Balancer is a generalized automated market maker (AMM) protocol built on Ethereum. It allows anyone to create or add liquidity to customizable pools and earn trading fees. On one side there are liquidity providers (LPs) that generally seek to balance their holdings, and they get rewarded with trading fees. On the other side, traders that are looking for the best rate possible.

One way to look at Balancer is as a generalization of Uniswap, however Balancer pools aren't restricted to the same 50/50 split between 2 tokens. A Balancer pool can support up to 8 tokens with any weights. It supports smart order routing which ensures trades get sent to the pools which provide the best rate possible. They can be seen as self balancing index funds which pay you for contributing liquidity to the platform. Instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who continuously rebalance your portfolio by following arbitrage opportunities.

The inner workings are quite complex but CEO & Co-founder of Balancer, Fernando Martinelli, breaks down the token economics and governance of the protocol for us.

Topics covered in this episode:

Fernando’s background and how he got into the space
Balancer's connection to Maker
An introduction to liquidity mining and some of the problems with this
The connection to the Uniswap formula
What Balancer is and how the protocol works
How does this work as a Portfolio Management tool and how dynamic are the fees
How smart pools wok - The network of pools and the offchain set up
How the weighting system works on Balancer
The options for users - keeping it simple and the data that is available in your Balancer account
Governance tokens
How the BAL token is designed and how it works
How finance for the protocol is raised
The future plan of dissolving Balancer
How they plan to attract volume
What’s coming up in Balancer V2

Episode links:

This episode is hosted by Sunny Aggarwal & Meher Roy. Show notes and listening options: epicenter.tv/350