Balancer V2 brings some remarkable efficiencies to the protocol such as smart pools, customized logic, and gas efficiency.
Balancer is a prominent decentralized exchange that is designed to provide open, accessible alternative to centralized exchanges by allowing anybody to trade Ether and ERC-20 assets.
Users on the platform can trade supported tokens against one another, create liquidity pools and earn yield from trades. By using the ratio between assets shared in a liquidity pool to determine each assets’s value, this changes the pool ratio and thereby the price of each asset automatically, making the entire process completely permissionless and automated.
Balancer is frequently used as a launchpad for new projects in what are known as Liquidity Bootstrapping Pools (LBPs). This allows new projects to easily distribute their tokens to a large number of initial holders while simultaneously discovering their fair market price quickly.
Balancer allows users to create 3 types of pools:
Shared pools – Open to anybody to contribute liquidity
Private pools – Only the owner can control the pool parameters and add liqudity
Smart pools – These are controlled by smart contracts
Broadly, the platform has three main user demographics:
Liquidity providers, who create their own pool or contribute to existing pools
Traders and smart contracts that look to source liquidity for their tokens
Arbitrageurs who capitalize on the price spread between exchange platforms
The release of Balancer V2 comes with improvements and changes that offer the following:
Improved gas efficiency – This reduces gas fees by ensuring only the final token amounts are transferred from and to a vault despite trades getting carried out in batches against multiple pools
Customized AMM logic – Weighted, stable, and smart pools allow for ongoing paramenter changes and are suitable for tokens soft-pegged to each other
Introduction of Asset Managers – These external smart contracts are nominated by pools to lend tokens to a lending protocol to improve a pool’s yield
Addition of internal token balances – This optimizes efficiency for high-frequency traders and arbitrageurs
The launch of Balancer V2 is expected to provide the following to users:
Security – The vault architecture keeps internal balances isolated among pools with core contracts undergoing formal verifications
Simplicity – All V2 interactions will be done through one singble access point – the vault – with only one token approvals necessary for users to trade or ivnest liquidity into any Balancer pool
Gas efficiency – Trades using internal balances will be negligible while trading against both standard and stable pools will cost little over 100k gas with marginal gas increases when trading with many pools
Capital efficiency – Pools will have full control over the underlying tokens added to vaults which opens up a vast design space to improve capital efficiency and other use cases such as voting
Flexibility – V2 is open source allowing teams to innovate on top of V2 to create a thriving ecosystem and network effect. Grants and bounties are also available to contributors who create new successful pools