Plugging into YB native tech, core pool dynamics, and efficient
@AuraFinance liquidity layers, protocols such as
@ether_fi and
@renzoai are fuelling a wave of LRT liquidity growth on Balancer!
Why are Liquid Restaking Token protocols utilizing Balancer Tech to host their LRT liquidity?
LSTs and LRTs are tokens that harness inbuilt yield accrual. This means they often increase in ratio relative to their base token -
$ETH. They are not 1:1. Yet, almost every LP in DeFi utilizes traditional stableswap logic that prices these tokens and
$ETH 1:1 on swaps.
Is that an issue?
Yes. For most LST/LRT liquidity pools in DeFi, liquidity providers have the underlying YB token yield continuously siphoned off to arbitrage traders due to inaccurate non-YB native AMM 1:1 swap pricing.
The Balancer solution?
Balancer implements a Composable Stable Pool. A stableswap pool that integrates an additional contract known as the Rate Provider. The Rate Provider does what the name implies - it provides AMM swap logic with the current and correct rate for yield-bearing tokens.
Rather than trading at 1:1 (as a traditional stableswap would), the Balancer composable stable AMM plugs into
@chainlink pricing oracles, which offer an aggregated and decentralized source for the current YB token ratio.
This means that as the price of the YB token naturally rises, the pool continually accounts for it to ensure there isn’t a constant arbitrage and LP loss available due to the incorrect 1:1 pricing.
The result?
This simple technological innovation ensures the benefits of YB tokens actually flow to LPs and is one of the core reasons LRT protocols choose Balancer technology to efficiently host and grow LRT liquidity.