Fernando Martinelli: Balancer – The Automated Market Maker Protocol for Programmable Liquidity

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 thought leaders. On this show, we dive deep to learn how things work at a technical level, and we fly high to understand Visionary, Concepts, and long-term trends. If you like epicenter, the best way to support us is to leave a

review on Apple podcast. If you're on a Mac or iOS 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 debrief you'll want to check out epicenter premium to get these every week as a premium subscriber you'll get access to a private RSS feed where you can hear the debrief after every episode. You'll also get enhanced features like episode transcripts and interview chapters that allow you to easily skip to specific sections

of the interview. You also get access to Roundtable discussions and bonus content that we put out from time to time and you can sign up for a personal premium at 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.

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