Placeholder: Balancer is addressing a first-generation asset management tool bug

Balancer has been released by Placeholder, an encrypted investment firm, in a paper published on July 21 that explores ideas about Balancer and examples of future directions for its pool of liquid capital. Note: Placeholder is Balancer investor, and is an interested party.

The following is the full text translation of Placeholder. In order to facilitate reading, rhythm-based BlockBeats have been modified without affecting the original meaning.

Over the past year, the Converged Liquidity Protocol, also known as the Automated Market Makers Agreement, or AMMs, has become the dominant market in DeFi. Instead of providing assets based on the volume of orders, this protocol chooses to provide assets based on the algorithm curve. Despite impressive liquidity and trading growth, first-generation asset management instruments remain relatively inelastic. To accommodate more users and strategies, AMMs will have to evolve to provide the flexibility and depth Balancer was after in building a programmable and customizable pool of liquidity.

Balancer is a new financial entity that combines asset management and decentralized trading.

For investors, Balancer currently provides index management of encrypted assets (if the composition of the pool deviates from its target weight when a trader takes assets from the pool, arbitragerist is encouraged to adjust the weight back to the target. This way, investors can ensure that their portfolios remain at the desired percentage of portfolio value without any rebalancing.) . Rather than paying fees to portfolio managers, investors earn fees by contributing assets to Balancer pools (in rebalancing, liquidity providers lose some value to arbitrage, and trading fees are used to offset those losses).

Balancer is an unlicensed and unescrow venue for traders with competitive prices and trading fees that increase returns for asset savers. If you useIn traditional financial terms, this is like putting Fidelity Asset Management and NASDAQ exchanges together, transferring NASDAQ's trading profits to Fidelity's asset holders.

This effect provides a powerful reinforcing mechanism that drives the ever-expanding pool of liquid funds. Balancer becomes extremely liquid with this setting, and the less of an impact it has on a user moving assets. With the decline of the key asset Slippage (the point in a trade where the price differs from the initial offer, which can be either positive or negative), Balancer itself is positioned to attract more traders as it becomes a more competitive venue. From a symbiotic perspective, trading activities drive the long-term value creation of asset depositors. So the pool is incentivized to keep growing and growing and growing and growing.

Even though it was only four months old, Balancer has been making competitive prices for a number of hot cryptoasset options, such as MKR, REP, LEND, mUSD, and so on. For example, a pool of Balancer worth $13 million is made up of 60% MKR and 40% ETH, and Balancer is one of the most liquid places for a user who wants to reduce the number of slippage in MKR transactions, whether decentralized or centralized.

Become a liquidity provider and manager for Balancer

Balancer allowed suppliers, often referred to as "liquidity providers" (LP), to deposit assets on their own terms. LP can contribute to an existing Balancer pool or create its own Balancer pool.

In this process, liquidity providers (LP) can choose which they prefer:

Asset allocation (any ERC-20);

Pool weight (%);

Transaction costs.

That flexibility made Balancer fertile ground for experimentation, and it amassed a huge pool of liquidity ($240m and growing).

Balancer aims to be owned and managed by its users. As part of this commitment, Balancer assigns BAL to active liquidity providers to whom voting power will be passed over time (holders of money). The BAL could also be bought on the open market, and the most liquid place for sure would be Balancer's own pool, where the holder of scrip had the right to determine the future of Balancer and how the BAL itself would be used over time.

Balancer, currently issuing 145,000 BAL a week to liquidity providers, is contributing to the rapid growth of Balancer in a similar way to bitcoin mining rewards, which itself is used to reward miners and encourage them to protect their Internet security. In the long run, we expect BAL will need to find a cyclical value-capture model to make sustainable use of the network over time.

The holder will also determine the final BAL supply, although the current total is 100 million BAL, this limit may be changed if needed in the future. The current supply is around 35m, and weekly shipments to liquidity providers will increase over time.

About the future of Balancer

So far, the growth of Balancer has only scratched the surface of the potential of dynamic liquidity pools. Balancer allows smart contracts, individuals or organizations such as DaOs to control and update pool parameters for those who don't think a pool of eight assets is enough. This includes a considerable range of programmability.

Some examples of pool types that a Balancer pool might contain:

1. & have spent Liquidity pools that increase both liquidity and mortgage participation;

Community-managed pools of money, such as those in PieDAO USD++, are regularly reweighted to support less volatile pools;

This allows you to convert maturing assets such as bonds into permanent tokens.

3. Can be programmed to replicate pools of financial derivatives. For example, a user could hold shares in a liquidity provider with a return similar to an option;

4. Liquidity guidance pool, enabling the team to build early liquidity with little initial capital, while gradually reducing asset losses and risk exposure. This can be used to issue primary assets and, if a secondary market already exists, to increase liquidity in the secondary market.

5. Surge pricing pools that increase fees during periods of high liquidity demand (e.g., Big 3.12). This attracts more liquidity to the surge price pool because it is more profitable than the fixed fee pool. That, in turn, sets the stage for better trades and lower slippages, because there is now more liquidity.

At Placeholder, we believe open agreements form the basis of a superior financial system, and for that purpose invest in minimally extracted but highly defensible agreements and applications on top of them. This model reduces the cost of the service provider and supports the selection relationship between the user and the application. Balancer is a good example of a strong agreement in this paradigm, and we hope to build on it with more creative applications to attract new money and liquidity for Balancer.

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While Balancer scalability immediately appealed to us, we were drawn to the talent and authenticity of its core team. Fernando is a veteran of the Maker community, and he came up with the mathematics behind Balancer; He hired Nikolai of MakerDAO to help him build it; And then Mike McDonald (creator of mkr.Tools).

The original address: https://www.placeholder.vc/blog/2020/7/20/balancer-thesis

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