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What is Balancer?

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Balancer Protocol Overview

Balancer is an automated portfolio manager, liquidity provider, and price sensor. It is a non-custodial, Ethereum-based automated market maker (AMM) that enables anyone to create or add liquidity to fully programmable, customizable pools and earn trading fees or swap assets.

Balancer turns the concept of an index fund on its head. Instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who rebalance your portfolio by following arbitrage opportunities.

What is BAL?

BAL, the native governance token of the Balancer, is rewarded to liquidity providers across Balancer and is used, quite actively, to govern every aspect of the Balancer protocol. Balancer Governance is the heart and brain of Balancer Protocol. Anyone who holds a BAL token becomes part of the Balancer Governance. The more tokens you have, the stronger your voice is. Governance makes decisions about new features, the direction in which the Balancer Protocol should go, and looks over the Balancer Community. Governance is the ultimate decision-body for the Balancer Protocol, and no one can override the Governance’s vote result.

The main responsibilities of Balancer Governance are voting on new proposals regarding changes to the Balancer community and deciding on whether/how the protocol fees will be used.

Balancer AMM curve and pricing

Balancer is based on an N-dimensional invariant surface, which is a generalization of the constant product formula described by Vitalik Buterin and proven viable by the popular Uniswap dapp.

Many existing AMMs, such as Uniswap, use a constant product (x*y=k) formula for pricing. Balancer generalizes this using a constant mean formula, enabling any number of fully customizable pools:

Balancer_Weighted_Geometric_Mean.png

Visualization of the Balancer Curve
Visualization of the Balancer Curve

Telcoin and Balancer

Telcoin first began building on Balancer in Q3 of 2020, which included a liquidity mining pilot program on the TEL/ETH Balancer V1 80:20 pool, lasting a total of eight months. Learn more about Balancer V1 and Telcoin here and the Telcoin Liquidity Mining program here.

As a company focused on building user-owned exchange products, Telcoin’s design space massively expands with Balancer, which enables us to develop and experiment with any infinite number of pool designs and to continuously improve them in order to meet and exceed the design objectives of TELx and Telcoin’s products.

We aim to align the incentives between participants on the Telcoin platform and the Balancer protocol, merging infrastructure with application, on a collective mission to bring fast and affordable, user-owned financial products to every mobile phone user in the world.

Why Balancer?

  • Programmable: Pools can be coded for an unlimited number of use cases.
  • Customizable: Pool token weights, asset composition, and trading fees can be customized by the pool creator. This leads to a number of benefits including:
    • Impermanent Loss Reduction: Whereas a 50/50 pool will have an impermanent loss of 25 percent if one of the underlying pool assets 5x’s in value, a Balancer 80/20 will capture 83.86% percent of the upside of the move (not including liquidity mining rewards or trading fees). On the flip side, a 50/50 pool with the same liquidity and trading fees will also have less slippage than a 80/20 pool.

Balancer_Impermanent_Loss_Curve.png
Balancer Impermanent Loss Reduction Curve

  • Aggregation: By introducing more than one pool for each supported asset on TELx, Telcoin user trades can aggregate across multiple sources, achieving best execution. Balancer’s front end uses a Smart Order Router (SOR) to find optimal trades, enabling efficient price discovery and balanced markets.
  • Permissionless: Anyone with an internet connection can access Balancer, thus boosting financial inclusion - one of Telcoin’s core missions.
  • Efficient: Balancer is a self-sustaining asset manager and decentralized exchange powered by code, not humans/middlemen. This also means there are no listing fees.
  • Automated: Unlike traditional orderbook exchanges, market making, trade execution, clearing and settlement, and trading fee distribution on Balancer is automated on chain. Balancer does all of the work for you.
  • Self-custodial: There is no need to trust a centralized third-party to custody funds or validate transactions - you keep control of your assets. This significantly reduces counter-party risk and enables fluid on chain transaction utility without relying on any financial intermediaries.
  • Composable: Balancer can be combined with different protocols and applications to create new financial products and services. Balancer will serve as a key infrastructure layer of the Telcoin platform.
  • User-owned: Suppliers (Liquidity Providers or LPs) earn the native governance token of Balancer, BAL, for providing liquidity to the platform, and directly vote on protocol updates, changes, and initiatives to improve it.
  • Open Source: Anyone can develop on or modify the code.
  • Transparent: Ethereum is completely transparent and auditable.

Balancer V1 Features

Balancer V1 launched in Feb. 2020 with the following products and features:

  • Public Pools (Trustless): The pool’s tokens, weights, and fees are permanently set and the pool creator has no special privileges. Anyone can add liquidity to public pools and ownership of the pool’s liquidity is tracked with a special token called BPT- Balancer Pool Token.
  • Private Pools(Trusted): Only the creator can contribute liquidity and has full permissions to update the parameters of the pool.
  • Smart Pools: Balancer Smart Pools enable a new world for Balancer Pool Construction. Instead of having fixed pool parameters, we now have variable parameters. The 6 variables are:
    • Change Tokens
    • Change Weights
    • Change Swap Fee
    • Limit LPs
    • Limit Max Deposited Value
    • Start/Stop Trading
  • Governance: The Governance is the ultimate decision-body for Balancer Protocol, no one can override the Governance’s vote result. The main responsibilities of Balancer Governance are voting on new proposals on changes to the Balancer community and deciding on whether/how the protocol fees will be used.
  • Liquidity Mining: 125,000 BAL a week is distributed as protocol rewards by BAL governors.

Balancer V2 New Features

Balancer V1 on its own opened enough of a design space to enable Telcoin to massively reshape the global exchange product landscape. Balancer V2 launched recently with a variety of updates and new features which improve the Telcoin platform even more.

  • Protocol Vault for all Balancer pool assets
  • User Balances (like a personal "wallet" inside the Vault)
  • Improved gas efficiency
  • Flash Loans
  • Flash Swaps (arbitrage trading with no initial investment)
  • Custom AMM formulas
  • Capital efficiency through Asset Managers
  • Low-gas-cost and resilient oracles
  • Community-governed protocol fees (currently 0, but could be turned on at some point)

TELx Balancer Live Pool Designs

Over time, Telcoin will experiment with the design and implementation of a wide variety of different pools in order to continuously improve existing products and enable new ones for participants on the Telcoin platform. We introduce the following first set of TELx pool types on Balancer:

  • TELxchange Balancer Pool 1
  • Bullish TEL SMS Network Pool
  • TEL/x Pool

TELxchange Balancer Pool 1

Specifications

  • Pool Type: Oracle Weighted
  • Pool Weights: 60% Reserve Asset/20% Trading Token/20% Stablecoin
  • Live Example: 60% TEL/20% ETH/20% USDC
  • Fees: 0.20%* dynamically adjusted

Benefits

  • Efficiency: One-hop trading from the user's bank to TELxchange assets.
  • Liquidity: TEL benefits from demand of the underlying pool assets without having to be sold to purchase ecosystem assets.
  • Dynamic Fees: Can be adjusted based on governance and market conditions.
  • Bullish TEL: TEL is 60/40 in the pool, meaning TEL holders can gain exposure from the demand for underlying assets - while maintaining a bullish trade stance on TEL versus other assets.

Bullish TEL SMS Network Pool

Specifications

  • Pool Type: Oracle Weighted
  • Pool Weights: 80% Reserve Asset/20% Stablecoin
  • Fees: 0.20%* dynamically adjusted

Benefits

  • Impermanent Loss Reduction: Whereas a 50/50 pool will have an impermanent loss of 25 percent if one of the underlying pool assets 5x’s in value, a Balancer 80/20 will capture 83.86 percent of the upside of the move (not including liquidity mining rewards or trading fees). On the flip side, a 50/50 pool with the same liquidity and trading fees will also have less slippage than a 80/20 pool.
  • Dynamic Fees: Can be adjusted based on governance and market conditions.
  • Bullish TEL: TELx miners can maintain a bullish TEL stance versus stablecoins while gaining exposure from SMS Network and TELxchange usage.

According to the following excerpt from the

Balancer Protocol developer team, 80/20 pools are dubbed the “Golden Standard” for providing an optimal strategy for capturing token price appreciation, trading fees/liquidity mining incentives, and token market/ecosystem growth:

Aligned Incentives

Providing liquidity to a pool that is unevenly split 80/20 more accurately expresses bullish conviction in a newly-launched token - it is closer to mirroring classic holding but also carries LP benefits.

From the community’s perspective, investing part of their $TKN into an 80/20 pool can be seen as an optimal investment strategy, since they would benefit from all three things:

  1. Token price appreciation
  2. Trading fees/liquidity mining incentives
  3. Token market/ecosystem growth

As a TKN holder, providing liquidity with part of one’s $TKN assets can be seen as a hedge against both prolonged price stagnation periods and price drops.*

Balancer_Impermanent_Loss_Curve.png

In the scenario of stagnating price, holders “benefit from passive pool income, and in the massive price drop scenario — they stand to (impermanently) lose a bit less compared to a 50/50 pool. Because of this, pure holders don’t perform that much better than 80/20 LPs — especially during bear markets.*

Additionally, simply holding is not constructive to the project’s longevity as it equates to refraining from helping to build a liquid market for the token. Holding is a sort of standoff event, where the token’s total liquidity is impaired by a lack of liquidity provision.*

Low liquidity leads to stagnation of trading activity and token value, as investors and contributors are less interested in participating. The opposite — active LPing by a large number of community members — stands to spin up a positive network effect which leads to greater aggregate liquidity and therefore market growth.”

holder was originally HODLer, a colloquial term crypto-natives use to describe investors-at-any-price

Source: Liquidity After Bootstrapping The 80/20 standard for incentivizing continuous token liquidity by Balancer Labs

TEL/x Pool

Specifications

  • Pool Type: Oracle Weighted
  • Pool Weights: 50% Reserve Asset/50% TELx Protocol Token
  • Live Example: 50% TEL/50% BAL
  • Fees: 0.20%* Dynamic

Benefits

  • Dynamic Fees: Can be adjusted based on governance, market conditions, product usage.
  • Aligned Incentives: Equal pool weights between TEL/BAL leads to aligned incentives between Telcoin users and BAL users and seamless, fluid exchange and movement between the Telcoin platform and Balancer. The design space for Telcoin/x LP Tokens, where x equals the native protocol’s token, or TEL/x,opens up various opportunities for marketplace incentives alignment and governance which we are excited to continue exploring.

Learn More

See the following links to learn more about Balancer:

Main links

BAL token

Socials and community