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Investing in Balancer (BAL) – everything you need to know

What is Balancer (BAL)?

Balancer is an Ethereum-based automatic market maker protocol and is based on the features of Uniswap. With over $2.51 billion is locked up By value, Balancer is the tenth largest player in the DeFi space. It integrates automatic market maker technology into liquidity pools, which consist of multiple pools with unequal weighting.

It all started in 2018 when Fernando Martinelli and Mike McDonald started a research project at Blockscience, a software consulting company. Recognizing the scope and viability of their research project, investors invested $3 million in Balancer Labs in 2020.

In return, investors received 5 million BAL tokens, while Balancer Labs shareholders and employees awarded 25 million tokens. The maximum supply of BAL tokens is capped at 100 million.

How does Balancer (BAL) work?

Balancer works like an index fund of the crypto space. Since there is no central authority controlling the protocol, smart contracts ensure that all pools retain an accurate share of the assets, regardless of the current prices of the tokens. Each pool on Balancer can consist of up to 8 cryptocurrencies.

Initially, many Balancer users compared its features to Uniswap, the pioneer of automated market maker technology and decentralized exchanges. But Balancer proved them wrong in many ways. For example, Uniswap only allows two cryptocurrencies in a pool. Balancer, on the other hand, allows up to 8 cryptocurrencies in one liquidity pool. Balancer also allows users to set individual trading fees.

There are two types of participants on Balancer: liquidity providers and traders. The liquidity traders provide the protocol with much-needed liquidity. In return, liquidity providers receive a share of the fees Balancer earns. You will also receive BAL tokens for providing liquidity. Liquidity providers can earn up to 145,000 BAL tokens every week, which is approximately 7.5 million BAL tokens per year.

Traders, on the other hand, can use any of the balancer pools to exchange cryptocurrencies. Traders have to pay a small fee to exchange cryptocurrencies.

There are three types of pools on Balancer. These pools are community pools, smart pools and private pools. The shared pools are free for anyone who wants to contribute liquidity. Smart pools, as the name suggests, are managed through smart contracts. Private pools are not open to everyone as the parameters of a private pool are set by the pool owner.

Initially, a balancer pool starts with a set ratio of tokens. Once a trader initiates a trade with the pools, it results in a rebalancing. It ensures that all tokens in the pool maintain a value that is proportional to the rest of the pool.

Let's assume a pool is 50% Ether, 25% USDC, and 25% BAT tokens. Now, if the price of Ether rises in the next few days, a rebalancing process will begin where a certain amount of Ether will be removed to maintain the correct ratio of assets in the pool.

What problem does Balancer (BAL) solve?

Index funds have been very popular since 1972. Anyone who wanted to use the services of index funds to rebalance their portfolio had to pay fees to the portfolio managers. Balancer behaves like an index fund, but in a completely different way.

With Balancer, traders pay you a fee to rebalance your portfolio. Why should they do it? Well, they do it to explore arbitrage opportunities. Can a protocol like Balancer survive without fees of any kind? Unfortunately not! Fees play a critical role as they help manage the costs associated with periodic rebalancing of funds. Whether the rebalancing is done by a bot or a portfolio manager, the fees keep the system running.

Any user who has Ethereum-based assets can use Balancer and earn fees from it. They can use all their Ethereum-based portfolios and deposit them in the balancer pools. Traders trade against the pools and pay fees for trading against them. Therefore, Balancer offers ERC-20 token holders the opportunity to leverage their idle Ethereum-based assets and earn income from them.

The BAL tokens

BAL tokens will play an essential role in the governance of the Balancer Protocol as they are their governance tokens. The Balancer team believes that they can make Balancer a truly decentralized platform with the BAL token.

The governance structure of the Balancer Protocol has not yet been finalized. However, it is very likely that it will be similar to the DeFi protocols that have a governance structure and governance tokens. Therefore, BAL token holders have all the power to participate in important decisions that will shape the future of Balancer and its community.

Among the crucial decisions that BAL token holders will vote on is which other blockchain platforms Balancer should opt for in the coming days. Another major decision that BAL token holders will likely vote on could likely be the introduction of protocol-level fees. More revenue means more income for BAL token holders.

The official document about BAL tokens describes the role of BAL tokens as follows:

“We believe BAL tokens are the vehicle to drive alignment and participation in the protocol. BAL tokens are not an investment; BAL token holders should be people who want to interact with the protocol in some way, are committed to its future development, and want a seat at the governance table.”

At the time of writing, there are such 6,943,831 BAL Token with a market cap of over $422 million. BAL is ranked 143rd in the list of the world's largest cryptocurrencies by market capitalization. The all-time low price of the BAL token is $7.88 and the highest price is $72.5.

How to buy Balancer (BAL)

Balancer (BAL) is available on the following exchanges:

Uphold – This is one of the top exchanges for Residents of the United States and the United Kingdom which offers a wide range of cryptocurrencies. Germany and the Netherlands are banned.

Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users and a quarterly trading volume of over $207 billion.

WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for Residents of India.

Adhere to the disclaimer: The General Terms and Conditions. Cryptoassets are very volatile. Your capital is at risk. Do not invest unless you are prepared to lose all the money invested. This is a high-risk investment and you should not expect to be protected if something goes wrong.

How to store Balancer (BAL)?

If you want to make a larger investment in Balancer (BAL) or plan to HODL this cryptocurrency for a long time, a hardware wallet is the best option. Hardware wallets store your cryptocurrencies offline in cold storage. This strategy makes it impossible for online threats to access your assets. Both the Ledger Nano S and the more advanced Ledger Nano X support Balance (BAL).

Balancer – A dominant name in the DeFi space

Riding the DeFi wave, Balancer has established itself as one of the key players in the DeFi space. Balancer has managed to reach the rank of the 10th largest DeFi protocol with over $2.5 billion in locked value, solidifying its position among the flag bearers of automated market maker protocols.

As the DeFi space grows and attracts more users, Balancer will also continue to expand its dominance. Users who see the benefits of its features will continue to rely on Balancer to earn fees and trade against its liquidity pools. Regardless of the competition Balancer faces, the future looks bright for Balancer and its community.

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