Balancer is an AMM (automated market making) protocol similar to Uniswap that allows for the creation of flexible pools of liquidity that constantly adjust themselves. These pools of liquidity can contain multiple tokens with different weights, as well as customizable transaction fees. A Balancer pool can be thought of as an index fund in which liquidity providers are paid without having to pay maintenance fees, as in traditional finance.
Balancer has many differences compared to Uniswap which is completely decentralized. The first is that a liquidity pool can support up to eight currencies, while Uniswap can only support two. Secondly, each currency can be weighted so that there is no need to ensure that each currency in the pool has the same dollar value as Uniswap, which is convenient for market makers. But it also leads to the difference in the rate of change of price in the two directions of buying and selling. Finally, unlike Uniswap, which is completely decentralized, the creator of the Balancer liquidity pool has the authority to modify the transaction fees (0.0001%-10%), but in terms of income, all liquidity providers are the same.
Two types of pools can be created, public and private. Public pools have fixed weights and fees that allow anyone to put assets into the pool, while private pools allow creators to change parameters and cannot accept outside funding. Balancer also allows pools to be owned by smart contracts, allowing more sophisticated logic to dynamically adjust weights and fees.
Because of these flexible parameters, Balancer has a typical pool template, Can benefit both traders and token holders. Some examples of the types of pools that dynamic balancer pools might use include:
- Liquidity pools that increase liquidity and bet participation.
Community-managed pools, such as the one in PieDAO, whose USD++ pool is regularly reweighted to support staboin with low volatility.
A rollover pool that converts maturing assets (such as bonds) into permanent tokens.
- Can be programmed to replicate pools of financial derivatives. For example, users can hold LP shares that yield close to options.
< LI > Liquidity channeling pools enable teams to build early liquidity with very little initial capital while gradually reducing slippage and risk. This can be used for primary asset issuance or, if asset markets already exist, to enhance liquidity in secondary markets.
Surge pricing pools that increase fees during periods of high liquidity demand, such as Black Thursday. This has attracted more liquidity to surge pools, which are more profitable than fixed-fee pools. This, in turn, allows better trading at a lower slip point because there is now more liquidity available.
- Elastic supply pool to minimize non-permanent losses in elastic supply tokens such as Ampleforth. Intelligent Order Routing, Multipath Order Routing An important feature of Balancer is its Intelligent Order Routing (SOR) system, which is an off-chain mechanism for providing optimal price execution across various liquidity pools. It surveys the entire landscape of the pool and routes orders so that users get the maximum number of receive tokens. SOR calculates ethereum gas fees because higher fees make procurement from more mining pools more expensive.