Balancer Finance (BAL): what you MUST know about this DeFi platform

Hey guys, it's Michael. Welcome back to Box Mining. Today is part of our series on decentralized finance. We're going to take a look at balancer. We're also going to introduce some concepts that are getting a lot of attention right now, namely liquidity mining and yield farming. This has been picking a lot of attention over the past few weeks. So right now there are new articles on every single media outlet about yield farming and DeFi. There's even a DeFi farmer newsletter coming up. And all of this rage is because people love money. I mean, who doesn't want to wake up and just like, oh yes, money, new money, just money coming in my pockets. Okay, that's probably not a good idea. Probably just wipe coronavirus all over my face. But you get a picture. It gives and provides a method for people to gain passive income. In this episode, we're going to take a look at what is balancer? How does it actually work? What's the basic concept? I mean, even when I read it, I was like, what is an automated market maker? What is n-dimension liquidity pools? We're going to explain it in simple, plain English so everyone can understand it. We'll also talk about the concept of yield farming, liquidity mining, what's going on in a space and get you up to speed with what all those young kids playing with DeFi are doing these days. And as a special note here, as part of the DeFi series, all of this does involve risk. And I'm not trying to promote a certain project in any way or the other. Mostly, I wanted to do this for my own research to find out what is going on with DeFi space, because it will challenge a lot with what's going on in the financial system. And this is why it's important to keep up and why I'm making these videos. And lastly, we're doing a ledger giveaway at the end. So make sure you stick to the end of the video to find out how you can make a ledger nano S. And if you guys like educational videos like this, make sure you click the little like button and click the subscribe button. And with that, let's get started. Let's get to the money making part, and then jump into a little bit about how it works. What's the mechanics behind it? At the end of the day, balancer looks like this. This is what the balancer pool management is like, you'll see lists of different cryptocurrencies called pools. And you can see there's a lot of money in these pools already. Just for an example, this pool with USDC and MSM USD has $17 million of liquidity inside already. And next cool thing up here is swap fee. This is what people are interested in and why people are pulling their money, pulling that liquidity together is because they want to make that fee. So in essence, what users and people can do is if you have spare cryptocurrencies just lying around, you can join a suitable pool that uses these currencies. And then you supply that as liquidity to that pool. And fees aren't the only thing they're after. Because right now, we're at an incentivized stage where balancer is giving out their own governance token, the BAL token, to anyone who contributes liquidity to these pools. And this adds up to quite a lot. So in the last article, they're talking about, they distributed 435,000 BAL tokens. So today's value, they're worth around $10.7 each. So that's actually more than $4.6 million USD worth of BAL tokens being distributed in the past three weeks to these liquidity miners. And that explains why there's so much interest because $4.6 million isn't a small amount of money and explains why all these kids jumping into defy are talking about balancer right now. Now, before we go too deep into this, obviously, incentives aren't going to last forever. I think that's kind of core here. And I really wanted to focus on what balancer does. Most of all, like is the technology worthy? Is there anything interesting there? And this is where we got to get into a little bit more detail and start talking about the actual functionality of what balancer does. Now, if you actually read the description of balancer, it is quite complicated. It talks about automated market making, and also in dimensional pools. Now that sounds like quite a mouthful. But in actual fact, in plain English, the best way I find it is that balancer is an automated system, decentralized automated system that replaces the traditional market maker. You see, market makers very present in the traditional markets, the third party, and they make a lot of money. And they're present in almost every store of market, whether it's on equity or stocks trades, whether it's on currency trades, what is on metal trades and oil trades. In essence, say, for example, I'm in Hong Kong right now, I want to sell out some Hong Kong dollars, I want to just buy some US dollars, there has to be someone on the other side of the trade. And that's exactly what the market maker does. And they make a little bit of money on the side, but providing and fronting up that US dollar for me when I need to make that trade. Now with balancer, they're doing the exact same thing. They're tapping into the liquidity provided by these liquidity pools that users set up, they're using that to be on both sides of the trade. So yep, they're doing something that has been present in the marketplace in the trading space for ages for decades and generations. And they're doing it in an automated fashion. So when they take fees, those fees get paid to the liquidity pool providers to people who are liquidity mining, that's kind of the easiest way to understand it, they're cutting out the middlemen. And in fact, giving all those rewards that the middlemen will receive direct to the users to the pool providers on the platform. Now balancer does all this, but it gets a little bit more complicated. That's where the end dimension comes in. I really hate that word. It sounds very fancy. But in essence, what it means is allows users and pools to build up special combinations of multiple different currencies. For example, this pool contains wrapped ETH link balancer BAT, ENGINE, USDC, and DZAR. So you're allowed to have as many different combinations, actually not as many, you're allowed to up to eight different currencies in that particular pool. And the balancer itself, that's where the secret sauce comes in, allows these funds to be all used in different transactions. Say, for example, people want to swap from BAT to ENG, they can call upon this pool that I just showed you just now and allow the transaction to take place. And in many ways, it's more flexible and more dynamic than just having a pool with just two cryptocurrencies. And of course, something that I do want to mention with balancer, and what's kind of interesting about the system is that their algorithms will attempt to balance and keep the ratio of funds within a certain pool. This is quite important, because it's not always the case if I've tried around with Uniswap before as well, I've supplied liquidity to add to that. But the ratio of the funds do change over time as people start trading in and out and as assets change in value. Balancer tries to remedy this, it's trying to automatically compensate for fluctuations in currencies. So at the end of the day, that ratio between the coins stuck in one of these pools is roughly around the same. But of course, they can't make full guarantees. There's a bound to be a little bit of fluctuation over time. But what their secret sauce is, is that their algorithms keep the pool ratio the same. Lastly, I want to take a little bit look at the BAL token, the governance token for BAL. And in essence, what it does is this gives people a stake into the whole governance protocol itself, and allows people who hold BAL to vote on what they can do vote on the future of the platform. And in many ways, I feel like this is inspired by Compound. We covered that point previously. And they've also had a similar governance token. I think it's very important to establish here that this doesn't give you ownership of a company. It's not equity. And it's very important to set that out straight. Because I think there could be misinterpretations on what it does. But it really is just a voting mechanic. It's a it's a governance token for that means. None of this is risk free. No, I think anyone who tells you that is just plain out lying. There's definitely going to be risks associated with decentralized finance. Why it's exciting, and why a lot of people are willing to do so is because of the decentralized non custodial nature of all that happens here. It means that there's no one party that has your funds once you're supplied at liquidity, once you kind of given up ownership of your coins, it's owned by a smart contract, rather than a person. And that smart contract is governed by rules are set previously. So no one can really just say, Yep, I'll take all your coins. And this is some of the risks of centralized platforms and why, in many senses, decentralized finance is very, very hot right now. But at the same time, because you give your custody to a decentralized contract, sometimes decentralized contracts can break. Now specifically to balancer, there has been attempts to try to yield extra balancer reward. So we saw FTX trying to do that with two tokens USDT bear and USDT hedge. They try to artificially inflate the volume to gain more of the daily balancer rewards. But this has been remedied by the balancer team. And in terms of attack specific to balancer, there's also one incident involving almost $500,000 worth of critical currencies being lost. This was a very sophisticated attack by the hacker who used a flash loan from DYDX to abuse one of the mechanics involved in balancer. You can see more in this article, but the end result was that the pool lost almost 500k worth of tokens. Good news is that the balancer team did compensate the users for the results of the hack. So no user funds were lost. But this does show that there could be unknown and exploits to the system in the future for balancer. So that's one of the risks. And that's one of the risks of using one of these since centralized finance applications at this current point, there could be risks and vulnerabilities with the contract itself. So you can see that no system is perfect, we're still at the early stages of this. And for me personally, I haven't gone, you know, heads deep into liquidity, mining and pool mining yet. I'm for me personally, I still like to keep my hodl amount safe. But at the same time, I am experimenting in small amounts with balancer pools, that's kind of the way I'm taking it. And I'm not promoting balancer in any way, I think there's still a lot of risk associated it. And then in many ways, this video is the start for your journey, if you want to understand what balancer is. And if you want to know a little bit more about balancer, how it works and what pools are popular, etc, we have a full article written on box mining.com. And I'll leave that link in the comment section down below. And you can check out and read out in a full glory. And that wraps up my conversation on what balancer is, I hope you found this useful to explore what liquidity pools are, I have a full video explaining the liquidity pool concept if you're a little bit more unclear. And if you want more detail into liquidity pools, of course, I haven't really talked too much about where balancer is used, and which trading platforms use balancer. And that's going to be in an upcoming episode as well. Now for this D5 series, I'm adding more and more concepts to this channel daily, what I have already is I have an explanation on compound on liquidity pools already, and also a useful guide for Meta mask, because Meta mask is one of the tools interfaces you can use to interact with these start contracts. And I teach you some tips and tricks to reduce your fees to get the most out of your experience. So make sure you check out those videos as well. If you want new videos, of course, I'm going to release them on a weekly basis. So make sure you're subscribed to the box mining channel for that, because we're going to have a lot more discussion on DeFi to explain what you want to know as well. And if you do have any special requests, leave them down in the comment section below. Now I promised you guys that we're going to have a ledger giveaway at the end. Well, when a new video gets released, type hashtag notification squad, and you automatically get entered for a chance to win this. But you must do so within the first 12 hours of release of this video. That way I know you're notified you're up to date with the new videos. At the end of the week, I'll draw one of these notification squad vendors and I'll tell you on the public stream as well. That's how you get there. So guys, thank you so much for your videos. I hope you can join that notification squad by hitting subscribe notification bell down below, and I'll see you in the next video.