Balancer is one of the most popular decentralized exchanges based on the Ethereum blockchain. Balancer is an automated market maker ( AMM ) that allows users to instantly trade tokens and earn fees by providing liquidity to various pools.
Balancer is a much more flexible AMM compared to other protocols like Uniswap. It allows liquidity providers to create pools with more than two tokens, set different weights for each token, and charge a trading fee between 0.0001% and 10%.
Balancer vs Uniswap
In Uniswap, liquidity pools consist of two equal-weighted tokens. But, on Balancer, a liquidity provider can set up a pool containing up to 8 tokens, each with different weights. Some of the Balancer and Uniswap pools are as follows:
- 50% WEIGHT 50% USDC
- 50% WETH 50% WBTC
- 50% BAL 34% WBTC 16% WET
- 60% MKR 40% WET
- 50% WBTC 50% WET
When you provide liquidity to a pool on Uniswap, you must provide the same value of each token as the two tokens have the same weight. So if you have $100 ETH, you need $100 USDC to participate in the WETH/USDC pool.
But let’s say you want to provide liquidity at 50% BAL 34% WBTC 16% WETH on Balancer, then you need $50 BAL, $34 WBTC, and $16 ETH, or something proportional to this in your wallet.
You can also use the single asset deposit option while adding liquidity to Balancer pools. This way you deposit only one token in the pool, and the token is exchanged for other tokens that you don’t have in the right ratio or at all under the hood, but you’ll get a smaller number of BPT tokens.
As for trading fees, when you trade on Uniswap, regardless of the pair you are trading, you will pay a 0.30% fee. It is currently fixed and does not vary. But, when you trade on Balancer, the fee you will pay depends on the pool. It could be as low as 0.0001% and as high as 10%.
Balancer Compatible Wallets
Balancer currently supports MetaMask, WalletConnect, and Portis. Support for WalletConnect means you can also use Balancer with mobile wallets like Trust Wallet and Coinomi.
To use Balancer with WalletConnect-enabled mobile wallets, you just need to click “scan with WalletConnect to connect” and scan the QR code with your mobile wallet.
The rate of the trading fee on Balancer is set by the pool owners and varies by the pool. When you trade on Balancer, the fee you will pay will be between 0.0001% and 10%.
When you want to exchange one token for another, your order is automatically optimized by Balancer using existing pools, and you can click on the pool address and see your rate.
To get a better idea of Balancer fees, you can visit this page to view shared, smart, and private groups and their fees. You can filter Balancer pools by token by clicking the “filter by asset” button.
Balancer Token Rewards and Distribution (BAL)
According to information provided by the Balancer team, the maximum and total number of BAL tokens that will ever exist are 100 million. But this limit could be changed in the future by BAL token holders through governance.
The Balancer token distribution is as follows:
- 25 million BAL tokens: founders, stock options, advisors, and investors, all subject to vesting periods
- 5M BAL Tokens – The Balancer Ecosystem Fund
- 5M BAL Tokens – The Fundraising Fund
- 65 million BAL tokens – Liquidity Providers
Those who provide liquidity to Balancer pools containing two or more whitelisted tokens can receive weekly BAL token rewards. Currently, a total of 145,000 BAL tokens are distributed weekly to liquidity providers.
How to use Balancer?
You can use Balancer to trade tokens and provide pools with liquidity to earn trading fees. Liquidity providers also earn BAL tokens on a weekly basis.
How to trade on Balancer?
First, visit Balancer and click on the “connect wallet” button to connect your MetaMask wallet, mobile wallet, or Portis account to the exchange to make a trade on Balancer.
Choose the token you want to sell and enter the amount, and choose the token you want to receive. After that, you need to allow Balancer to spend your BAT by clicking the “unlock” button and then approving the transaction in your wallet.
Before that, you can check the exchange rate, set a slip limit, and check the groups by clicking on the addresses below the exchange rate.
After unlocking the token, you can simply trade. Before you make a major trade, be sure to check out other AMMs like Uniswap and Mooniswap, and DEX aggregators like Matcha and 1inch to see if there is a better rate.
How to add liquidity to Balancer?
To add liquidity to balancer pools, click “add liquidity” on the exchange page, or simply visit this page. After connecting your wallet to Balancer, you can check pools, filter by token, and add liquidity to shared pools.
After choosing a pool, click on the “add liquidity” button. After that, you must unlock each pool token and deposit each token proportionally to its weight in the pool.
After providing liquidity to a pool of balancers, you will receive BPT tokens that will accumulate trading fees. Also, as a liquidity provider, you will receive weekly BAL token rewards.
According to Balancer, only pools containing two or more whitelisted tokens are eligible for BAL liquidity mining. You can see the whitelisted tokens under “homestead” on this page.
You can also deposit only one token in the pool using the “single asset” option. Your token will basically be exchanged for other tokens in the pool under the hood, but you will receive a smaller amount of BPT.
Non-permanent balancer loss
Balancer can offer some advantages to those who provide liquidity to decentralized exchanges and want to minimize their temporary loss.
Impermanent loss arises when the exchange rate deviates from the initial rate at which it provided liquidity to a pair. To minimize impermanent loss, you can provide liquidity to pools with a higher weight token and bullish.
For example, if you are bullish on Ethereum, instead of providing liquidity to a 50% WBTC 50% ETH pair on Uniswap, you can provide liquidity to a Balancer pool like 70% ETH 30% WBTC.
This way, if Ethereum outperforms Bitcoin as predicted, it will suffer fewer impermanent losses compared to providing liquidity to a 50%-50% pool.
But, if things don’t go your way and Bitcoin outperforms Ethereum, you will lose more by participating in a 70% ETH 30% WBTC pool rather than a pool with equally weighted ETH and BTC.