by Franklin Bi and Kristie Huang, Nov 2020

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The current state of AMMs

AMMs differ from order book-style decentralized exchanges, which have suffered from liquidity issues on today’s blockchains because of low transaction throughput leading to similarly low order book depth. Order books work by collecting and matching buy and sell orders for a particular trading pair to make markets and set prices.

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How Balancer works

Balancer’s Core Pools allow liquidity providers (LPs) to deposit up to eight ERC20 tokens with any percentage allocation, as low as 2% or as high as 98%, between them. Portfolio rebalancing is a continuous passive process enforced by market dynamics: arbitrageurs are incentivized to buy underpriced and sell overpriced assets, which preserves asset ratios for LPs. In addition, LPs receive two forms of rewards for supplying liquidity: trading fees earned from every trade made on their pools, and the protocol’s governance token, BAL.

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As of October 2020, cumulative revenue earned by liquidity providers on Balancer exceeds US$20 million. Credit: Dune Analytics
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Even as this summer’s DeFi yield farming boom wanes, the number of daily active unique traders on Balancer remains around 2,000. Credit: Dune Analytics
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Why we’re excited about Balancer

As active users and as a partner to multiple portfolio companies that have launched liquidity pools via Balancer, we’re excited to be investing in Balancer.

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