If you are somewhat familiar with the world of cryptocurrencies, you know there are two main types of crypto exchanges: centralized (CEX) and decentralized (DEX). Considering the fundamental principles of the crypto world, which include anonymity and lack of a regulator, most experienced crypto-enthusiasts prefer to work with DEX.
Another area for improvement is that such exchanges have several inconvenient moments, unlike CEX, starting from fees for each interaction with smart contracts and ending with problems with the availability of liquidity for specific trading pairs.
Today we will talk about Balancer DAO, a decentralized autonomous organization that offers its version of decentralized exchanges and liquidity mechanisms based on automated market maker models.
In this article, we will dive into the history of Balancer DAO creation and get acquainted with its key features and advantages against other DEXs.
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Balancer DAO project primary info
|Official social networks
|Twitter, Discord, Github, Medium
|Where token is traded
|Almost all CEX and DEX
Before we start the story about the creation of Balancer DAO, it’s worth understanding (or reminding someone who already knows it) what it is.
DAO is an acronym for Decentralized Autonomous Organization, which community members manage based on transparent rules and mechanisms written in a blockchain.
The Balancer is a platform (DEX) for automatically exchanging cryptocurrencies on the Ethereum blockchain. It operates based on smart contracts and allows users to exchange their tokens without intermediaries and earn money by providing liquidity.
Together, these two concepts form Balancer DAO, a decentralized organization that manages and develops the Balancer platform for the benefit of the community.
History of the creation of Balancer DAO
The history of Balancer DAO began in 2018 when a development team led by Fernando Martinelli and Mike McDonald began exploring the possibility of creating a new type of decentralized exchange that could address the shortcomings of existing liquidity delivery solutions that Uniswap had at the time.
The main problem they wanted to solve was the inefficient use of capital in traditional liquidity systems, where users had to block equal amounts of two tokens to provide an exchange.
The idea was to create a system where crypto-enthusiasts could provide liquidity more flexibly and efficiently and be rewarded for their investments.
In 2019, the team introduced the first version of the Balancer V1 protocol, which allowed users to create their liquidity pools with an arbitrary set of tokens and their weights. This allowed market participants more flexibility in managing their assets and optimizing their investments.
Since then, Balancer DAO has been actively developing and attracting more and more attention from the community thanks to its solutions and transparency. In 2020, the team successfully distributed its management token BAL, which allows holders to participate in the platform’s management and make decisions about its development.
As of this writing, the total capitalization of the project exceeds half a billion dollars, and the native BAL token is traded on almost all centralized and decentralized exchanges.
Investors and features of the project
To understand in more detail what Balancer is and how it works, we need to understand the key features that make it stand out from its nearest decentralized competitors in the form of Uniswap and Curve.
Key features of Balancer
- Flexibility of liquidity pools. Unlike traditional centralized systems, Balancer allows users to create pools with any set of tokens and their weights, which enables optimizing capital usage and risk management;
- Automatic portfolio management. Balancer allows users to manage their token portfolio through an automatic rebalancing mechanism that maintains certain proportions of tokens in the pool;
- Earnings from providing liquidity. Users who provide liquidity in Balancer pools are rewarded with exchange fees (in BAL tokens);
- Participation in the platform’s management. BAL token holders can participate in managing Balancer DAO by voting on proposals to improve and develop the platform;
- Security and reliability. Balancer runs on the Ethereum blockchain and uses smart contracts, which ensures the platform’s security and reliability and protects users’ funds from fraud and hacking;
- Integration with other projects. Balancer actively cooperates with other DeFi projects, allowing users to easily interact with different platforms and use Balancer’s capabilities with other services.
The Balancer is an AMM (automated market maker) that can independently influence the price of an asset in its ecosystem instead of using the classic system of getting a price based on the volume of supply and demand.
Simply put, Balancer estimates the value of a digital asset by comparing its availability in different liquidity pools. And the price changes at the moment when the amount of an asset in the pool either decreases or increases.
As for the project investors, a diverse group of companies, funds, and individuals have invested their money and believe in the development of Balancer DAO. Among them, we can mention such major market players as Placeholder, Pantera Capital, CoinFund, and others.
Balancer DAO native token – BAL
One of the critical elements of the Balancer DAO ecosystem is the BAL token, which plays an important role in managing the platform and rewarding users.
The total number of BAL tokens is 100 million. This fixed number will stay the same after the issuance, which began in 2020 and continues until now (until all 100 million tokens have been distributed).
Of the total BALs, 65% are intended to be distributed to users and investors through liquidity rewards, grants, affiliate programs, and other mechanisms. The remaining 35% of tokens are distributed to the development team, investors, and consultants.
Pros and cons of Balancer DAO
- Flexibility of liquidity pools. Balancer enables users to create pools with an arbitrary set of tokens and their weights, optimizing capital usage and risk management;
- Automatic portfolio management. Balancer provides an automatic rebalancing mechanism that maintains specific proportions of tokens in the pool;
- Earnings from providing liquidity. Users can receive rewards in exchange fees and additional tokens (e.g. BAL);
- Participation in the platform’s management. The BAL token holders can participate in managing Balancer DAO by voting on suggestions for improvement and development;
- Integration with other projects. Balancer actively collaborates with other DeFi projects, enhancing the user experience and strengthening its position in the market.
- Difficulty for newcomers. The Balancer can be difficult to understand and use for newcomers to cryptocurrency and DeFi;
- Market competition. Balancer faces competition from other popular DeFi platforms, such as Uniswap and SushiSwap, making it difficult to grow and attract users;
- Risks of smart contracts. Despite the use of smart contracts for security, there is a risk of code bugs or exploitation of vulnerabilities that could lead to loss of user funds.
Balancer DAO is one of the most exciting and promising DeFi projects, which offers many unique features and benefits to users and investors.
Beginning crypto-enthusiasts view this project as an opportunity to learn how decentralized finance works and participate in the platform’s management. Why? Because technically, it looks much easier to understand than its nearest competitors (Uniswap and Curve).
As a reminder, this article is not a recommendation to act and buy digital assets but only a call to take a closer look at this decentralized autonomous organization and do your analysis (DYOR) before investing your money in it.