Balancer is a generalized automated market maker (AMM) protocol built on Ethereum. It allows anyone to create or add liquidity to customizable pools and earn trading fees. On one side there are liquidity providers (LPs) that generally seek to balance their holdings, and they get rewarded with trading fees. On the other side, traders that are looking for the best rate possible.
One way to look at Balancer is as a generalization of Uniswap, however Balancer pools aren't restricted to the same 50/50 split between 2 tokens. A Balancer pool can support up to 8 tokens with any weights. It supports smart order routing which ensures trades get sent to the pools which provide the best rate possible. They can be seen as self balancing index funds which pay you for contributing liquidity to the platform. Instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who continuously rebalance your portfolio by following arbitrage opportunities.
The inner workings are quite complex but CEO & Co-founder of Balancer, Fernando Martinelli, breaks down the token economics and governance of the protocol for us.
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This episode is hosted by Sunny Aggarwal & Meher Roy. Show notes and listening options: epicenter.tv/350