Balancer sells itself on two words only: flexible and customizable.
It is an AMM too, but the generalized one.
Instead of focusing on having just 2 assets, it stores multiple assets in a pool with weighted liquidity.
Because of this uniqueness, it acts as a dynamic, self-rebalancing portfolio management tool.
This is the formula V=i=1∏nBiWi that makes everything happen.
And I am not 1% interested in this.
The important thing is, what things it makes possible for us to have.
Which is:
- Automated Portfolio Management : Imagine an 80/20 WBTC/WETH pool. If WBTC's price rises relative to WETH, arbitrageurs will sell WBTC by into the pool and withdraw WETH to bring the pool's value back to its 80/20 ratio.
(Note : arbitrageurs constantly rebalance the pool to reflect external market prices. This means that if the price of an asset in the pool moves relative to the external market, the pool's reserves will be adjusted by arbitrageurs buying the cheaper asset from the pool and selling the more expensive asset to the pool.)
- Exposure Control : If you have a fav token 'ShadowToken(SToken)' and you want to give more exposure to it. Then you can create a pair of the 90/10 ratio. So even if your fav tokens boom up, it will maintain its balanced amount in the pool by not selling it too much because of the 90/10 ratio.
(here it => arbitrageurs)
- Reduced Impermanent Loss : Take an 80/20 pool of USDC/ETH, because ETH is much more volatile, so by keeping less weight of it, you can manage that its price shouldn't rise too much. Hence, less IL than a 50/50 pool.