How to invest in Balancer (BAL)
What is Balancer (BAL)?
Balancer is an Ethereum-based automatic market maker protocol, and it is built on Uniswap’s features. With over $2.51 billion in locked-in value, Balancer is the tenth-largest player in the DeFi space. It Incorporates automatic market maker technology in liquidity pools, which consist of several pools of unequal weightage.
It all began in 2018 when Fernando Martinelli and Mike McDonald started a research project at Blockscience, a software consulting firm. Sensing the scope and viability of their research project, investors poured in $3 million in Balancer Labs in 2020.
In return, investors received 5 million BAL tokens, whereas shareholders and employees of Balancer Labs 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. As there is no central body controlling the protocol, smart contracts ensure that all the pools, regardless of the current prices of the tokens, retain an accurate proportion of assets. Each pool on Balancer can consist of up to 8 cryptocurrencies.
Initially, many Balancer users compared its features with Uniswap, the pioneer of automatic market maker technology and decentralized exchanges. But Balancer proved them wrong on many fronts. For instance, Uniswap only allows two cryptocurrencies in a pool. Balancer, on the other hand, allows up to 8 cryptocurrencies in a liquidity pool. With Balancer, users are also free to set custom trading fees.
There are two types of participants in Balancer: Liquidity providers and Traders. The liquidity traders provide the much-needed liquidity to the protocol. In return, the liquidity providers receive a share of fees that Balancer earns. They will also receive BAL tokens for providing liquidity. Liquidity providers can earn up to 145,000 BAL tokens every week, which is around 7.5 million BAL tokens in a year.
Traders, on the other hand, can leverage any of the Balancer pools to swap cryptocurrencies. To swap cryptocurrencies, the traders have to pay a small amount of fees.
There are three types of pools on Balancer. These pools are shared pools, smart pools, and private pools. The shared pools are free for anyone who wishes to contribute liquidity to it. Smart pools, as the name dictates, are managed by smart contracts. Private pools are not open to everyone as the parameters of a private pool are set by the owner of the pool.
In the beginning, a Balancer pool starts at a set ratio of tokens. Once a trader initiates a trade with the pools, it leads to rebalancing. It ensures that all the tokens within the pool maintain a value proportionate to the rest of the pool.
Let us assume that a pool consists of 50% Ether, 25% USDC, and 25% of BAT tokens. Now, if the prices of Ether increase within the next few days, a rebalancing process will begin where some amount of Ether will be removed to maintain the correct ratio of the assets in the pool.
What Problem Does Balancer (BAL) Solve?
Index funds have been popular since 1972. Anyone who wants to avail the services of index funds for rebalancing their portfolio had to pay fees to the portfolio managers. Balancer acts like an index fund but in a totally different manner.
In Balancer, the traders pay a fee to you for rebalancing your portfolio. Why would they do it? Well, they do it to explore arbitrage opportunities. Can a protocol like Balancer survive without fees of any sort? Unfortunately not! The fees play a crucial role as it helps manage the costs associated with a regular rebalancing of funds. Regardless of rebalancing being done by a bot or a portfolio manager, fees keep the system running.
Any user that holds Ethereum-based assets can leverage Balancer and earn fees on it. They can use all of their Ethereum-based portfolios and deposit them in the Balancer pools. Traders will trade against the pools and pay fees for trading against them. So, Balancer provides an opportunity to ERC-20 token holders to utilize their idle Ethereum-based assets and generate an income on them.
The BAL Tokens
BAL tokens will play an integral role in the governance of the Balancer Protocol as it is their governance token. The Balancer team believes that with the BAL token, they can make Balancer a truly decentralized platform.
The governance structure of the Balancer Protocol has not been finalized yet. But it is very likely to be similar to the DeFi protocols that have a governance structure in place along with governance tokens. Hence, BAL token holders will have all the powers to participate in important decisions that will shape the future of Balancer and its community.
Some of the crucial decisions that the BAL token holders will vote on consist of what other blockchain platforms Balancer should opt for in the coming days. Another crucial decision that the BAL token holders will vote on can likely be on introducing fees at the protocol level. More revenue means more income for BAL token holders.
Describing the role of BAL tokens, the official document about the BAL tokens mentions:
“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 that interface with the protocol in some way, are committed to its future development, and want a seat at the governance table.”
At the timing of writing, there are 6,943,831 BAL tokens with a market cap of over million. BAL holds the 143rd rank in the list of largest cryptocurrencies by market cap globally. The all-time low price of the BAL token is $7.88, and the time the high price is $72.5.
How to Buy Balancer (BAL)
Balancer (BAL) is available on the following exchanges:
Binance – Best for Australia, Canada, Singapore, UK and most of the world. USA residents are prohibited from purchase BAL here. Use Discount Code: EE59L0QP for 10% cashback off all trading fees.
Kraken is the best option for USA residents.
How to Store Balancer (BAL)
If you seek to make a major investment in Balancer (BAL) or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Balance (BAL).
Balancer – A Dominant Name in DeFi Space
Riding the DeFi wave, Balancer has established itself as one of the key players in the DeFi space. Having managed to achieve the rank of the 10th largest DeFi protocol with over $2.5 billion in locked-in value, Balancer has cemented its position among the flag-bearers of automatic market maker protocols.
As the DeFi space grows and attracts more users to its fold, Balancer, too, will continue to increase its dominance. Users realizing 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.