Balancer is an ethereum-based automated market maker, decentralized exchange and liquidity pool protocol.

The Balancer protocol will serve as a powerful infrastructure in the Ethereum ecosystem, especially in DeFi.

With index funds, investors rely heavily on different portfolio strategies to hedge risk and diversify. Index funds guarantee continuous and controlled exposure to a portfolio. If one of its assets underperforms or underperforms, it is sold or purchased to maintain its share of value in the total portfolio. In traditional financial systems as well as blockchain environments, index funds and other types of portfolios charge investors fees to manage and hold their money, which are necessary to cover the costs of active index funds. And many of the centralized solutions used for portfolio management and index fund investing involve a degree of custodial risk. In a decentralized financial system, it is possible to implement unmanaged portfolio schemes and require that any transaction maintain a certain percentage of the value of each asset in the portfolio.

The Balancer protocol is an N-dimensional automated market maker consisting of an automated portfolio manager, a liquidity service provider, and a price sensor. A Balancer protocol is a contract that can hold several different tokens, each with its own defined share (token weight) of the total value in the pool. Associated mathematical properties and a combination of incentives and arbitragers, the equalizer pool will always maintain the same value ratio for each token, even if their relative prices change. This will fulfill Balancer's role as a self-balancing portfolio management tool. Users can take advantage of various arbitrage opportunities (based on price fluctuations) on the protocol to automatically rebalance their portfolios, resulting in extremely high investment returns. In Balancer's design, market makers and liquidity providers can create a pool of trading funds that supports a high degree of customization to achieve: fee customization: pools with lower or higher trading fees (trading pairs); Asset matching customization: The assets in the capital pool can be added with liquidity in any proportion. Support multiple assets: up to 8 assets can be added to a capital pool; Index fund: A multi-asset pool that functions as an index fund and allows users to invest passively.

Balancer has two types of "liquidity pools", namely "public pools" and "private pools". The assets in the "private pool" are owned by only one address, and the user with that address has full control over transaction fees, portfolio weights, value, and so on. Assets in a "public pool" are distributed across multiple addresses, but contributing users still cannot change parameters (such as transaction fees, weights, etc.), they can only provide liquidity to the protocol. In a "private pool", as long as a transaction is made with the pool and a transaction fee is incurred, all profits go to the liquidity pool owner; In a "public pool," each contributor earns transaction fees for transactions with the pool, and the percentage of transaction fees earned by contributors of different assets is related to their share of liquidity in the pool. Balancer's flow pool can have multiple tokens or just two. In creating pools of liquidity to relevant tokens, share of the assets (weight), provided by the liquidity provider to the flow cell tokens pair, a constant product of AMM will make the amount of injection and extraction tokens decision tokens, price changes, when the price of a pool with other differences between the market price, arbitrageurs to enter back to equilibrium price, This arbitrage process is also a process of liquidity injection. Balancer supports trading of multiple tokens in the same pool as well as automated portfolio management. In Balancer's AMM model, the proportion of asset value in its liquidity pool is constant, meaning that the proportion of token value in each liquidity pool is constant regardless of the transaction. As trades progress and arbitragarists get involved, the resulting portfolio is rebalanced in proportion to its set value and in line with the spot value.

BAL is used to manage tokens, liquidity awards, and issuance awards.

Balancer's multi-asset trade constant product market-making model, upgrading the AMM model used by Uniswap et al. Assume that in a pool of two tokens, the rule governing this pool is that the product of the balance of the two tokens must remain constant. If X represents the first token balance at some point in time and Y represents the second token balance at the same point in time, we need to ensure that X * Y = K, where K is always a constant at all points in time. If the price of the first token falls, since the number of coins in this era remains unchanged, the token price (unit value) decreases. At this time, the balance X drops first, and the product effect of X * Y will move below constant K. When this state is entered, the automatic market maker will exchange a certain number of "first tokens" for "second tokens" until the X and Y values have reached the desired ratio again, that is, their product is the value of K. A Balancer pool can have more than two crypto assets. The formula V = ∏ BtWt is used to measure the balance in a given pool. This equation is the product of the balance of all tokens in the same pool, and the balance of each token in the pool has a proportional weight (it can be customized at creation time).

Balancer's role as an AMM automated market maker features custom pool rate Settings, multiple asset trades within a single pool, and the ability to set asset ratios within the same pool. Based on the joint curve AMM model, the number of assets in the same pool is increased to realize the N-dimensional automatic market maker, that is, transactions between multiple ERC-20 tokens can be realized in the same capital pool.

The Balancer agreement issues [liquidity token] as an accounting document to record the amount of funds invested by each liquidity provider. After the user provides the corresponding liquidity for a Balancer pool, Balancer will calculate the user's contribution based on the number of invested assets, combined with the corresponding [joint surface] function, and issue the corresponding [liquidity token] as a certificate. If, after a certain period of time, nothing has changed in the pool, the user can exchange the previous liquid tokens back into the same assets. But if the pool collects more transaction fees in the meantime, users can exchange their previously liquid tokens for the same assets plus their share of the trading proceeds.

Many existing AMMs use the constant product (x * y = k) formula. Balancer generalizes this using the constant mean V = ∏ BtWt formula, which allows for more than 2 assets and weights other than 50/50.

The AMM concept, initiated by Uniswap and Bancor, has always been tied to a spot trading scenario. Balancer is the first tool to broaden the AMM scenario, demonstrating that AMM can be used not only for ordinary spot trading, but also as an index fund management platform for managing large-scale passive investment funds in a decentralized manner. Balancer has opened the door for AMM application scenarios.

AMM model free loss risk, capital pool slip point, smart contract vulnerability, flash loan attack risk, etc.

Starting from the AMM model based on Unisawp, Balancer has built a constant market making model of multi-asset liquidity pool and enabled token weighting mechanism in the liquidity pool, which has transformed DEX trading from spot trading to portfolio/index fund level, which can greatly improve asset utilization efficiency. The [Joint Surface] formula was established to issue liquidity tokens, and the token distribution mechanism of "liquidity mining" was formally proposed to encourage early liquidity providers to enter into the agreement, thus forming the cold start-up mode of the project. Taken together, Balancer is a strong competitor to Uniswap and the head of the AMM automated market maker space. Except for the risk of market-making model change in DEX, other risks have been effectively avoided at present (smart contract vulnerability, flash loan attack, etc.).

The current market liquidity source is mainly in Balancer liquidity mining release (145,000 BAL per week), except mining profit, market valuation is not clear, Balancer has not launched a destruction or buyback program; Officials are trying to use BAL as a decentralized governance tool, but it will take time for communities to decentralize and token-holders to grow. Currently 25 million BAL are in the hands of the team and founders (22.5 million have been released in 3 years), with some risk of selling.