Balancing Act: Balancer Brings Automatic Rebasing to Defi

Balancer Incorporates Stablecoin Rebasing to Defi

Weekly Analyst Thoughts

Ampleforth-USDC Smart Pool

Before Uniswap, decentralized exchanges were plagued with low liquidity and trade volumes. Decentralized exchanges had orderbooks, complicated cryptocurrency wallets and several functional problems for users. The advent of automated market making by Uniswap revolutionized decentralized exchanges. The AMM model consists of liquidity providers who provide 50% of one asset and 50% of another asset into a pool and earn a 0.3% fee anytime someone trades one asset for the other inside the pool. However, one big problem that comes with the AMM model is the impermanent loss for liquidity providers. An impermanent loss is what an LP incurs when they provide liquidity to a pool and the assets in the pool diverge from the price established when the liquidity was first provided. It is called impermanent loss because the 0.3% trading fee revenue is meant to offset the loss from providing liquidity, but in some cases where the asset price diverges too much from the other asset, the impermanent loss could become a permanent loss.

The Ampleforth-USDC Smart pool on Balancer aims to mitigate impermanent loss with a smart contract that automatically rebalances the Ampleforth-USDC pool to a 50-50 weighting based upon Ampleforth’s daily rebases. Ampleforth is an elastic cryptocurrency that has a target value of $1. As Ampleforth trades above $1, the token does an automatic rebase where it increases the AMPL supply to push the value down to $1, which signals the Balancer Smart pool to adjust the AMPL-USDC weightings to mitigate impermanent loss. In summary, if a liquidity provider is looking to mitigate impermanent loss risk and is looking for innovation in the Stablecoin pooling space, look no further than the AMPL-USDC smart pool on Balancer.

By Jacob Stelter

The Iterations of Cryptocurrency Trading and What to Look For

The Iterations of Cryptocurrency Trading and What to Look For

The first iteration of cryptocurrency trading when Bitcoin was created in 2009 was peer to peer trading. Trading partners would meet in a physical location where they would trade cash for cryptocurrency. LocalBitcoins was a prominent platform to orchestrate these trades, however, trading partners began using alternate payment methods, like Paypal, for Bitcoin. Those who used alternate platforms later realized there was inherent “chargeback risk” in accepting Paypal payments for irreversible payments like Bitcoin, creating the need for a second iteration of cryptocurrency trading.

The second iteration of cryptocurrency trading was in the form of Cexes (Centralized Exchanges) like Coinbase, Kraken, Gemini, etc. These exchanges accepted multiple forms of payment: debit card, wire transfer, ach transfer and conducted trades on an orderbook where they would match sellers and buyers. However, Cexes were plagued with problems like social engineering attacks, sim swapping, and server problems, never mind users not being able to sign up for accounts during the bull run of 2017, crypto users not passing KYC/AML, and account closures for innocuous actions. The cryptocurrency space was in dire need of a third iteration of cryptocurrency trading, but there was not enough adoption for Decentralized exchanges with orderbooks.

The third iteration of cryptocurrency trading is where Uniswap comes into play. Uniswap is an iteration of cryptocurrency trading that allows users to trade any ERC-20 asset they want without orderbooks, having to make an account, passing kyc/aml, server problems, spoofing transactions (exchanges who fake their volume), risk of sim swap attacks or hacking risk. This third iteration of cryptocurrency trading is made possible by “liquidity pools,” assets provided on demand by liquidity providers in exchange for a 0.3% fee. A uniswap liquidity pool is made up of two assets, with 50% of each asset in the pool. The most common makeup is 50% WETH (ERC-20 token of Ethereum) and 50% of another token.

In conclusion, the progression of crypto trading has created the opportunity for Uniswap to provide a seamless experience for crypto users. While it is now easier than ever to trade crypto with liquidity pools, atomic swaps, the fourth iteration of crypto trading, are on their way to maturity, so be on the lookout as more of these swaps enter the ecosystem.

By Jacob Stelter