs like Uniswap.
“What makes Balancer Pools unique from those of other protocols is their limitless flexibility,” reads an introduction prepared by Balancer Labs, the key company behind the protocol. “Balancer pools with high token counts are similar to traditional index funds and allow users broad exposure to the crypto market.”
In true DeFi fashion, Balance’s ecosystem has continued to attract integrations beyond Aura – Hidden Hand, a marketplace that allows protocols to offer token rewards, loosely referred to as “bribes,” to users who choose to participate in one vote in a certain way.
In the case of Balancer, protocols use Hidden Hand to encourage users to vote for direct issuance of DEX’s BAL tokens. Both Aura and Balancers accept bribes from protocols that aim to encourage vlAURA and veBAL owners to vote to direct BAL rewards to specific pools.
Incidental pools
And this is where Balancer may have really found its advantage – the LSD space, a crypto sub-sector with tokens representing staked assets, has grown strongly this year as staking has become a vibrant new business in DeFi.
Balancer rode the wave. Some of the pools with the most votes for DEX and Aura are for pools pairing an LSD with its vanilla ETH counterpart.
In fact, in the current round of Hidden Hand, the rETH ETH pool has received the second-highest incentives for vlAURA holders to get them to forward BAL rewards to the pool. These incentives come from Rocket Pool, the project behind rETH, which offers vlAURA holders incentives with its RPL tokens.
deep liquidity
Again, it’s complicated, but the result was high liquidity and also increasing volume for the rETH-ETH pool on Balancer. Aura reported a 600% increase in 30-day rolling volume for the pool since January 24th. Thanks to Rocket Pool’s incentives, the pool’s TVL also grew 407% over that period.
So how did Balancer get to the top of LSDs here, potentially the hottest sub-sector of DeFi?
In 2018, the project was launched by Block Science, an engineering and research company. Balancer Labs, co-founded by entrepreneurs Fernando Martinelli and Mike McDonald, raised $3 million in a seed round in early 2020.
When it launched its V2 in April 2021, the protocol boasted $2.6 billion in TVL, and during the bull market the market value of its governance token BAL reached $780 million.
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A little-known development was a plan called Balancer Improvement Proposal 19 (BIP-19), which was passed in 2022, 0xSami said.
Solarcurve, the pseudonymous author of BIP-19, told The Defiant that the proposal gave a significant boost to using fees earned from pools to bribe those pools to attract more liquidity in the future. “This allows emissions to naturally flow into pools that generate strong revenue,” Solarcurve said.
BAL emissions
The pseudonymous Balancer contributor added that DEX is poised to become the largest exchange on Polygon in terms of TVL.
BIP-19 didn’t fully solve the problem of BAL issuance being voted on pools that were ultimately unhelpful to balancers – the protocol eventually bucked a large veBAL holder forwarding BAL rewards to unhelpful pools (and the reaping rewards). as liquidity provider), in December.
With the rise of LSDs and the Balancer ecosystem appearing poised to become the de facto place to trade and provide liquidity for these tokens, the DEX may finally be poised for the limelight.
Clarification: After the DeFi Llama team tweeted that their balancer TVL number was wrong, the sentence was replaced with a report of data from Dune Analytics.
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