A software developer doesn’t need to understand why the new version of Balancer is a cool innovation in on-chain trading for Ethereum tokens.
Balancer, a portfolio manager that is not in custody, is releasing version 2.0, in which all assets entrusted to him are combined in a large vault. This should drastically reduce gas fees for DeFi (Decentral Finance) businesses as users can exchange as much as they want and only pay gas to get in and out of Balancer.
The team had considered building it that way from the get-go, but initially chose to be conservative and separate each pool for added security, CEO Fernando Martinelli told CoinDesk.
“Today we are … comfortable enough with a large vault that contains a lot of money. We went to great lengths to make this as secure as if the assets were isolated, ”he wrote in an email. “Many other protocols (not AMMs) already do this: loan protocols, collateral in MakerDAO, etc.”
Balancer works much like an automated market maker (AMM) like Uniswap or Curve (and can act as one), but allows users to create pools of multiple tokens that are weighted at their discretion. The pools are automatically rebalanced as needed to keep up with the market.
This requires a lot of transactions, which in turn requires a lot of Ethereum gas fees. This is capital-efficient neither for traders nor for liquidity pool providers, especially as gas prices are rising.
In this new version, these pools are only billed in intelligent contracts that are separate from the large depot pool.
A great pool
With Balancer v2, regardless of the complexity of a trade or trades, “only the final net token amounts are transferred to and from the vault, saving a significant amount of gas,” Martinelli wrote in an announcement post. Balancer can keep track of all the assets entrusted to him in a vault and easily move the assignments to people’s accounts.
“Now the token management and billing takes place via the vault, while the AMM logic is individual for each pool. Because pools are contracts outside of the vault, they can implement any custom AMM logic, ”the team wrote.
The new version will go one step further. Active traders can set up an individual account to make many trades. Then they will only be charged gas fees when they want to withdraw.
Of course, this may sound more like a centralized exchange to some traders, which is a little fair. The main difference is that everything is held on smart contracts that can be reviewed by the public. and as an Ethereum project, its functionality can be easily integrated with others.
There are security concerns. To make it simpler, think of it this way: if someone had a large pot of gold, it would be more difficult to steal everything if it were locked up in multiple vaults in different places rather than one large vault.
Martinelli doesn’t deny this, but also notes that the more complex logic in Balancer doesn’t affect the assets, which should be reassuring.
“Since the operations that the vault will be performing are very low (add to a user balance, remove from a pool that the user has traded with), we will do everything (including formal verification) to ensure that the vault is safe and flawless. ” Martinelli said via email.
Other developments
In version 2.0, Balancer adds a few more functions that may be of interest to advanced users. It is crucial that experimenting with composition pools should be simplified.
“Balancer v2 leads the way in customizable AMM logic: it effectively creates a launch pad for teams to innovate with various AMM strategies without worrying about low-level token transfers, financial accounting, and security reviews [and] Smart Order Routing, ”says the announcement.
It will go live with the known weighted pools that balancer users already know. There will also be stable pools that function more like Curve so that large trades with stablecoins can see very little slip. Balancer Smart Pools will shortly start, the logic of which can change during operation.
Balancer will also introduce asset managers, external smart contracts that allow some of the underlying value of a liquidity pool to be used elsewhere in DeFi. This should be beneficial for liquidity providers as the team notes that “under normal trading conditions, most of the assets in an AMM will not actually be used”.
Balancer will also introduce trading fees that can be controlled by the holders of its BAL token. Fees are offered on trades, withdrawals, and flash loans. At the beginning of version 2.0, however, only the final fee is active. BAL holders can use the fees to either pay for further development, a dividend, or a combination of both.
Balancer was one of the earliest projects to join the liquidity mining craze this summer, launching BAL distributions to users shortly after COMP distributions went live. As with Compound, the BAL runoff has never stopped.
“We are currently discussing some interesting updates on the BAL liquidity reduction with the community. But it will certainly continue: it is our main way of ensuring that we have diverse and committed governance, ”noted Martinelli.
Balancer version 2.0 is currently being examined. The team is currently planning a launch in March.
