{"id":13285,"date":"2023-06-22T16:18:23","date_gmt":"2023-06-22T16:18:23","guid":{"rendered":"https:\/\/www.bitnovo.com\/blog\/?p=13285"},"modified":"2025-09-10T15:19:57","modified_gmt":"2025-09-10T15:19:57","slug":"what-is-balancer","status":"publish","type":"post","link":"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer","title":{"rendered":"What is Balancer?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Alternar tabla de contenidos\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#how_does_balancer_work_your_financial_applications\" >How does Balancer work? Your financial applications<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#benefits_of_balancer_v2\" >Benefits of Balancer V2<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#asset_managers\" >Asset managers<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#what_are_balancers_commissions\" >What are Balancer\u2019s commissions?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#balancer_governance\" >Balancer Governance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-balancer\/#conclusion\" >Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span><p><strong>DeFi,\u00a0<\/strong>or\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-defi-o-decentralized-finance\/\">decentralized finance<\/a>, is probably the area in cryptocurrencies where most\u00a0<strong>innovation<\/strong>\u00a0is taking place. Thanks to languages such as\u00a0<strong>solidity<\/strong>, with more\u00a0<strong>expressiveness<\/strong>\u00a0than\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-bitcoin-script\/\">Bitcoin Script<\/a>, smart contracts can be written that enable\u00a0<strong>complex financial derivatives<\/strong>.<\/p>\n<p>Today we are going to talk about\u00a0<strong>Balancer<\/strong>, a\u00a0<strong>DeFi project<\/strong>\u00a0on\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-ethereum-eth-and-how-does-it-work\/\">Ethereum<\/a>\u00a0and\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-polygon-the-eth-scalability-solution\/\">Polygon<\/a>\u00a0(Matic) that is very popular and has a novel design.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"how_does_balancer_work_your_financial_applications\"><\/span><strong>How does Balancer work? Your financial applications<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Balancer is a DeFi protocol that\u00a0<strong>manages portfolios of\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-an-erc-20-token\/\">ERC-20 tokens<\/a><\/strong>\u00a0and allows you to\u00a0<strong>exchange<\/strong>\u00a0them in a decentralized way (it is a\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/cex-and-dex-what-are-the-differences\/\">DEX<\/a>),\u00a0<strong>provide liquidity<\/strong>\u00a0<strong>and\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/\">earn returns<\/a>\u00a0on your assets<\/strong>\u00a0deposited in its liquidity pools.<\/p>\n<p>In addition, it allows the use of liquidity in\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-are-flash-loans-defi-loans\/\">flash loans<\/a>, that\u00a0<strong>is, loans that are repaid in the same transaction<\/strong>\u00a0(generally used to benefit from arbitrage opportunities).<\/p>\n<p>For example, a user may hold 70% ETH and 30%\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-wrapped-bitcoin\/\">WBTC<\/a>\u00a0in a pool. Instead of paying ETF managers to maintain these percentages,\u00a0<strong>traders will rebalance the pools<\/strong>\u00a0(incentivized by arbitrage opportunities) and pay commissions to liquidity providers.<\/p>\n<p><strong>An arbitrage opportunity<\/strong>\u00a0consists of a price\u00a0<strong>difference between two pools<\/strong>. Let\u2019s imagine that in pool A,\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-dai-the-complete-guide\/\">DAI<\/a>\u00a0is worth $0.9 and in pool B it is worth $1.00. To take advantage of this situation we can borrow money, buy DAI in pool A, exchange it for DAI in pool B, repay the loan and keep the difference.<\/p>\n<p>For this we can make a\u00a0<strong>flash swap<\/strong>\u00a0(similar to a flash loan, but built expressly\u00a0<strong>to reduce price disparities in Balancer<\/strong>). To borrow a flash loan, you also have to pay\u00a0<strong>interest<\/strong>.<\/p>\n<p>In addition to\u00a0<strong>commissions for providing liquidity<\/strong>\u00a0for token exchanges, it is also possible to obtain<strong>\u00a0the Balancer\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/\">governance<\/a>\u00a0token, BAL.<\/strong><\/p>\n<div id=\"image_1639771054\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img fetchpriority=\"high\" decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer.jpg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer-300x205.jpg 300w\" alt=\"Qu\u00e9 es Balancer\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer-300x205.jpg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer.jpg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"benefits_of_balancer_v2\"><\/span><strong>Benefits of Balancer V2<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The first version of this protocol,\u00a0<strong>Balancer V1<\/strong>, is now outdated, although it can still be used since the contracts are still on the blockchain.<\/p>\n<p><strong>Balancer V2<\/strong>\u00a0implements an architecture aimed at\u00a0<strong>achieving more efficiency in\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-gas-in-ethereum\/\">gas<\/a>\u00a0spending<\/strong>, allowing\u00a0<strong>more composability and diversity in pool designs or Automated Market Makers<\/strong>\u00a0(AMM).<\/p>\n<p><strong>The main novel concept is the vault<\/strong>. This is\u00a0<strong>the\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-smart-contract\/\">smart contract<\/a>\u00a0that holds and manages all the tokens<\/strong>. By separating the management of the tokens from the swaps and liquidity provisioning logic (AMMs), we make it\u00a0<strong>much easier to develop pools<\/strong>\u00a0and allow them to be\u00a0<strong>customizable<\/strong>. Currently we can\u00a0<strong>find weighted pools, oracle pools, stable pools, metastable pools and liquidity bootstrapping.<\/strong><\/p>\n<p>Thanks to the vault,\u00a0<strong>multi-step<\/strong>\u00a0<strong>swaps<\/strong>\u00a0only pay a commission for the transfer that settles the positions of the pools. In addition to the fact that the vault\u00a0<strong>keeps track of the balances of each pool<\/strong>, it also keeps track of the \u201c<strong>internal balance of each wallet<\/strong>\u201c. That is, you can make trades that, instead of being realized as such,\u00a0<strong>are credited to your account<\/strong>.<\/p>\n<p>Let\u2019s make an example, we have 1 ETH, exchange it for 0.1 WBTC and then for 4,000 DAI.\u00a0<strong>These transfers are not made in ERC-20 token contracts, but the vault keeps the balance account of each user<\/strong>. The only time when you will have to pay gas commissions for token transfer will be when depositing money into the vault and withdrawing it.<\/p>\n<p>Finally, having all t<strong>he liquidity consolidated in the vault<\/strong>\u00a0makes it possible to offer high-value\u00a0<strong>flash loans<\/strong>, which are risk-free for the lender (in this case all Balancer users).<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"asset_managers\"><\/span><b>Asset managers<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>An optional feature is the use of\u00a0<strong>asset managers<\/strong>. Since<strong>\u00a0more money is generally deposited in liquidity pools than is used in exchange<\/strong>s, a portion of the assets can be used to\u00a0<strong>generate additional profitability<\/strong>. One implementation of this functionality is for\u00a0<strong>loans in\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-aave-and-how-does-it-work\/\">Aave<\/a><\/strong>.<\/p>\n<p>This can increase the profitability of liquidity providers,<strong>\u00a0but it also entails a risk<\/strong>\u00a0(e.g. mismanagement). For this reason, it is not an option enabled by default in the pools.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"what_are_balancers_commissions\"><\/span><strong>What are Balancer\u2019s commissions?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Each user who<strong>\u00a0trades tokens<\/strong>\u00a0pays a\u00a0<strong>commission to the liquidity providers<\/strong>. Trading commissions are dynamic and vary depending on market conditions.<\/p>\n<p>We also have\u00a0<strong>protocol commissions,<\/strong>\u00a0which are currently deactivated except in the case of flash loans. These commissions\u00a0<strong>are directed to the Balancer\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-dao\/\">DAO<\/a><\/strong>\u00a0and will be voted by the BAL governance token holders themselves. They will be calculated as a\u00a0<strong>% of the trading commission<\/strong>, and will be fixed.<\/p>\n<div id=\"image_604926234\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1.jpg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1-300x205.jpg 300w\" alt=\"Qu\u00e9 es Balancer\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1-300x205.jpg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/09\/Que-es-Balancer1.jpg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"balancer_governance\"><\/span><strong>Balancer Governance<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>BAL holders have the right to participate<\/strong>\u00a0<strong>in decision-making<\/strong>\u00a0on future changes to the protocol.\u00a0<strong>In addition, their tokens collect the protocol commissions.<\/strong><\/p>\n<p><strong>Voting<\/strong>\u00a0is done on an\u00a0<strong>off-chain protocol that does not spend gas commissions<\/strong>, called\u00a0<strong>Snapshot<\/strong>\u00a0and developed by Balancer Labs. Snapshot has been quite successful and is being used by other DAOs besides Balancer.<\/p>\n<p>To leave\u00a0<strong>the voting information recorded on the blockchain<\/strong>, a\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-multi-signature-wallet\/\">multi-signature<\/a><strong>\u00a0address<\/strong>\u00a0controlled by different people with influence and reputation in the DeFi and Ethereum ecosystem is used. But the signatories have no influence on the voting, they only record on-chain the voting results.<\/p>\n<p>There are also\u00a0<strong>liquidity mining<\/strong>\u00a0programs where liquidity providers are\u00a0<strong>rewarded with BAL<\/strong>\u00a0for early participation in the protocol. Another program is called \u201cBal for Gas\u201d and consists of rewarding swap users with BAL.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>By reading about Balancer one can begin to get an idea about the amount of innovation that is happening at DeFi.<\/p>\n<p>Perhaps the\u00a0<strong>biggest question in the DeFi ecosystem<\/strong>\u00a0in general is about the\u00a0<strong>security of smart contracts<\/strong>. In fact Balancer already suffered a hack a year ago, funded by a flash loan (as usual).\u00a0<strong>Balancer V2<\/strong>\u00a0has 3 code audits and a temporary emergency button (it will only work for the first 3 months).<\/p>\n<p>Most plausibly, in the long run, contracts that have remained operational\u00a0<strong>without hacks for years are extremely secure<\/strong>. However, today DeFi still poses high risks, although it also promises more than ever.<\/p>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span>DeFi,\u00a0or\u00a0decentralized finance, is probably the area in cryptocurrencies where most\u00a0innovation\u00a0is taking place. Thanks to languages such as\u00a0solidity, with more\u00a0expressiveness\u00a0than\u00a0Bitcoin Script, smart contracts can be written that enable\u00a0complex financial derivatives. Today we are going to talk about\u00a0Balancer, a\u00a0DeFi project\u00a0on\u00a0Ethereum\u00a0and\u00a0Polygon\u00a0(Matic) that is very popular and has a novel design. How does Balancer work? Your financial applications Balancer [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":7936,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[165],"tags":[],"class_list":["post-13285","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrencies"],"_links":{"self":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/13285","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/comments?post=13285"}],"version-history":[{"count":2,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/13285\/revisions"}],"predecessor-version":[{"id":24550,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/13285\/revisions\/24550"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media\/7936"}],"wp:attachment":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media?parent=13285"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/categories?post=13285"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/tags?post=13285"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}