Balancer: A changer in the DEX landscape?
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
A few days ago, the liquidity pool on Balancer was attacked twice in a row, which had a certain negative impact on it, but in general, it was just a small episode in its development process.
If Uniswap does not iteratively adjust in time, Balancer may become a real game changer.
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Changing the pattern of DEX
Since Bancor and Uniswap introduced the concept of AMM, it has successfully gained a foothold in encrypted transactions, and some tokens have good liquidity. Some tokens have relatively low slippage for tens of thousands of dollars or even hundreds of thousands of dollars, especially on the stablecoin-based Curve exchange. The figure below shows that the price impact caused by exchanging 50,000 USDC for WETH on Balancer and exchanging 30,000 DAI for ETH on Uniswap is within 1%.
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Why not Curve or Uniswap, but Balancer?
Curve currently focuses on the stablecoin market. Although the stablecoin market is large, if it wants to become a real DEX king, it must have a larger territory.
Uniswap has no token issuance plan for the time being, and its 50%:50% token pool ratio, for small projects, requires higher assets in the early stage of listing, and for liquidity providers, potential impermanent losses may be larger.
Of course, Curve and Uniswap also have opportunities.
In terms of currency issuance, Curve is already planning, and CRV has a high probability of becoming the next project with a market value exceeding US$1 billion. If Curve can iterate in real time and speed up, it may come from behind, it depends on Curve's own choice.
To sum up, relatively speaking, in the DEX field, for now, before Bancor V2 is proven, Balancer is one of the most likely game changers.
There are three data worthy of our attention:
Liquidity on Balancer
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(The liquidity of Balancer has increased by more than 6 times in one month, Source: DEFIPULSE)
Balancer's transaction volume
In the past week, Balancer's trading volume has climbed to the third place among DEXs, second only to Uniswap and Curve, reaching more than 40% of Uniswap's. With the subsequent increase in liquidity, its trading volume will continue to rise.
(Balancer's liquidity has increased by more than 6 times within a month, Source: DuneAnalytics)
At present, Balancer has surpassed Uniswap in the liquidity of some token transactions. If more tokens with high demand provide liquidity on Balancer in the future, its transaction volume is likely to narrow the gap with Uniswap and even surpass Uniswap .
The number of Balancer users
People have been criticizing the number of users of Balancer before, but now it has quietly entered the top five, with 937 users in 24 hours.
(Balancer 24-hour user count, Source: Debank)
（source:balancer）
Where Balancer is likely to win with one trick
Although the listing of project tokens on Uniswap does not require permission, a certain amount of upfront capital is still required to induce liquidity. According to Uniswap's market-making model, if the liquidity pool of token X-ETH is added, where X token is 100,000 US dollars and ETH is 100,000 US dollars, even if only 1,000 US dollars worth of tokens are exchanged, it can cause 1% slippage. If you want to lower this slippage, the project team needs to inject more ETH assets. For project teams with little early financing, it is not easy to guide liquidity.
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You can set the weight of project tokens in its liquidity pool to 80% at the beginning, and set a proportion of 20% for DAI (or ETH). As time goes by, you can gradually adjust the proportion of the token pool, which allows the project team The weight is updated by "poking" the contract. Weight changes bring arbitrage opportunities and can also bring more traders.
According to this model, it is equivalent to a higher proportion of the project token itself at the beginning. For example, the proportion of the project token is 400,000 US dollars, and the proportion of ETH (or DAI) is 100,000 US dollars. (100,000 USD in ETH or DAI), the trading slippage of its participating users is lower, which can lead to greater liquidity. Compared with Uniswap's 50%:50% fixed ratio, this is more flexible and more suitable for many long-tail projects to guide the discovery of liquidity and market prices on Balancer.
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Changing the pattern of CEX
It may be understandable to say that Balancer will change the DEX pattern, but it may be too fanciful to say that it will change the CEX pattern.
However, let’s look at a set of data first. Uniswap’s trading volume in June exceeded its overall total last year; the current DEX trading volume has gone from less than 0.5% at the beginning of the year to more than 1% now. This is a big leap. If 1% is compared to CEX, it is still a very inconspicuous amount. But according to the current development speed of DEX, it is not impossible to change from 1% to 10%. Once it exceeds 10%, DEX has a chance to exceed 20%... thus changing the overall market structure of encryption trading.
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(From the beginning of the year to the present, the total transaction volume of DEX exceeds 5.1 billion US dollars, source:DuneAnalytics)
The biggest killer feature of DEX is not the order book model, nor is it entirely because of its privacy, deposit and withdrawal convenience, but the biggest killer feature is its growing depth and liquidity in the future. And to do this, the order book model of DEX cannot compete with CEX. But AMM mode can. This is similar to every change in history. Each innovation is always triggered by a different model (the same model can only be imitated forever and cannot be surpassed).
Liquidity mining will siphon funds. The essence of capital is to pursue higher returns. When the income from liquidity mining is attractive, and when there is no external funds in the market, the funds will flow from CEX to DEX and to DeFi. This is the most direct impact of DEX on CEX, although the magnitude is still small. But start to show.
For CEX, the most fearful thing is the aggregation of DEX liquidity pools, sharing depth, which will bring even smaller slippage to DEX users than CEX. When this day matures, it is also when the CEX pattern shakes.
It can also be seen from the above that the liquidity of Balancer has more than 6 times in just one month, from less than 30 million US dollars to more than 130 million US dollars today. Within a month, mUSD led to a liquidity of more than 12 million US dollars on Balancer, which is unimaginably fast.
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Can Balancer become the king of DEX?
The first is a substantial increase in transaction volume. At present, the composition of its token pool is too single. The main liquidity is gathered in WETH, USDC, BAL, RPL, DAI, MKR, cUSDT, REP, etc. If you want to greatly increase the transaction volume, these token pools alone are not enough.
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(The main tokens with liquidity on Balancer, source:DuneAnalytics)
On Uniswap, the main liquidity is concentrated in DAI, USDC, MKR, BAT, USDT, AMPL, LEND, DMG, etc. Many of these tokens use Uniswap as the first place, which has a greater contribution to the transaction volume.
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(Liquid token pool on Uniswap v2, source: Uniswap)
By comparing with Uniswap, Balancer may need to change its incentive mechanism. Such as changing the factor of its incentive. which includes
Encourage long-tail projects and support the liquidity guidance of some nascent projects, such as joint mining.
Incentive support for higher liquidity for tokens that are currently in greatest demand.
Secondly, the simpler exchange experience can even consider making up for the slippage loss of real trading users.
Thirdly, let project parties and liquidity providers fully understand the flexibility of their liquidity pools, and the first choice for listing coins is to transfer them from Uniswap.
Fourth, governance iteration. Give full play to the enthusiasm of existing BAL holders, iterate the incentive mechanism of BAL, and provide token incentives for high-quality governance proposals.
