Balancer is an automated market maker (AMM), portfolio manager, and trading platform that runs on the Ethereum network. It is also a decentralized exchange (DEX) that utilizes smart contracts to offer its services, including passive earning methods. The exchange operates similarly to Uniswap and other popular DEXs like PancakeSwap and Sushiswap. A user is only required to connect their wallet to the platform and perform a token swap.
The exchange relies on Liquidity pools rather than order books to source liquidity where a user can transact any amount they wish without waiting for a similar take/ make order to be listed. Using liquidity pools, the exchange creates the chance for users to provide liquidity and earn rewards.
Balancer is also similar to an index fund where users can create funds based on the cryptos on their portfolios. These funds are known as Balancer pools, and they allow any user to provide liquidity to a pool by depositing a crypto asset in them. The users who provide liquidity (LPs/ Liquidity Providers) earn a portion of trading fees collected in the exchange. The fee is collected in the native token Balancer (BAL), which the LPs receive as rewards.
The provision of liquidity is essential to the exchange as it facilitates the smooth running of trading activities without slippages. Below is more information on Balancer and its BAL token.
