This is epicenter episode 350 with guest Fernando Martinelli.
I am Sebastian with you and you're listening to epicenter
the podcast where we interview crypto, Founders, Builders and
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device, the easiest way to do that is to go to epicenter
rocks. / Apple. Today our guest is Fernando
Martinelli. He's the co-founder and CEO of
balancer laps. Balancer is a generalized
automated market-maker protocol or a.
Mmm, it allows anyone to place liquidity into a pool and to put
it to you. So, on one side we have
liquidity providers who generally seek to balance their
Holdings and they can do that by placing it in an M&M protocol
like Bouncer and they'll get rewarded with trading fees.
And on the other side we have Traders we're just looking for
the best rate possible. So, one way to look at balancer
is as a generalization of Yuna swap, however, balancer pools
aren't restricted to the same 2020 split between two tokens a
balancer, pool can support up to 8 tokens with any distribution.
For example, one could create a pool with 70% wrapped eith 20%,
die and 10%, link and balancer uses smart order routing which
ensures trades get sent to the pools which provide the best
rate possible. So, essentially, a balancer
pools can be seen as a sort of Of balancing Index Fund, which
pays you for contributing liquidity to the platform.
So the inner workings of balance are quite complex.
So thankfully we have mayor and sunny on this one to break
things down and help us get a better understanding of how to
Procol works. And also the token economics
which allow it to function and the governance of the protocol
enabled by Bal tokens This week the interview debrief is free
for all subscribers and for everyone to hear and sunny and
mayor. Go on for an extra 15 minutes
and they talk about token economics and the business model
of balancer. If you like the interview
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premium epicenter, dot TV. And with that, here's our
interview with Fernando Martinelli.
So today we have on with us, Fernando Martinelli who is the
CEO of balancer Labs, where they are building the balancer
protocol. It's great to have you on.
Fernando. Great to be here.
Thanks for inviting me guys. Yeah, so me and me here have
been like, you know, following the balancer work for a long
time and I think we're here was very interested in sort of like
multi-asset pools. I've also been really interested
for a while in just like, you know, more advanced.
Parameterization of Eunice. Or a M&M's because like I have
this like giant blog post. I wrote like a couple months ago
where I'm like oh I want to parameterize everything and
M&M's and then someone's like oh you should go check out what
balancer is doing and it's like oh wow, this is really cool.
Yeah, happy to finally, like, no be able to chat with you about
this stuff. So can you tell us a little bit
about your background and how you got into crypto in the first
place? What were you working on before
balancer? If anything.
So I'm a mixed Tronics engineer and I did a master's in robotics
and image processing. I also did an MBA at the
sorbonne University in Paris worked for beIN company as a
strategy consultant in Germany. I actually created a few
startups already in the past, I started very young.
When I was 14, I created this cyber cafe.
That was very, very successful because it was the time where
people were addicted to Counter-Strike, and I was myself
to, I figured I should create The my own cyber cafe.
I went to Europe and after I work for being company, I
created this company that allows people to prepare for
interviews, called prep Lounge. Got back to Brazil and created
an energy drink company, like quite different and how I got
involved with crypto. In the first place was late
2012. I got introduced to it by a
friend and at first, I just like this, miss that completely, like
this is a Ponzi scheme. You're only going to buy this
thing. If you believe that others will
buy it, And the value will grow just because, like, people are
buying into it. And then, second time I looked
at it early, 2013, it really struck me, like, how black
revolutionary. This is and I kept kind of
paying close attention and when he cerium came out, it really
like, kind of caught my attention because I think that
Bitcoin is very, is great for, like, a base money layer.
But if you room has this flexibility, that allows you to
create the financial system instead just of a coin, right?
I was very excited with stable coins.
That was something that I really believe.
We need to get Mass adoption. Since then I still do any
Theory, mm allowed that. And that got me like to be
participating in the early days of the maker doll community.
This is where I got to meet Rune, and Nicolai and all the
guys, in early 2016. I collaborated a little bit with
maker dowel doing some research on the control, mechanisms for
the Target rate feedback mechanism that At applied and
now there's like reflect sir that's actually Reviving all
those control ideas with I mean and Stephen.
So yeah, that is kind of an overview of how I got to hear.
And so a lot of the like early balancer team is from like the
Mako Community right to like Nikolai and like Mike McDonald
as well. And was there, anything in
particular like those are problem that you guys faced in
like designing maker and you're like, okay, I need to go build
this. Balancer is going to be the
solution to some problem. We were facing there.
It wasn't a problem we're trying to solve for Meeker.
It was so bouncer started as a research project at blocked
science, which is an engineering research and development
analytics firm, and that was kind of me alone collaborating
with them. And yeah, the reason why
balancers started in the first place was like this idea of how
can I keep a portfolio stable in terms of percentage of value
distributed, like you want to be positioning trading and you
don't want to have like to actively?
Lee go and buy and sell tokens just because one of them went up
by a lot. So you want to have this kind of
Peace of Mind of being passively investing in a basket and having
it being automatically rebalance for you.
That, that was the beginning of everything.
And yeah, we spent off of block science and created balancer, as
its own company. And I showed this to Nikolai, he
was extremely excited because he had this problem.
I had was the problem myself to like, how can I put my tokens?
Liquidity with them if back. Then only there was only you
know Swap and you can just like put 50/50 Nikolai as being one
of the major doll Founders. He has a lot more committee are
at least I suppose then they need so it would be great for
him to have an 80/20 pool, right?
With mkr anyth and he really loved the idea.
He then kind of a joint as our Chief Architect and Tech advisor
wrote a lot of the code and then Mike McDonald joined as a CTO
and co-founder as well. And yeah, this is kind of of how
we got to here. so, if the original goal was to figure out
how to like do passive portfolio management, something more
similar to like set protocol, I would say, then what point did
it transition to then becoming like also liquidity providing It
was a consequence like when you want that to happen, then you
need someone to do the trading for you, right?
So the idea is that it's a two-sided Market where you have
like the right prices in place for people to be incentivized,
rational players to be incentivized to be doing the
trades you want. So if your pool needs to sell a
4B, you want to let people be marginally incentivised to buy
be for a or, yeah, do the opposite trade.
It then creates this massive amount of liquidity.
We're like if everyone's using this common protocol, which is
balancer, they're all like, creating pools and adding tokens
to them that creates this massive liquidity, that makes it
very easy and gives great conditions for people to train.
I'm really curious about the generalization of Eunice we
operate. So you have units of, which is
this constant product Market maker in, which there are two
assets X and Y and it's a pool, which is 50/50.
And then in some ways, balancer extends, that Formula to it,
introduces more terms, and it introduces exponents in these
terms. And it's a generalization of
Unis, of who had the brain wave of generalizing Unis for up like
that. And how did that idea come
about? It was me.
So I came up with that formula back in early 2018, and since
then, it was a long like process of modeling and simulating
things in lots of things that formula, that aha moment came
while I was sleeping. I had like, tried dozens and
dozens of things and yeah, I've written a hundred maybe pages of
mathematical skills, because one thing is to get that simple and
kind of small or very simple formula.
The other thing is to prove that At that formula.
Like if you take partial derivatives of two tokens and
you prove that your pool is going to always have the same
value in each of the token. So it seems very simple, but it
was a lot of time that I spent. Yeah, working on that.
I also did during my undergraduate studies, I did
advanced mathematics at the University so that helped quite
a bit. Yeah, it was pretty much myself.
Maybe before we dive deeper into the math, or could you maybe
give a broad overview of, what is balancer?
And what does the protocol do? Balancers and amm protocol for
programmable liquidity and amm there since for automated
market-making. It's a complicated term, but
it's nothing but the protocol trades automatically, that means
that balancer allows for the creation of the flexible.
Liquidity pools that are continuously self rebalanced.
So the protocol makes sure that those polls are very balanced.
And that's what we just spoke. About the nice thing about those
fools. And if you look at unit swap,
you see that it also That if you go to contracts that you can
swap has you're going to see that the eith value and the
token value. So if you're talking about, you
know, soft you want, you can you can see the Ethiopian token
value, you're going to see that those values are almost the
same, you know, swap always keeps that those pools at 50, 50
percentage distribution of Valium.
Now, bouncer allows you to do that with many tokens not only
to, and not only like the same weight so you can have 20%
token, a so can be and 60% token.
See, you can have up to eight tokens and you can also choose
the trading fee, that you want your pool to have, and that's
fixed also for you to swap at 0.3.
So you can think of a balancer pool as an index fund where
instead of the Ali LPS paying a fee for the administrators to
manage the fund and sell the tokens that go up, which is what
happens in conventional Finance, it actually pays the LPS for
providing liquidity to those funds, so it Kind of inverts
that idea of, I'm paying for an index fund manager to take care
of my funds and rebalance. And for me, it's actually, I'm
getting paid for letting people use my liquidity in that Index
Fund to trade. So yeah, maybe kind of
finalizing. The answer you asked about,
like, who our users, what's in it for them?
There's two types of users, it's a two-sided Market on the one
hand, you have the liquidity providers who are looking to
both balance their Holdings. So they don't want to be
Overexposed. Used to one of the tokens that
they hold. So they want to be selling those
tokens as those tokens go up and the other use cases.
You're making trading fees rights.
People sell Buy sell, buy your charging, a small fee out of
each of those traits. So you're accumulating more and
more funds. So it's a way in which you can
generate some interests or some some trading fee Revenue.
The other side is, you have Traders and they want to trade a
4 B, they don't care where that's coming from.
They just want to have the best rates.
Or conditions possible in and balancer can use tap on the
liquidity of all the pools to offer someone trade.
So, one way to think of balancer is that balance, it takes to
different parts of the financial supply chain or that two
different parts in a traditional Financial supply chain and it
kind of merges them into one. So, on the one side, you have
the asset management supply chain, which is me, shipping
some dollars into Fidelity and then managing the index fund for
them for me. And this Fidelity has, you know,
like trillions of dollars of assets on its balance sheet and
then The other side you have the market makers, which are
operating on the different exchanges.
The New York Stock, Exchange, all of these exchanges and these
market makers are people that have the assets and are always
willing to quote, prices on on the asset.
So they have US dollar in British pounds and they're
willing to always coat an exchange rate.
Between them the nature of a market maker.
Traditional Market maker is that they need access to assets so
that they can make the market and the nature of an asset.
Manager, is that they have lots of assets, which have been
sourced from all of the people, that own the index token.
And normally, you know, like these two are quite siloed,
these two functions of Finance are done by different entities.
One of these entities has asset and the other needs assets, but
the 2N never meet in traditional Finance, but balancer is almost
the system where it's a smart contract, where both these parts
of the supply chain exist. Inside one smart contract.
So you have users that want an index supplying assets and those
assets being used to make a market.
And the market maker is the Smart contract itself.
So it's like, it's compressing down the entire Financial supply
chain into set of smart contracts, and allowing for a
new kind of efficiency to emerge or because of that compression.
I couldn't have done a better job at kind of doing that
analogy, then you did that, that was extremely good and I totally
agree with that. The idea is that balancer using
etherium, which is an amazing product called an amazing
Revolution for society. It just like Fred's the fees
that are now going to Fidelity to NASDAQ, and NYSE to all those
regulated entities, that have to spend a lot of money being
regulated and paying lots of salaries.
This is why You have to pay an index fund manager for them to
to manage your funds for you, the beauty of the etherium, and
yeah, decentralised finances that you don't need anyone for
that because you have the smart contracts, controlling that and
it's totally trustless and permissionless.
So yeah, we're just combining those two sides of the market
and yeah, spreading the fees across them.
So no one's is getting in the middle anymore.
And this is not only cheaper for everyone, it's more efficient
and faster. Her and has a lot of advantages.
So, one of the questions I have though here is I understand why
it does well as a trading venue, but when you say it act, as a
fund portfolio management, you know, when you do portfolio
management, you usually want to rebalance occasionally, right?
So in your portfolio, you have like 80% bonds, 20% stocks and
then suddenly the stocks 2x or 3x and now Now, you have way
more stocks and then, at some point you like rebalance, your,
you know, you sell some stocks to equal out.
But the problem is, you know, I feel like the portfolio
management the prophet works because it happens at like sort
of longer intervals. Where, you know, you let the
stocks rise for a week and then you rebalance.
But I feel like the problem with doing it on balancer is the
rebalancing is almost it's like it's too.
Overeager where it rebalances to quickly it can it's a continuous
rebalancing and so your rebalancing before you even get
to realize the profits of the stocks Rising.
So for that reason, is it really act as a good portfolio
management tool in that case? That's a great question, Sunny.
So actually, there is a way to simulate what exactly what
you're saying. Like, wait for there to be some
profit for one of the tokens to go up by a given him out before
you start selling that. And I wrote an article on that
which is how to use balancer pools with high fees to simulate
swing trading. So, when you have a high feel,
it's a 10%, your pool is only going to sell or it's only going
to be profitable. So let's say you theorem is
$200, your pool with a 10% fee. Is selling at 220 and buying at
around 180, right? So what happens is the price is
stuck until someone trades. And if the external market price
goes from 200, all the way to 221, that's when someone's going
to buy from you. So you're going to be selling at
220 and then if the price goes down and whenever it's between
though that in that bandwidth, like between 180 and 220, you're
not selling nor buying because it makes no sense for External
factors rational actors to pay more or less than the current
market price. So if it falls down to 180, then
actually you start buying eith. So this acts exactly as you say.
So that the fact that you can customize the feasts allows you
to choose like what strategy you want to if you want to be
rebalancing very often that would be a0 fie or if you want
to rebalance like very sporadically when prices have
huge variations that's a higher fee.
So you can control that with the fee which is Cool right?
Yeah, that's really interesting. You never thought about that
because we're used to 0.3% on you to swap which is fixed,
right? So that's why people I think
never thought about that. But that's actually pretty
powerful and pretty cool in my opinion.
Is it possible to make these much more resilient?
We're like, you know, sometimes the fee you want it to be higher
for some reasons, when maybe there's higher volatility or
maybe want to be lower, when there's lower volatility, or how
Dynamic is, are these fees or is it like, you know, you set a fee
one time or is it? Okay?
We're doing 10% for this pool and it's stuck there.
Great question. I think in order for me to be
able to answer that I'd have to kind of explain a few things
real quick, we have two types of balancer pools today.
In balanced view one which are the private pools in the shared
posts. So the first one is the private
pools are owned by an address and only that address can add
liquidity to those pools. And because there's only a
liquidy from that address that addressed the owner of the pool
can do whatever they want, so they can do it.
Exactly what you're saying. They can start with a high fee,
add more funds and then change weights, add new tokens, remove
tokens and then decrease the fees.
They can do whatever they want because it's therefore now we
also have the equivalent to unit swap markets which are the
shared posts which are immutable so you cannot change anything
and that's necessary because other people can put money into
that for as well. So if you allow the creator of
that pool to change and add a new token, they would be able to
just add there. Looking at the Own 100% of the
supply and drain the funds up everyone else.
So that's why shared pools have to be immutable.
The nice thing about balancer is that you can have a private pool
that's controlled and it's actually composability on
etherium, it can be controlled by or owned by a smart contract,
not by an address. So that's my contract, is what
we call, or that whole kind of structure, is what we call Smart
pools. So, smart pools are actually
private pools at the base. Slayer, like they're seen as
private pools By The protocol but the owner of those private
pools are smart contracts, that can be gateways for external
liquidity. And one of the like the use
cases that I think is the coolest.
Like one of the coolest ones is exactly what you said is like
imagine a surge pricing pool or surge pricing for the pool.
When there's a lot of demand for liquidity think black Thursday,
everyone like is desperate to close their vaults because
they're going to get liquidated. They don't care if they're
paying 0.3. Five one or two percent, right?
They just need liquidity. So this is when that smart
contract that controls and owns. That pool says, okay, it's high
volatility time. I'll just like, crank up my fees
and I'm going to make this for more profitable.
And then what that means is that it's like, uber when it's
raining like no one wants to drive and everyone's to take the
cab. So what happens is prices go up
so you attract more drivers to the streets and that's exactly
what happens by increasing the fee.
Of that pool in times of high volatility, you attract more
liquidity providers and that in turn makes that pull better for
Traders because the slippage is going to be lower because the
more liquidity you have the lower the slippage.
So you actually are matching both sides supply and demand
which makes that smart pool a lot more efficient for both
sides. So I think that in the future
we're going to see a lot more smart pools and we're working a
lot on that and other teams as well as opposed to just shared
posts that are inaudible, we're going to see a lot more of
those. Horse.
The difficulty with a shared like it with a public pool is
that a public pool is probably good for trading, but as a
portfolio management solution, a public pool is not so good.
Because like once you set a particular set of assets and
certain percentages for that assets, that thing is kind of
frozen forever and can't adapt to changing circumstances.
That's not an ideal portfolio for anybody.
It is frozen, but you can withdraw your liquidity at any
moment. So there's no lockup period of
liquidy. So if you find that basket or
like that, the fees of that pool are not ideal.
Then you can just move my greater liquidity to the poor,
you like more and we've been seeing that a lot happening on
balancer lately. So pulls that were big at the
beginning. Now people realize, okay, the
fee here was not ideal. So let's move to a pool with a
higher fee. So even though the pool is Your
liquidity is not, you can migrate your liquidity anytime
and we're also working with other teams and inside balancer
as well to create like those intelligent migrations or
migrators if we detect that there's a better pool for
exactly or similar distribution or basket that you already have
that tool with one click you can just migrate your liquidity to a
better pool, that's more profitable or what not.
But it does require active management.
Yes, if you're talking about the shared posts but not, if you're
talking about a smart pool, which is the surge pricing,
special those Mark pools can. Also change the weights, can
also change the. Yeah, add new tokens.
And there's a very nice example of that.
I like to give about a few actually, but Realty is this
company that tokenize is real estate on etherium.
They are building a smart pool that does exactly that like they
are constantly adding new properties.
To Realty. So instead of like having
everyone migrating to a new shared pool with an extra
property, what to do is they create that smart pool where
they are two controllers of the assets, they can add new
properties, they can remove old properties and if they have more
than eight properties, so, balancer pool is limited to H
tokens today in conversion one, what you can do is they can
replace a property by a pool of properties.
So now, instead of having just eight properties, you can have
eight different cities. He's each city is actually a
pool that contains properties in that city.
So we have Florida, Detroit and Etc.
The nice thing about that is that you're smart pool token.
So actually also smart pools are tokenized.
So you own a part of that smart people, that token does not
change. Even though the like, all the
properties are being updated and changing the weights, you can
use that smart pool like the mother token.
You can use it as a maker doll collateral because that token is
canonical. It's not going to change.
So that's really Full, of course, you have to trust the
guys that Realty through already stressing them.
To hold those properties on your behalf like tokenizing those.
You're actually ready. Trusting them.
Anyways, So, smart pool, if they want to do like they would have
to, like Implement their own tokenization to distribute
shares because, you know, the balancer protocol just sees it
as a private address. So they have to sort of, do
their own sort of shares, however, they want and, like,
deal with, like, how to, you know, when people add liquidity,
issuing shares, and all of that, Smartphones will have that parts
of the controller of that private pool issues.
Shares your see, 20 shares for people who provide liquidity to
that controller, the controller. Then passes that liquidity down
to the pool it controls. But then the controller itself
issues, your see, 20 shares for people who are providing
liquidity. We are working in almost
launching an auditing right now. Smart pool Factory.
It's like a template that anyone can create their own smart
people, and they can actually decide what What rights that
smart people that are creating will have, I can choose to
create a smart people that can only change the swap fee.
I can choose a smartphone that can add tokens, but not change
the swap fee. So you have all those like,
levers, you can change or you switches, you can turn on and
off and then you have that smart but without having to deploy any
code at all and all of those are your C20 compatible.
So, they didn't issue shares that can be used as in your C20
anywhere on here. I can sort of see two types of
smart pools that or two broad categories and there's like
really a spectrum but there's one which is more sort of
governance Focus smart pools which are like you know you can
imagine them basically being Dows and similar to maker.
Almost like you use governance to make decisions and then on
the other side you have you mentioned earlier, reflects your
lab rational more automated like using smart pools and smart
contracts to make better. Smarter algorithmic things that
adjust the parameters and there's obviously a spectrum in
the middle. So which ones have more traction
right now and which ones do you personally?
See as being going to be more popular?
Going down the road. Right now, we're not seeing a
lot of smart phones out there. It's like, really the early
days. It's very nice and and
incipient, but the guys at Pi Dow, did an amazing job.
They've already come up with their own smart pool.
They didn't wait for us, which was awesome.
They have this doll, controlled smart pool, where the Dow can
decide. OK, let's change the weight of
this token because now they have the BT.
C plus plus the USD plus plus spice.
So now USD plus, plus it has Has your CT or usec?
U.s. DC has some like trust issues.
So let's agree that we should decrease that weight and then
they vote. And then the Dow decides that
the controller of that private pool like a smart bull has to
change reduce the weight of that stable coin that is having
problems so for now that's pretty much the smartphones we
have around in terms of what's more promising.
That's a great question II. So one thing that I think will
be huge For bouncer is going to be treasury management.
So, if you have a project or company or whatever that has
funds, unchain you want to have like some sort of management
where you don't want to be Overexposed.
So, for example, an insurance product rule, they have
different types of assets that they will need to use in case,
there's some claims someone that gets hacked, they need to use
that Insurance Fund, that Insurance Fund itself has to be
risk, managed, so that if one of the assets goes, Up by a lot.
You don't want to be holding 99% of all the insurance funds in
that asset. So balancer is perfect for that.
It will be selling that token as it goes up and it goes down and
then it revise it. So, it's a great way to use a
smartphone. Another think that another way I
really like is the concept of liquidity bootstrapping pools.
And that is our an article. We can maybe Link in the show
notes by Mike McDonald our CTO, you talks about how project
that's starting It has a lot of tokens that they want to sell
like an IC o----. They can start with a smart pill
that has 95% of that project open and 5% eith or die.
And then, over the course of six months to a year, they will
start flipping those weights. So at the end of a year, you're
actually going to end up with 95% die and 5% your project
token. So slowly, you will allow people
to poke that smart contract and update the weights according to
that schedule of a year. And what you're doing is you're
Selling in a year, you're selling like 90% of your tokens
and along the way you letting people trade, you're making your
token, very liquid, which is one of the biggest problems for
projects, right? They pay like a lot of money for
private companies to be market-making on centralized
exchanges. They for listing listed on
buying ends, they pay for those market makers to make sure that
there's some liquidity people can buy and sell.
And now they can do all of that on balancer without paying
anything and actually that maybe segue to The next topic, but
they actually are getting bowel tokens in return.
So they're getting some tokens that will allow them to have a
voice or to vote in the direction, the future direction
of the prodigal. So they only have like
advantages in my opinion. About this like I do or Ido
initial decks offering I guess you could call it.
So let's like take an example of the ummah token launch so we
just had Houma on the podcast last week and so for them, what
happened was they were trying to sell off relatively small
percentage of their tokens of their total Supply.
Which is only about 2% on, you know, shop.
They have to do like a 50/50 balance.
It turns out, they weren't To put that much ether in either
and it just the problem was as people bought in the price was
just fluctuating way too wildly like it, just there wasn't
enough liquidity to make it usable.
How do you fix this in balance? Or is there some how I can use
the weighting system of balancer to have done this better?
So your project wants to sell your project tokens and saying
in case of Uma they didn't have a lot of eith.
So what they could have done on balancer is they could have put,
let's say 20 percent of the weight of that pool in eith and
80% in Uma tokens. So the overall pool would have a
lot more value in it, which would have made it more liquid.
So the slippage for the same size of a trade would have gone
down so it would be much better for Traders now the That I like
most about LBP. So liquidy boots, riding bulls
that idea, is that what you could do is you start with a
very high price to avoid this kind of bank run like everyone's
trying to be the first ones to buy because they know that the
price is starting as like the seed price and everyone knows
that Puma is very successful, is a great project.
So everyone is to be the first to buy it just to sell to dump
on top of the late kind of laggards.
So what you can do with bouncer is you start with a very high
price. Ice and then what you do is you
start decreasing the weight of your project open and increasing
the weight of eith. If no one traits the effect that
that has is your decreasing, the price of your token.
So let's say you start with 95 5, a very high price and then no
one buys and it starts decreasing the weight.
At some point, the price will become interesting for someone
and then what you do is, like, you completely get rid of that
hype, or that those kind of a portentous people that just want
to. Resale because people know that
if no one buys, the price will fall.
So they will wait for the right moment for them to step in.
And if anyone wants to buy before that they can buy, but
they know that the price is high and it will keep falling.
If people don't just keep buying, keep buying the price
will fall. That's so cool.
It's basically like, a combination of a Dutch auction
with an automated market-maker into like one sec.
That's so cool. Yeah.
So it's a Dutch auction because, yeah, anyone can Wade, and until
the, the price goes down. But it's an am an, because, if
along, the way people start buying the price will grow,
right? Well, yeah, so that's pretty
pretty cool. Going back to the topic of smart
pools and the more algorithmic style ones to me.
It seems one of the things that would be the most useful in a,
in a better smarter. Mmm, would be essentially how I
see it is when you design a fee model.
There's three parameters, you can take into account, which is
volume slippage, and volatility, and currently unit swap, only
takes into account. Volume its point.
Three percent times volume the one that you really want to take
into account though. Is volatility, if you want, you
want to be able to say that like Hey, Okay, as or thing is
getting more volatile, automatically increase the fee.
Can I do that on balancers that easy like it how you know you
just Harvey to they started like sort of keeping this like
historical records of prices and stuff and you know what how hard
would it be to Construct a volatility index on balancer,
that's consumable by a smart contract.
That's a good question. So, I don't believe that where
we want to focus on that because that's a quite a complex problem
in and of itself, especially if you want, if you want to do that
on chain, then it becomes even harder.
You need an article, you need some like like some history of
prices in the past. There are projects that are
doing doing great work on that, for example, open their building
on top of balancer as well. They have some some ideas around
volatility and how you can get that information.
Unchain today, what, what you can do with bouncers, what I
said, like, you have a smart pull that it has a controller
that can just change the trading fee, and it gets like some
external source of data. Could be off chain.
Someone, like, who really like a monkey watching the Monitor and
sending the transaction, which is increased fee, decrease fee,
or it can be like something more complex, totally on chain, using
opens information. So, yeah, now now you do like,
you do You need some external source of information to to use
volatility but the cool thing is that you can write balancer.
Pools are flexible. You can change the swap fee,
according to the liquid to volatility.
What data is available from balancer, that I can like query
in from my old spark contract? Could I, you know, for example,
Thor chain, they are doing, you know, along with the volume.
They also take into account the spread of a, you know, how what
the, what the slippage of a trade is and they charge fees
differently based off of what the mystery, how much the
quiddity is in that pool right now.
Is it easy to sort of, like, paying the balance or contract
for that information? So I can have my, my smart pool
be take that. That into account.
Yeah, there there's ways how you can control that.
So what what you could do is, you have a trade function in the
controller. So you say, like now, you cannot
trade directly with my pool, because my pool is kind of
turned off, the controller can set public swap, true, or false,
and then why can they can do is like it's fall.
So you cannot trade directly at the base layer, like protocol
layer, as bouncer if you want, but if you want to trade, you
can talk to me. And I will in this Atomic
transaction. I'll let it be treatable and on
at all times. Yeah, I'll turn it on.
I'll set the fee. According to the amount you want
to trade, I'll let you trade and then I'll turn it off again and
you get your face with the feet that I want that.
That's really cool. Yeah so there's also a team
that's working on that. Yeah.
So, essentially, they can pin the Indian balancer Visa, like
the assets. You put in there are
customizable up to 8, the weights are customizable.
How much portion each as it gets, the fees are customizable.
And we also discussed that when you make the fees customizable,
you also get behavior that the trading frequency can also drop.
If you increase the freestanding, frequencies can be
dropped. So vfe is you get
Customizability of trading fees. What's also, customizable is the
control of a balancer pool. So, it can be an individual, it
can be a firm, it can be a dow X cetera.
What is customizable is the switching on and off of a pool?
And what else? Well, at what point is this too
confusing for users? You know, one of the things that
attracted people to, you know, swap was it's like, you know,
here's I have some Ethan died. I don't know what to do.
Like I'm just gonna put it in this pool, forget it.
But now it's like you know what? If there's a different smart
pools who all are like, you know, for the similar pairs and
they're like now there's so many decisions I have to make again
and after like look, okay, who which smart pool is better at
what point do we start to lose out on what made a?
Mm, so attractive in the first place.
Austin questions. I do think that we have we're
very like opinionated there. We want to be the base layer do
like the money Lego, the Primitive that people use to
build cool applications on top of.
So if you want something simple sign me because your users are
used to you NE Swap and you just want to throw like two tokens
there. You can just use balancer and
create your own UI for balancer that does exactly that.
Even better, like, balancer has this native function that allows
you to provide liquidity with only one token.
So you you have a pool of a token so you can just invest in
that pool. Using one of your top, one of
the tokens in that pool. So you don't need to have all
the tokens and like kind of add them all together, you can but
you don't need to. And if you want to do like
something more complex, like we saw a lots of projects,
interesting projects, building on top of balancer at HACC
money. One of them is like my D5 pie.
You can build so many things, you can go to Uma and you can
like, start Synthetic. And then you can put those
intetics into a balancer pool, you can change the the fees and
the wait. So you, it's the spectrum of
complexity that's on the a player.
And we restrain like ourselves, or we restrict ourselves to
being there a very good prodigal that is flexible that allows
people like to get creative on top of So in some senses you
know you know they're just added on project and the Arrogant
project came and said we are building a framework for those
other people are going to come and build the actual dollhouse.
And our framework is so extensible and generalizable
that we can conceivably match and a lot of the needs of users
and balancers something like that except for these these
pools You're building a framework.
That's extremely extensible. And then other people will come
and build the applications that go to the, to the end users.
But flowing out of that, kind of design is a natural question of
how does the how does the base layer extract value in this?
In this economy of many people designing customized pools and
are many other people contributing assets and and so
on. So that's going to become
interesting question when we talk about the business models
around balancing. Hmm.
Yeah. So the the answer to that is a
re it really is up to the governance to decide when there
will be if there will be a protocol level fee that base
layer is all is where all the liquidity sits and it's also
like where Traders tap onto for trade.
So it doesn't matter if you have like a very smart pool.
That changes your the swap fee. And there's like, more volatile
times or if that pool is managing and treasury of a dow,
it really doesn't matter for a Trader who wants to trade a 4 B.
It doesn't matter where it comes from the balancer ecosystem.
As long as it's in balancer, it will be used to get the best
rate possible. And at that point the the
protocol can decide that the governor's that hold battle
tokens are governance. Tokens of the balance of
protocol they can decide. Okay?
From now on, we believe that we are adding enough value to to
the Mmm, already, people are really using balancer, a lot.
So we deserve like to to get a small fraction of that.
It's up to the governor's, to the Token holders and it's a
tricky decision because like everything is open source and
it's anyone can clone and start a copycat.
So if you charge too high of a fee, people can just Fork it and
use a copy without any fees if you charge.
Yeah, if you charge no fees, then at the same time, people
might not be so incentivized to be to be.
Attention to everything to be making form to decisions.
So it's like in the marker. See like you have to pay the
governors of President and and yeah at some point that could be
the case, where there is some feasts.
They're going to to Bala token holders to, to kind of
incentivize them, to make the educated right decisions for the
good of the protocol. Yeah, so I think maybe what's
interesting here to act is to actually go into what the battle
token is unless sunny as a different question.
Ian. Well what I wanted to say was
like so you guys pitch this as a governance token and this whole
concept of a governance token you know 0x started like picking
their token like years ago as oh the point of this token is a
governance token. Would it be fair to say that the
like true value of governance tokens is in its potential
ability? Could add fees eventually that
extract like value or do you think that there is some Larger
external value to governance tokens outside of that as well.
That's a very good question, philosophical one.
I think if you were like a rational actor, Sunny the only
point is like discounted cash flow of future cash flows,
right? So, how much I can make with
with this token that I'm holding in the future and there, you
have to factor in. What's the percentage of chance
that there will ever be a fee. And in all those calculations
for a rational actor Will Define how much tokens worth today.
And if you're like if you like a philanthropist or you like
defined, you just want to be like part of the decision-making
process. You might just want to pay for
for about token, because you want to like, give your say and
and have a voice into how things unfold in the future.
So I think they're like, yeah. If you thinking rationally, then
it's the probability of there being a protocol level fee, in
the future, so yeah, yeah. So as my hero saying, let's
maybe talk about The battle token itself and so you know,
you guys have been very public and saying the goal is you want
balancer Labs as a company to disappear?
Why is that the goal? And how how you designed the
battle token to achieve that goal?
So that that kind of is something that is into in the
DNA of the team that built balancer, we are like the purest
that like it more like the early days of the maker doll.
Developers. We don't want to be like a
centralized company that's controlling The Prodigal and
getting fees. Yeah, we want this to be like a
really a community common good. And we want this to be
self-sustainable and not to depend on us.
We're like doing doing the the dev work right now.
But we're seeing already, a lot of people building tools on top
of balancer. You have pools that Vision
predictions at exchange. So many nice tools that people
are building and this is exactly the Correction, we want to go to
in a near-future say like four or five years videos that it
will be just like etherium, or just like like Linux.
It's an open source software or platform that people are just
incentivised to be building on top of and improving.
That's kind of the idea. We don't want to be centralizing
any decisions or how this should evolve.
How have you designed the token? What is the band token?
And What does it do? Because as I understand it,
like, at some level balancer is an is an idea.
Its design of how to build pools.
Then you another asset that you have.
Is you open source already code, which is so General, and
extensible, that you can build various kinds of pose with it
and then you have a token. So, how does it take token
exercise any influence over over the cold, or on the design?
What is the connection between these?
These elements. Great question.
So the the answer there is that we knew that it's hard to start
with an unchain governance system.
Very complex with lots of parameters that Governors have
to decide. It's just like not realistic to
start that way. So what we did instead was let's
start with something that has no admin Keys.
Has no kill switches has no upgradability, that's balanced
everyone. You you deploy a pool that pool
will live for As long as etherium lives.
That that was like our like the objective.
Let's be very conservative and there's no way you can gain the
system or control it. There's no governance token for
V1 now in the next versions. Not sure if you two already but
33 before, probably will start getting the bow token more
intertwined in the code and getting more of unchain
governance like spouse like you having with maker.
Dalek, you just propose this this You kind of feature on
chain and you cast a spell and people vote on it and if it's
approved, then it automatically gets implemented at the code
level. At the like on chain level.
Now, what we're doing is, we're already using balusters tokens
for people to signal to vote on chain, but by signing messages
only like carbon voting, they're not sending transactions.
So by doing that, we can iterate very fast, how the the like, the
governance and the decisions. Take place for example.
Ample the bow liquidity mining program.
We're Distributing tokens every week to people who provide
liquidity on balancer. We want to provide liquidity or
give about tokens for the liquidity providers.
That are providing the most useful liquidity.
What is the most useful liquidity?
That's a very subjective thing. And instead of like doing like
comped it and saying, well we're just going to distribute like
one comp token per block, half half to lenders, and borrowers,
and that's it. Now we decided to say, Well it
Could be more complex than that. And it is, let's just like do
everything off chain distribute like decide how we're going to
distribute that off chain. According to some rules that the
community itself will iterate on and will improve on, and they do
that by using their bowel tokens and voting for for changes for
your factors. And that has worked very well so
far, it's really interesting to see how the community has
proposed new things and they got approved.
And yeah, it's really great. To see.
To me like this fundamental thing, fundamentally, the issue
appears to be that you have pools and yes, individual pools
have utility to these Traders, and to the poor portfolio
holders Equity providers agree. But you have essentially like a
design and open source code, and, and that can be
implemented, wherever it can be implemented in Cosmos, SDK
substrate or X. Alana Different people can can
can do the same thing. There doesn't appear to be
anything, which is, like a network of pools.
Some way in which there are 100 pools each having some assets
together doing something, where each pool is getting more
utility out of that Network level coordination.
If you had a network of pools of some kind, then the balancer
token could have some claim over value because like it's
orchestrating that network, but that seems to be Absent from
your system, doesn't it? No it's not.
It is there. It will be more so in you in
future versions but an example of how this is already, the
case, no, here is when you have a trade, you you can use our
Sor, you can trade with individual pools.
So you can just say, well, this is a nice pool, has a lot of
Ethan maker mkr. I'll just stay with trade with
that bull, but this is not the ideal.
The ideal move for Trader. The ideal thing, They should do
is to use our smart order router, the smart order router
looks at all the pools that are on balancer and he sees all the
pools that have beef and mkr and then splits, your order in a way
that is optimal for you to get the most return possible.
So, whenever you're trading on balance, you're not trading with
against a specific Port, your trading Against The Prodigal and
the protocol uses that Network, as you said, 100 pools and
chooses, okay, 1000 eith, I'll send 200, 200, 200 And 400.
And that that way you get the most mkr back, and it's no
different than what actually one inch is doing, you're ready, 1
inches is doing that Network effect across the different
protocols, right? So it looks for the credit union
Swap and balancer on Oasis and it gets like the distribution
that suits. Yeah.
That trade or the returns the most from, from this trade.
Yeah, I was just going to ask that.
Oh, why, what's the benefit of doing that?
Is there. Isn't that going to be someone
almost? Of to do on chain and wouldn't
like doing a off chain aggregation of.
So what would be the benefit of going through this versus
letting one inch use their node to query?
Like every balancer pool and figure out optimal routing?
We don't do that on chain sighs. Okay?
Apologies. If that sounds like that.
No, though. So our Sor is a JavaScript
package that you just execute client site It asks for pulling
information from our sub graph and then runs like some some Sor
algorithm and then prepares already, okay, this is the trade
that is going to be optimal and then unchain you just execute
the trade, you just send like I want to trade with that pool.
That much, that would that much and then you, you execute it.
We do have, we're working right now in our own chain is, so our
because many product was need that to happen on chain.
They just want to say on chain balancer, I want to sell 100 E4,
die. Please help me.
You cannot access JavaScript packages, right?
So we're finalizing our Ahn Chan Soo are as well.
But what I told you about was off chain and yeah so short when
you can do that can poke all the pools individually but it can
get very nasty because we now have about a thousand fools.
So what we do is like we make it transparent for them and give
them already like a figure of what the the balancer ecosystem
can offer in terms of bass lick. Be and then they use that as if
it was just like a single units while pool, they can treat that
much better. They cannot handle a thousand
different exchanges which would be if they had like a thousand
different pools. Each of them like treated like a
Eunice Whirlpool, so we're kind of facilitating the interaction,
the interaction of aggregators or integrators with that, answer
with our own sor One thing I've always wondered is that these
balance of pools. So each individual pool is at
some level paying arbitrageurs to discover the exchange rate
between assets. So when you think of something
like he's and mkr, it could conceivably be the case that 200
different pools are paying separately to discover that same
price. Could that not be the value prop
of the network of pools and balance.
So that somehow this intelligence is it allows the
sharing of this intelligence in some way and it makes in network
of pools more intelligent on chain, and that's the value
prop. That even if you want to build
your own pool go, and join specifically the balance and
network because the pricing intelligence is the best.
They're totally. Absolutely.
So what we'll see, Here is that we're not going to have 100
pools that are very similar because this is still, it's
rationally wrong, right? You're not going to put your
create paying 50 or $100 today to to build it to deploy a pool
or you're not going to put your money like your thousand
dollars. You know 80/20 make arethe pool
if in a pool that has another thousand dollars.
If there is a the same exact pool with a million dollars,
right? Because that 1 million dollar
pool is going to be profitable for Arbors to trade.
In generate fees with variations of price a lot smaller than the
variations of price in a 1,000 dollar pool, right?
So you're going to see naturally the liquidity coalescing or
revolving around some sweet spots and the nice thing about
answers that we're not aiming to say what the sweet spots are.
We're not going to say 0.3% is the right fee.
No, it's up to you. If you want to if you want to
put 0.5%, if that is profitable Choice, what will?
Happen is that people off chain will just observe all the pools.
Will see that your pool was a good choice and actually my
liquidity will migrate to your pool.
Does that make sense? Don't you mean that doesn't make
sense? Because to me one of the value
props for that, hey, I can build my own portfolio.
Now some person can come and say, in my portfolio, you eat is
10% and maker history percent and some maker maximalist will
come and say, hey, in my V 4u maker is going to be 80%.
In each 10% and both are valuable and both skit their
pools and the balancer protocol should be written in a way that
both pools are viable. So I current I don't see, I
don't see the two views as being consistent where you want people
flexibility over percentages. So those are different pools.
Whereas on the liquidity side, you're saying things between
Ethan maker should get Consolidated into one pool.
Is it the case that portfolio management actually requires
there to be lots of pose with ease and maker and discovering
prices independently? Yeah, what I tried to say to say
is that for similar pools and exposures, then you're not going
to see so much fragmentation. But definitely, if there is a LP
that wants to be 90% exposed to Ethan 10% to mkr, it's not
compatible. Able to 90% mkr 10% teeth,
right? So there will have to be two
different pools for those two different needs but what I'm
saying is that you're not going to be a thousand pools.
So 9010 8911 8812 because there's like some, some
threshold where it makes sense to kind of a give up a little
bit on your exact exposure that you wanted to being part of a
very close exposure. But To in a pool that is huge
already. It's used very often and it's
generating lots of training fees and it's very profitable.
Does that make sense? So, going back to you mentioned
a little bit ago about distribution of bowel and so one
of the interesting things that you guys are doing is, you know,
people who are providing liquidity on different balancer,
pools, your sort of are dropping bowel tokens to them.
And this is sort of a, you know, it's a solves two problems of
one. How do you distribute a token to
use? Others.
I mean, okay you have to liquidity providers and also you
incentivize liquidity, but then, you know, with this whole crate
defy crazed with like liquidity Mining and yield farming and all
this stuff that's been going on, you're actually like, you know,
the first one we've had on who's like, you know, and part of this
whole, you know, game I guess what's been like, sort of the
takeaways from this process. And I also remember reading that
there was like You know, some sort of like, weird things where
people could game the liquidity Mining.
And so there have to be like what are the problems you ran
into and what Solutions are you guys working on?
So yeah, I absolutely think that this is a fuss first and
foremost a way to distribute ownership of your protocol to
people who really care about it and those are users.
Those are the liquidity providers who are making it
possible for Traders to trade. So that, that was the decision.
Like how again getting back to the subjectivity of usefulness
for liquidity. How do you say liquid?
It is useful. Well, usually how much people
are trading with with that fool, But that is very easily game
mobile. You can just wash trade and that
would be like a catastrophe, very hard to come around.
So we decided to say well if if you add liquidity to balancer
then you get ball tokens. And we knew that this this is
like was prone or very likely going to be gained because our
idea was to let the community step in and come up with cool
suggestions to improve this process.
So what we initially did is it's just like a percentage of total
USD value of the liquidity, provide proportional to the full
liquidity on balancer. And and and your token has to be
listed on coin gecko as long as there's like a price tag to your
token because if there is no no you cannot talk about u.s.
USD liquidity that you're providing, right?
So you have to have two tokens in a pool because you have to be
able to trade two tokens that have a price tag on coin Gecko
and then very quickly, we Yeah, the community and we knew that
already but we wanted kind of the community to step in and and
can't come to the same conclusion, Community realized
that if you have a pool that's 98 to that pool is even though
there's like a lot of value locked in dollars, that fool
doesn't facilitate a lot of traits because if you trade a
little bit, that will ready like change the price a lot.
So, you have a high slippage for uneven pools.
What? The community came up with was
okay, Let's introduce a ratio factor which says that pulls
that have very uneven weights, they're going to get less bow
for the same USD value locked and that's just like one of the
examples and other examples are hard packed tokens.
So if you create a pool that has died and a die, both are listed
on coin. Gecko and you can put like a lot
of money there. You know, you have no risk of
people like or of impermanent laws and then we Get back to
that again but there's no real risk of volatility there because
you know, those tokens are packed.
So if you have a pool like that, with a 0.5% fee, there's not
going to be one single trade on that pool because people can
just use the, I have a contract to to wrap and unwrap die to a
die, right? Yeah.
So we created this hard pack which says like you're going to
be slashed by a lot if you just provide that not so useful
liquidity and yeah and then so on so forth we have Have a very
complex kind of system to distribute liquidity today,
which has evolved according to the demands of the community,
which are how does, how does the slashing work it just like
governance based lashing. Like, oh sorry, maybe slashing
is the wrong word. Yeah, you get penalized for
providing liquidity. That's bet hard like
hard-packed. So you actually don't get as
much bow for the same USD as you would if you had beef and maker,
you know, mkr and he's so the same $10 here.
For die Aid. I will get a lot less about
tokens than $10 for mkr and eat if that makes sense.
And this little sort of possible because the bowel isn't being
distributed by like a smart contract or something, right?
It just being distribution. Okay, that was exactly that
point. Like, that, that was really what
differentiated us from compound like impound took a long time.
Actually, to to bake that into the smart contracts already.
And we believe that it's we're so much in the early days there.
So much to learn. And to improve that we decided
to keep that off chain. Because anyways, like if you
look at compounds governance, it's very concentrated.
The team has a lot of token so they can still decide pretty
much the outcome of the vote, right?
So there is a ready, like a social contract there that they
will let the community to decide, but still you have to
trust the founders that you're not going to vote and it's the
same for balancer, right? We the vote the team of advisors
and Investors in these early days.
Well, we haven't distributed so many about tokens yet.
So we could. Even if it was unchanged, we
could control the governance process.
If we broke this social contract that we have to not vote and let
the community kind of build and involved with with their token.
So if we already, if the community, is already trusting
us to keep that social contract. Why not just do like things off
chain, which is a lot more efficient and easy to work on in
to iterate and to improve, right?
So that was our thought process. So that makes a makes a lot of
sense right now, especially with it feels like with the protocol
like balancer. There is a lot of this so many
tokens and this point a lot of emergent complexity around
liquidity mining here, right? And maybe you want to be able to
tweak the distribution process as as things emerge.
Like maybe it's more valuable to to pay.
The tokens to some particular token.
That's in short supply for example or they could be a role
for human subjectivity here. One question it does come to
mind is like you know balancer Labs has has raised financing
and so is defined is all the financing raised by selling
tokens or are these Equity financing rounds of a company
separated from the the ow. Yeah, so this is actually we've
been quite Innovative and I think we were one of the first
SC f g, so agreement for future, Senator green for future
governance. What that means is that
investors not only acquired Equity but also the pro rata
share of governance tokens that that Equity maps to.
So what we did is balanced for labs the the company that raise
Venture Capital with a This place holder and other other
investors. It has the right to get 25
million tokens out of a possible cap in the future of 100 million
tokens. So if you have 1%, if you invest
at 1% in the equity of bouncer Labs, you have 1% of the 25
million tokens. So it's so the investors both
got equity and tokens and this is probably not going to be the
case for our future fundraising The rounds because yeah we kind
of want to make want to make it more simple Exemplar by having
this future Fund Raising fund, which will be used for ya for
selling tokens in new series. Yeah, that's really interesting.
So what you're trying to do in this SE f, g format is you're
trying to make your investors in different to where the value of
Google occurs. So if the value of crucial it
Can we have a cream on it and they fit as opposed to the
company they are working on that.
So you are essentially trying to make them in different so that
it gives you flexibility. Yeah though we have been very
upfront and and candid about the equity not being worth anything,
very likely in the future. Because since the beginning, we
had this in mind that this we want to make this protocol, like
a common good that is going. To be owned by the about open
holders. And the company, ideally will be
dissolved and the equity is not going to mean anything at all.
So that that that's hopefully the outcome that we're going
for. That's quite a radical
decisions. Do you find it?
Hard to convince people to join your team and because like your
Equity is going to be worthless. So why how do you incentivize
your employees? Then that's a great.
So, this is not something that's going to happen overnight next
year. So it's probably a long like a
longer process like five years, maybe two, ten years.
And what I, what I and that also includes myself, not only our
He's right over here. So what I think is that even
though the company itself is going to be dissolved, that
doesn't mean that the team. That's now working for balancer,
Labs won't be able to work further on balancer, right?
Because then we're going to have like we're going to find some
other common good ways of financing like get coin grants
or yeah, whatever means we can find to finance.
The development on a platform will probably be involved with
that. Like vitalik is not paid by the
theorem find Foundation as at least as far as I know.
But he's still involve is still doing work.
And there's many people are working for a for etherium with
other kind of incentives in mind.
Not not necessarily getting a salary from a centralized
entity. So this is how I Envision the
future of balancer. So given all this like liquidity
mining that or incentivisation that's been happening.
One thing we see on balancer is basically.
It's beating Eunice swap massively on liquidity, but not
yet on trading volume. So what why is this?
And what are sort of? What's your plans on?
We've got to liquidity now. How are you complaining on
attracting the volume trading volume?
Great question. So this is because we've been
around for a few months and you know, swap has been around for a
lot longer and you know stop is integrated with pretty much
everything in the Phi. Like whatever platform or front
and or like distribution app like Z rien or is that / fi
they've all like been integrated with UNICEF for a long time.
So, you know, swap is seen by everyone.
It's also like a brand. People think of trading they go
to Eunice what the centralized training, go take.
Go to Eunice wha so it's a matter of time until we have
like Integrations by zero xapi they're like finalizing their
integration or Khyber Network. They're also finalizing
integration. 1 H has started already integrated with balancer
from day one. So Paris swap is also working on
integrating balusters, we need time to kind of get integrated,
right? So that's the first thing and
the second thing is that actually you just flops Pretty
is the most efficient possible because it's always 50/50.
So there's a lot of liquidity imbalance.
ER, there's like a 200 million dollar pool.
One pool has 200 million dollars now, which is Wi-Fi and the
curve y, curve token that pulls a 98 to.
So, it naturally has effectively quiddity the effective liquidy
that that pool has is a lot lower than 200 million dollars,
right? So it's hard to compare volume
between unit, Swap, and balancer.
Because balusters allows for like flexibility, which means
that not all liquidity will be efficient or the most efficient
for Traders because that means they are like the poles are
50/50 or third third or 25, 25, 25 and that's not the case.
What would you say is the most unique or interesting pool that
you've seen? Or maybe it's not been deployed
yet but like, you know, that people are working on, there's
so many. So I think I'll be peace are
going to be a huge thing. As I said earlier, Sunny like
the the idea of the ideal like initial decentralised offer or
decentralized exchange offer, This flexibility of having a
smart people that like has this schedule of Weights flipping and
letting people not only by your tokens but also create
liquidity. All wrapped in one to me, this
is very powerful one pull that. I'm really excited to see coming
out and for all I don't know if you talked about that last week
you had Kuma here in the show. The there is this idea of having
a Perpetual synthetic pool. So what Obama does is they have
this This awesome system that allows you to create any
synthetic that has an expiry date and often what you see is
people seeking exposure to goad without an expiry date.
So they want to be just long gold but that doesn't work.
So simply like so so easily for a product like want to do
directly because maybe they explain that but they need this
expiry date in order for the underlying price and the
synthetic rights not to deviate a lot.
So what you can do is You can have different months, like
synthetics with expiry dates of different months, all in the
same, in the same pool. And I want you to do is is a
smart pool that as soon as one of the expiry dates is getting
close to maturation. You start decreasing that wait
to start phasing out that that goat.
Let's say September, because it's closed and you start facing
in Goat November. So, and that is naturally done
by arbitrageurs, that do those trades for Marginal profit.
So, your pool is actually leaking a little bit of value.
But, you know, that your pool will always have like three or
four different months that are being recycled automatically.
So not only you create this one place for people who want to
have exposure to goad November to trade with gold exposure.
September people can trade between those different
different months. You also creating an exposure
and a Perpetual exposure to go. Which is that your C 20 token of
the The pool. So that pool is issuing.
You see, 20 tokens that represent exposure to goad.
So that that's amazing have the option to, to have go December
and you trade for gold September.
But you can also buy the pool token, the bushehr, which is
just exposure to goad, and yeah, to me.
That's that's a very interesting example of for, that will be
soon launched and we're working closely with the ummah, guys, on
that. Yeah, that that I, you know, I
was riding with my friends at open and they that's, you know,
another problem they faced with, you know, saw and that's also
why they're looking at balance or to kind of do something
similar as well. Cool.
So what are you watch? Like the future.
Like, you know what's your is scattered throughout like the
docks. It mentions balancer V2 but not
a lot of details. What is what can we expect to
see? So, balance of e 2 will be a lot
more efficient in terms of gas costs.
We're going to go to this single Vault architecture.
So instead of creating like a new smart contract, for every
pool that's deployed, you're actually just creating like an
internal accounting for the pool.
You created inside of this big contract that is bouncer V2 that
will allow us to do cool things like huge flash loans.
So all of a sudden you have like all the mkr From all the posts
sitting on the same contract so we can have like flash loans
that are huge. And that also will allow you to
do Arbitrage between pools in a much more efficient way because
all you're doing is like you're changing internal accounting
balances of the pools. Inside the same contract, you're
not saying your C 20 tokens, like across different folks,
you're not paying for all those years.
He 20 transfers, all you pay is at the end.
This is what You're going to get token a, so then balance TV
transfers, you that amount and gets from you.
That amount of token, be that you sold so that will create a
lot more, a lot more possibilities for for Arbitrage
and for Traders. Yeah, and we'll have like nice
features as well, like more flexibility in terms of, for
example, you can have circuit breakers so you can set your
pool to stop selling if one of the tokens goes below price
Acts. And this is something that
gnosis has been asking for because if you have prediction
markets, one of the tokens can just like outright go to 0 and
that is a problem because the bull gets drained.
So having circuit breakers like allows you to say.
Ok. So whenever one of the outcomes
is known suppose would just freeze because the prices will
go beyond the threshold that I'm willing to to let people trade
against lots of nice, nice features and cool things.
That we are getting like feedback from the community like
you should do that and you should do this.
We'll do a lot of improvements. Also in terms of flexibility,
it's going to be very cool. Awesome.
Thank you. Yeah, thanks for taking the time
to chat with us and teach us more about balancer.
Yeah. Thanks a lot.
Send your men here. So, yeah, if you want to know
more about balance. So you can go to our Discord
Channel, you can go to, you can follow us on Twitter at balancer
Labs. I'm FC Martinelli on Twitter as
well. Yeah, it's been a pleasure,
guys. Great questions.
And yeah, looking forward to chatting more offline.
Thanks. So what did you think of the
project? I mean I've always felt
balancers a great project. Yeah.
I I wrote like this like Long blog post a couple months ago
called like the Unis swap or download our flying units Swap
and making the unit swap Network and I wrote this like long thing
and then as soon as I published it people like way you should go
check out balancer because that's exactly what they're
doing. Like, whoa.
Because like I looked at balancer early on when you first
showed it to But back then I was just thought it.
So it was just like you know, multi-dimensional unit swap the,
you know them but like I didn't realize that they were so
focused on like all this generalizable generalization,
which is what I find super fascinating because I just think
that hole. Yeah.
Like I always thought that look, okay, this x times y equals K
that this is no way that that's the optimal like formula that
just like, you know, someone just pulled that out of their
hat. And it's like, but But I'm
excited to see that, you know. There's so folks on
parameterisation and especially I imagine they're going to get
even more. You know, we didn't get to talk
about this on the thing. But you know I'm willing to bet
that, you know, they're going to even start doing other types of
Curves. Not just like the same constant
product. Launch the product one but like,
you know, we had there's other projects and morning.
Yeah, there's other ones that curve Finance which are more
flat for stable coins, or you can, I don't know.
You can do like some wacky stuff.
Probably that. Yeah, so I'm excited about it
from that sense. Night.
I just feel that that it's of it's a very elastic primitive
and it will end up entering into lots of different applications
and much of much of the use cases of back something like
balancer aren't just understood or imagine what I love about
this project is just its elasticity and how it can mutate
and Fill different niches. So what do you think?
One of the questions I have? Do you think a M&M's in general?
Are a long term. Sustainable concept though, like
just this, it feels like what balancer with all their
parameterisation. They're making a mmm, or they're
giving a M&M's, the opportunity to be smarter than x times y
equals K. But at the end of the day, I
still feel your automated marketing maker or you know I'll
go rhythmic Market maker ever, you want to call it like you
know algorithmic market makers like even Real market makers are
algorithmic. The difference is that a smart
contract Market maker doesn't have access to external data.
And I feel that because of that, it will always be worse than
like a real Market maker who can quote you prices but like has
access to real world data and it seems that what's hap like
what's going to happen is How I see automatic market makers is
that this is what they're doing, they know traditional Market
maker. You have someone with capital as
well as knowledge or information or expertise and they're
providing quotes and it's the same entity.
Amm seem to be splitting these into two different categories.
One is the capital providers and then there's the information
providers and the capital providers are like these dumb.
Cop over disease, Provide Capital and then all the
information benefits are going to the arbitrageurs.
And it seems that like the arbitrageurs are screwing over
the capital providers and unless you can get your fees to be high
enough like and this is the whole impermanence lost
situation, right? Where oftentimes the, if the, if
it's not unless you have enough volume, your Capital providers
really get screwed over and the smarter Market maker could do
better. So what do you think about this?
I totally agree. So that that is a downside of
this gen this generation of automated market makers that In
the sense that the automated market makers are, they are
blind and they are dumb, blind because they are unable to see
what's happening on other markets. and they are done,
because They don't have the information but they don't even
have the mechanisms to include that information into their own
decision-making. So we'll be safe for this.
A bouncer is making them less dumb but it's not making them
less blind. Yeah, it's not making them less
blind, right? So it's still blind.
So II. Do agree that this lack of
blindness is, is a disadvantage for automated market makers, but
it's also the case that we are. So, Early in the game.
No. I mean, you need to open
balancer combine this entire space has two years old.
And there is an eternity of 50 years, 100 years, to develop
this thing and and a lot can happen and I think, eventually
the bidet blindness will go away.
I'm not sure how they will acquire information from The
Real World because it's a hard problem.
So, but I do feel that it's just that the design space of these
crippled protocols is just so massive that Italians will be
surmounted and we will have automated market makers that are
we more efficient than today. Is, there is variety.
I think that's the optimistic cage case.
Are they going to remain firm or Niche assets or do you think
that? Like, they're going to overtake
like currently where I see them going is that they are the great
for like weird Niche assets like options or like Like wifey
tokens or whatever, but it's like prediction markets.
Are they gonna take over the BTC?
You sdt pair like where that pair is just like the biggest
pair on like all of the centralized exchanges is it
going to take over that? I think that's unlikely.
Today that's unlikely. I think.
I think, I think you've identified the market, it's the
long tail of assets that automated market makers are
really suited to today. And that's the initial Niche,
the end of populating. Now now the question is beyond
that initial niche Can they invade other niches?
And then one day do BTC USD were not only BTC USD word, one
finding the future. You want to do all Euro USD,
volume odd, automate market makers is the future like that.
I think it depends a lot on how efficient these things get.
These things can be made made to be and I think it boils down to
the question of What kinds of data can be given to these
automated Market. That Homeless intelligence, you
can put into them. And both are hard questions
because getting data means developing a protocol by which
you can trust the quality of that data and then intelligence
probably means a lot of computation.
And on both those dimensions blockchains are very limited
today now as if those Dimensions were to be solved market makers
would go a lot. but, But if they remain remain at the current
state, I think they are more suited to this long tail of
acids. What do you think?
II think that there. Yeah, I don't know.
I think that until they start until they figure out how to do
that. Solve that blindness problem.
It will as soon as there's a larger market for that the that
pair then, the mmm, it starts running into problems when the
largest pair for that market is the amm that it works fine.
Is because then they, mmm is the price.
It's setting the pricing but one, the real price, whatever
that means is being set somewhere else.
Then that's where the capital provider started to really get
screwed over because the arbitrageurs make all the
prophets there, right? Yeah.
And it's one of those reasons. I haven't contributed any
liquidity to a units or pool because because it's like as a
like if you think of my Easter or my Bitcoin like really liquid
crypto assets, I hold It's at some level, I'm holding these
crypto assets, cuz you expect them to go up in price.
But when assets grow up in price, and you've put them onto
a liquidity, provider you making losses at exactly that same
point. So, so at some level that, that
that that is what has prevented me from actually putting assets
into into the market makers now. Yeah, so I think I think are
very Niche assets like the reality real estate tokens or
these why tokens or the situation is different.
But let's see how it evolves. I'm actually quite bullish on
the space even though the solutions don't exist today.
My instinct is that the design space is so massive that it will
end up being solved, but it will take 20 years, do you were
asking quite a bit about like the network effects of the
balance, our protocol and you seem kind of skeptical.
Do you still are you, how do you feel after that discussion?
So my impression is that balancer has worked out a really
good. Pool design and at some level,
you know? I mean, if this was to be an
economics paper or something, if I imagine balance has an
economics paper, this might end up becoming are no one of the
most cited papers of 2018 2019 in the far future.
I will design and ideas level of that pool design.
It's amazing. That's, that's my impression.
But I'm not sure about the code quality, right?
How, how they design translate into code.
But let's assume it's average. It's better than average over
table, but I had when I feel very feel.
Balancer is kind of lacking, is that there is a great pool
design, there is this code, and then there's this token The
question of how this token actually captures value is not
well address. Now, of course you mentioned
Sonny that the token will someday say that.
Hey, there's a certain fee that you can add add to these pools
and, and that is how it will capture value.
But then the question just shifts to being okay, the token
holders decide to add a fee. What prevents these liquidity
providers from migrating to the next protocol.
And when you ask that question, what will prevent them from
migrating to other protocol? It's then that you kind of
realize it, okay? For this to be really viable.
There has to be some Network effect associated with multiple
pools now. Now the answer is that that were
given were, okay, smart order routing, but to me, smart order
routing seems like, completely off chain play.
Like chorus can come and build smart out, order order router
for balancer as a A centralized entity and capture the value of
around smart order routing which is what one inch is doing, which
is what one inch is doing. So it doesn't feel a good way by
which the protocol itself captures a defensive mode and
captures value. And I think like to me with
current balancer, that is the gap that I would.
I would think about when I Make a decision of whether to
purchase battle or not. Because if that Gap can be
solved then I think this is going to be one of the great
Investments of the crypto space. It could be worth the investment
of the trip to space, but the uncertainty around, then not
being able to solve the Gap. Is what What would make me
skeptical of buying the battle token.
What is your sense? Yeah, I agree.
I think the smart order routing isn't the solution I won Under
if yeah. Like you said there has to be
some way of where the Network's, all the, the pool of network of
pools are somehow sharing information with each other such
that they can help balance each other out.
And that way that's sort of almost That's sort of the key I
think that has to be figured out. because earlier in the
conversation, you're talking about how these pools are blind,
Now, okay, so an individual pool is blind, but even if you could
make it less Blind by having these that pool get info from
other pools, then it's not the perfect solution but you're
making it less blind. But if you can make things less
blind, then they they could be some kind of network effect.
That's my impression. You mentioned flash loans,
right? And in the V2, is there a way
where we can? Somehow restrict The Flash loans
such that you're allowed to use Flash loans as long as your your
arbitraging like within balancer pools.
So you can use a flash loan from this pool to go Arbitrage.
Another balancer pool, but you're not allowed to, but
somehow Place some restriction where you can't use the bout,
the flash loan to go, do you know, you can't go user to do
something on unit swap, or a compound or whatever?
You know, free. Patrasche amongst balancer,
pools only that that seems like a, you know, as there's more the
quiddity than the arbitraging basically gets better and better
on balancer alone, that, that would be really interesting.
That would be interesting. So I think some mechanism like
that, Is needed and I also think it's it's probably coming but if
Steve how many investors perspective, I would want a very
clear answer to that before buying the berry token.
Well you can't buy the real token anyways right you have to
go well I'm sure that you can buy it on a balancer pool but
yeah perhaps I can do some liquidity minding to get that
tokens. I'm not sure right.
Yeah I mean it's certainly I feel it is a really Testing
project and I respect the idea a lot.
My next pick is, you know how the idea translates into
business model, but we have time to solve that, right?
Like, this is a long game. Crypto is a long game, so, Well,
looking forward to seeing how it turns out.
Yeah. I hope you enjoyed the interview
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