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Audits
Auditors:
Trail of Bits Certora OpenZeppelin +1 Consensys Diligence
Trail of Bits Certora OpenZeppelin Consensys Diligence
Audits:
Trail of Bits, March 2020 ConsenSys Diligence, May 2020 OpenZeppelin, March 2021 Certora, April 2021 Trail of Bits, April 2021 OpenZeppelin, October 2021 Trail of Bits, October 2021 ABDK, May 2022 Trail of Bits, May 2022 Certora, September 2022 Trail of Bits, September 2022 Trail of Bits, October 2022
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Last updated: Jan 15, 2024
Balancer is a decentralized finance (DeFi) platform that operates as a programmable automated market maker (AMM). It allows users to create and manage liquidity pools with multiple tokens and flexible ratios, providing a unique approach to asset management and decentralized trading. Balancer supports a multichain infrastructure, working across various blockchains including Ethereum, Arbitrum, Optimism, Polygon, and others.
Enhancing its versatility, Balancer introduces a range of sophisticated products. Central to its ecosystem is The Vault, a smart contract that manages all tokens across various pools, ensuring efficient and secure operations. Balancer's diverse pool types, including Weighted, Stable, and MetaStable Pools, cater to an array of trading strategies and preferences. The Smart Order Router (SOR) is used in optimizing trade routes for the best available prices. Additionally, the Merkle Orchard facilitates a mechanism for distributing liquidity mining rewards.
Unlike traditional exchanges, which use an order book to match buyers and sellers, Balancer employs an AMM model. This model uses algorithms to set prices and execute trades within liquidity pools based on the ratio of assets in the pool.
Users, known as liquidity providers (LPs), deposit their assets into these pools. Balancer stands out by allowing pools with up to eight different tokens, and the LPs can set their own ratio of these tokens, offering greater flexibility compared to traditional 50/50 pools in other AMMs.
The pricing of assets in a pool follows the constant mean market maker formula, a generalization of the constant product formula used by other AMMs. This formula adjusts prices as assets are traded in and out of the pool, maintaining a constant value for the pool’s total liquidity.
Balancer supports various types of pools, including:
Additionally, Balancer’s Smart Order Routing (SOR) system aims to ptimize trades by finding the best paths across all available pools. It calculates the most efficient way to trade a given pair of tokens, considering factors like pool liquidity, token ratios, and swap fees.
The Balancer Vault works through a series of smart contract functions and architectural designs that ensure efficient and secure management of assets within the Balancer ecosystem.
The Vault aggregates all the assets from various liquidity pools on Balancer. Instead of each pool independently holding assets, they are all pooled together in the Vault.
When a user makes a trade or swap, the transaction is processed through the Vault's smart contracts. These contracts calculate the required asset swaps based on the pool's rules (like weightings in a Weighted Pool) and execute the trade. The smart contracts ensure that the correct amounts are swapped, and the pool balances are accurately updated.
The Vault batches multiple transactions together. In traditional DeFi protocols, each transaction within a pool, like swaps or liquidity additions/removals, is a separate transaction on the Ethereum blockchain, incurring individual gas fees. The Vault, however, combines multiple operations into a single transaction where possible, significantly reducing the overall gas fees.
Although the Vault holds all assets centrally, it maintains isolated balances for each pool. This isolation is crucial for security as it prevents vulnerabilities in one pool from affecting the assets of another. Each pool's assets are tracked separately within the smart contract, even though they are physically held together.
The Vault also enables flash loans – uncollateralized loans that must be returned within a single transaction block. It does this by temporarily lending out assets from the pools, provided they are returned with interest by the end of the transaction.
The parameters and functionalities of the Vault can be upgraded or modified through governance decisions made by BAL token holders.
Balancer’s Weighted Pools function using a variable weight mechanism for each token. The weight determines how much impact the token’s value has on the pool. For instance, in a pool with Token A (70% weight) and Token B (30% weight), a significant price change in Token A would have a larger impact on the pool's total value than the same change in Token B. The pool automatically adjusts token prices to maintain the set weight ratio, balancing the overall value.
Tailored for assets like stablecoins, Composable Stable Pools are designed to minimize slippage due to their inherent price stability. They maintain high capital efficiency by allowing larger trades with less impact on token prices. The key here is the stable price relationship between the assets, which makes the pool less susceptible to large price variations typical in other pools.
Boosted Pools leverage external yield strategies, such as staking or providing liquidity in other protocols, to "boost" the returns for liquidity providers. Essentially, a portion of the pool's assets is used in other yield-generating activities while still contributing to the pool's liquidity. This dual approach aims to increase the overall return for liquidity providers.
Liquidity Bootstrapping Pools (LBPs) are designed for project token distributions. They typically start with a high weight for the project's token, which gradually decreases over time. This method allows for initial price discovery and reduces the likelihood of early price manipulation. The changing weight alters the price impact of trades, helping to establish a market-driven value for the new token.
Linear Pools are designed to manage a pair of assets where one is a wrapped or staked version of the other. They enable liquidity providers to deposit either the base asset or its wrapped version. The pool handles the conversion and management of these assets internally. This setup is particularly useful for assets that can be staked elsewhere; it allows users to earn staking rewards while their assets are still being used to provide liquidity. The pool automatically manages the balance between the base and wrapped assets, ensuring the liquidity and the staking rewards are optimized.
Managed Pools are highly flexible and allow for adjustments in their parameters post-creation. The pool creator can change aspects such as token weights, swap fees, and even the tokens within the pool. This flexibility is crucial for dynamic strategies that need to adapt to changing market conditions. Managed Pools are ideal for active management, allowing pool administrators to react to market trends or rebalance portfolios as needed.
Protocol Pools are specialized pools that serve specific purposes within the Balancer ecosystem, often related to governance or protocol functionalities. These pools are typically governed by BAL token holders and may have specific rules or behaviors that align with the broader goals of the Balancer protocol. They are integral to the operation and governance of Balancer, playing a key role in its ecosystem.
The Smart Order Router (SOR) in Balancer is an advanced feature designed to optimize trading efficiency and price effectiveness for users. The primary role of SOR is to find the most efficient path for a trade. In a diverse ecosystem like Balancer, with multiple pools containing various token pairs, finding the best route for a trade can be complex. The SOR algorithm navigates this complexity by assessing all available pools to determine the most cost-effective path.
Balancer’s pools are continuously evolving, with new pools being created and existing pools changing their compositions. The SOR is dynamically updated to reflect these changes. This continuous updating ensures that the SOR always has the latest information on every pool, which is crucial for accurate and effective trade routing.
One of the main advantages of using the SOR is the reduction in price slippage. Slippage occurs when there is a difference between the expected price of a trade and the executed price. By routing trades through the most liquidity-rich and appropriate pools, the SOR minimizes the impact of slippage, ensuring users get as close to their expected trade price as possible.
Another key aspect of the SOR is its focus on gas efficiency. Ethereum transactions can be costly in terms of gas fees, and inefficient trade routes can exacerbate these costs. The SOR takes into account the gas costs associated with different trade routes, aiming to minimize these fees while still achieving the best possible trade price.
Balancer's SOR is not just limited to its ecosystem; it can integrate information and liquidity from other DeFi protocols.
The Merkle Orchard in Balancer is an innovative feature designed for efficient management and distribution of liquidity mining rewards. The primary function of Merkle Orchard is to facilitate the distribution of liquidity mining rewards. In the DeFi space, liquidity providers are often rewarded for their contribution to liquidity pools with tokens. Merkle Orchard streamlines this process on a weekly basis.
Liquidity providers can claim their earned tokens through the Merkle Orchard. The system is designed to make this process as efficient and user-friendly as possible. Providers can easily access and claim their rewards without navigating through complex processes.
One of the standout features of Merkle Orchard is its focus on minimizing Ethereum gas costs, a significant concern for users in the DeFi space. By optimizing the claiming process, the Merkle Orchard ensures that users can claim their rewards without incurring high transaction fees.
The system utilizes a Merkle tree, a data structure that enables efficient and secure verification of large data sets. Merkle Orchard allows for batched claims, meaning liquidity providers can claim rewards from multiple pools or over multiple weeks in a single transaction. This batching significantly reduces the cumulative gas costs compared to claiming each reward individually.
The Merkle Orchard is seamlessly integrated with the various Balancer pools. It automatically tracks and calculates rewards based on a user's contribution to the pools, ensuring that rewards are accurately and fairly distributed. By simplifying the reward claiming process and reducing associated costs, Merkle Orchard enhances the overall user experience on the Balancer platform. It makes participation in liquidity mining more accessible and appealing, especially for users concerned about high transaction costs.
Before starting with Balancer, you need a wallet compatible with Balancer. Wallet options include MetaMask, WalletConnect, Coinbase, andothers. These wallets enable you to store crypto, view balances and transaction history, execute transactions, and connect to applications.
Once your wallet is set up, connect it to the Balancer platform. Balancer is designed for desktop and web use through its online Invest and Trade apps. No sign-up is required to start trading or investing on Balancer – just connect your wallet.
Balancer offers a range of pools, such as public, private, and smart pools, each with its unique features. You can trade numerous cryptocurrencies, like DAI, USDC, USDT, WETH, etc., in these pools. Balancer pools are smart contracts that enhance liquidity for exchanges and allow token swaps.
The Balancer interface is user-friendly, providing tools for investing, withdrawing, and trading tokens. You can trade directly using the exchange front-end or through Balancer’s smart contracts on its supported blockchain networks. The platform also allows you to set slippage tolerance, which is the maximum price change you are willing to accept during a transaction.
Balancer charges fees for token swaps, which vary from 0.0001% to 10%, depending on the pool. These fees are used to reward Liquidity Providers (LPs). Balancer V2 has introduced dynamic fee pools and a small protocol fee - 50% of the swap fee, to maximize returns for LPs. Moreover, traders are reimbursed up to 90% of their gas fees.
The Balancer (BAL) token is the native utility token of the Balancer Protocol. Originally, BAL token holders had the right to participate in the governance of the Balancer Protocol. This means they could vote on important decisions concerning the platform's development and direction. The governance process is democratic, with decisions made through Governance Snapshot voting.
Initially, 145,000 BAL tokens were minted every week. However, with the introduction of veBAL in Q1 2022, the emission rate was adjusted. The total supply of BAL is capped at 100 million tokens, but it's not guaranteed that this cap will ever be reached. The actual supply will depend on governance decisions.
BAL tokens are distributed to liquidity providers, founders, advisors, investors, and through an Ecosystem Fund. The distribution is governed by the community and veBAL voting, which also decides the allocation to each authorized pool. Liquidity providers in Balancer pools earn a portion of transaction fees in BAL.
The veBAL token is a crucial element in the Balancer ecosystem, introduced to enhance the governance process and incentivize long-term commitment among token holders.
veBAL stands for vote-escrow BAL, a system inspired by Curve's veCRV mechanism. It involves locking 80/20 BAL/WETH Balancer Pool Tokens (BPTs) for a maximum of one year. This mechanism is designed to promote alignment between long-term token holders and the Balancer protocol's interests.
veBAL token holders possess voting rights in the Balancer decentralized governance. Their voting power is proportional to the amount of BAL/WETH 80/20 BPT locked and the duration of the lock period. For instance, locking 1 BPT for 52 weeks grants the same voting strength as locking 2 BPT for 26 weeks.
Holders of veBAL are entitled to a share of the protocol fees collected by Balancer. These fees include 50% of the swap fees accumulated on the Balancer Protocol and yields on yield-bearing tokens in Core Pools. As of the latest updates, veBAL holders receive 65% of these protocol fees.
Unlike veCRV, veBAL is obtained by locking 80/20 BAL/WETH BPTs instead of pure BAL tokens. This ensures deep liquidity even when a significant portion of BAL tokens are locked. Moreover, veBAL's maximum locking period is one year, shorter than veCRV's four-year period.
The emission schedule for BAL, integral to the veBAL system, has been defined to ensure long-term sustainability. Initially, 145,000 BAL were emitted weekly, but the introduction of veBAL brought about a halving of this inflation rate every four years, with a total BAL supply capped at 94 million tokens.
Balancer's governance model is a decentralized framework that empowers the Balancer community to actively participate in shaping the protocol's direction. At its core are veBAL tokens, time-locked derivatives of the 80/20 BAL/ETH Balancer Pool Tokens. These veBAL holders, known as Balancer Governors, play a pivotal role in decision-making.
The BAL token, which is integral to veBAL, allows for the seamless exchange between BAL and ETH. The liquidity of BAL is directly influenced by governance, as veBAL liquidity remains locked for a specified duration.
Governable Protocol Fees, a crucial element, can be collected from swap fees and flash loan fees, contributing to the protocol's treasury. Balancer Governors decide the allocation of these fees to support the protocol's health and growth.
The governance process comprises a proposal, an on-chain execution payload, and a Snapshot vote. A quorum of at least 2 million veBAL voting is required for Snapshot votes, ensuring broad community participation.
Snapshot, an off-chain multi-governance client, simplifies voting and eliminates concerns about multiple votes or flash loans. Eligibility to vote is based on holding veBAL tokens or receiving delegated voting power.
A Multisig ensures the execution of off-chain votes, consisting of respected community members. Its role is to enact on-chain decisions made through off-chain voting.
An emergency subDAO exists to safeguard veBAL from malicious actions, managing the protocol within defined limits.
Balancer has undergone various security audits by reputable security firms to identify vulnerabilities and enhance its codebase. All critical issues found so far have been patched by the Balancer team.
Balancer's core contracts, such as the Vault and various types of Pools (Weighted, Stable, LBP, Managed, Linear, etc.), are intentionally designed to be immutable. This means that any updates or changes to these contracts require the deployment of entirely new factories/pools. Users are then given the choice to migrate to these updated versions voluntarily.
Furthermore, Balancer's governance model incorporates timelocks, which introduce a delay before proposed changes can be executed. This serves as a safeguard, allowing the community to review and potentially veto harmful proposals.
Nevertheless, to protect veBAL holders from potential malicious actions, Balancer has established an emergency subDAO with limited authority. The Emergency subDAO is a critical component within the Balancer ecosystem, designed to respond swiftly in cases of malicious activity or the potential loss of funds. This concept was originally pioneered by Curve Finance and involves a small group of authorized individuals who have the power to take action to protect the protocol.
The Emergency DAO concept empowers this select group, referred to as the "Emergency subDAO," to make crucial decisions to safeguard Balancer's pools and gauges. These decisions can include actions such as "killing" pools and gauges to prevent any further harm in the event of an emergency.
The Balancer Emergency subDAO operates as a 4-of-7 multisig, meaning that at least four out of seven appointed members must reach a consensus before any action can be taken. The current members of the Balancer Emergency subDAO were appointed through a community vote and can be found on the Balancer documentation portal.
Additionally, Balancer's bug bounty program is one of the largest in the DeFi space, offering substantial rewards for the responsible disclosure of critical vulnerabilities.
Balancer's bug bounty program has a maximum payout of 1,000 ETH for properly disclosed critical vulnerabilities. It's important to note that the bug bounties apply specifically to protocol smart contracts. Bug reports related to Balancer's web interfaces, including UI/UX or servers/infrastructure, are not eligible for rewards through this program.
Another security feature hosted by Balancer is its collaboration with Certora to launch the Balancer Certora Security Accelerator on October 10, 2022. This accelerator program is aimed at assisting projects that are building on Balancer to enhance their code security.
The Balancer x Certora Security Accelerator offers two weeks of manual code review by Certora engineers who are familiar with Balancer's codebase. It also includes an introduction to Certora's formal verification Prover, a powerful tool for ensuring code correctness, providing $10,000 USD worth of credits for Certora's formal verification Prover
The Balancer ecosystem is composed of various entities and participants, each playing a unique role in the development and growth of the protocol. The co-founders of the Balancer Protocol, Fernando Martinelli and Mike McDonald, continue to be actively involved in the project. Fernando serves as the CEO of Balancer Labs, while Mike holds the role of CTO.
Balancer Labs is the original entity that pioneered the development of the Balancer Protocol. Today, it is solely focused on open-source smart contract development. Notably, Balancer Labs does not operate as a service provider to the DAO but continues to contribute to the protocol's advancement.
Orb Collective is another independent entity in the Balancer ecosystem, formed by a team comprising former members of Balancer Labs and Balancer DAO contributors.
The Balancer Foundation serves as a crucial mechanism for executing work within the DAO. It aligns with Balancer's decentralization objectives and enhances the resilience of the Balancer Ecosystem. The foundation plays a pivotal role in supporting the Balancer DAO and its goals.
Balancer OpCo is a wholly-owned subsidiary of the Balancer Foundation. It operates as an integral component of the Balancer Foundation's corporate structure and provides support to the Balancer DAO. Its functions encompass administrative, operational, and frontend development tasks.
Balancer Maxis is a dedicated workgroup consisting of community contributors who are deeply committed to the protocol's future and long-term sustainability. Maxis members actively engage in proposing and executing innovative ideas, and they play a crucial role in handling various DAO operations.
There is no definitive Balancer roadmap. Due to the project’s decentralized governance nature it is advisable to monitor its social channels and official forum for any upcoming changes to the protocol, as those first go over public discussions before they are set for voting. Additionally the project’s Snapshot page provides a comprehensive list of all governance proposals including details on each of them.
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