Self-balancing portfolio management tool
Balancer began in early 2018 as a project incubated by Block Science, an engineering and research firm, before being spun out as a separate company, Balancer Labs. Like many decentralized exchanges, it uses a trading model called an automated market maker, which means users can contribute funds to “liquidity pools” of any two coins on the system in exchange for a portion of trading fees. Automated market makers use mathematical formulas to determine the prices of assets rather than selling directly from person to person. The benefit of Balancer is that it is highly flexible. Traders can put in numerous assets and customize their weights.
Balancer’s token is BAL. BAL is claimed in two ways. The first is through contributions to liquidity pools. Rewards are distributed based on how much money a user deposits into the protocol to help others trade. BAL is also claimed through trading. Tokens are distributed to buyers and sellers to help offset their transaction fees for using the protocol. BAL is used as a governance token, meaning it helps users vote and make decisions about the Balancer protocol.
Balancer is kind of like an index fund, only instead of paying a fee to a manager to keep your portfolio balanced, you collect fees from traders who keep your portfolio balanced because of built-in incentives. Financial app makers can use it as a building block in their projects, including launching new tokens, creating pools of liquidity, or retrieving prices. One way to think of Balancer is as a tool that combines asset management and exchange, like combining a traditional finance company such as Fidelity with NASDAQ’s exchange, but then distributing NASDAQ’s trading profits to Fidelity’s customers.