Balancer is a decentralized liquidity protocol and exchange on Ethereum, launched in March 2020. Users can swap ERC-20 tokens for a fee or contribute tokens to liquidity pools to earn fees.
Balancer is an Automated Market Maker (AMM) that allows for liquidity pools of up to 8 different assets with custom weights. Liquidity pools on Balancer can be thought of as similar to Exchange Traded Funds (ETFs) or portfolios with weight targets for specific assets. If trading causes the pool to shift from its target weight distribution, exchange rates between assets in the pool change. Arbitrageurs can execute trades to take advantage of this and act to rebalance the pool back to its target weight distribution. Liquidity can also be shared across pools, unlike other AMMs.
Balancer supports private pools, where only the owner of the pool can contribute liquidity, shared pools, which are completely public, and smart pools, which are shared pools controlled by a smart contract that can implement automated rules and logic. Liquidity providers are given Balancer Pool Tokens (BPTs) that represent their share of a given pool and fees. These tokens are freely transferable and can be redeemed for the assets provided and accrued fees.
Token issuers seeking to improve liquidity of their token have offered incentives to liquidity providers in liquidity mining campaigns. New token issuers have also launched their tokens on Balancer pools.
Balancer is governed by BAL, an ERC-20 governance token. BAL holders can vote on protocol changes. BAL is continuously awarded to liquidity providers and a large portion of the total supply of BAL was allocated to the team and investors on a continuous vesting schedule.
Trading volumes on Balancer are often over $25 million daily. Balancer has a Total Value Locked (TVL) of over $250 million by liquidity providers at the time of writing.
Balancer has undergone a security audit by Trail of Bits and has a bug bounty program. However, Balancer has suffered a major exploit in June 2020.