Balancer – A DeFi Platform That Balances Your Portfolio?

Invariably, when lay observers hear about cryptocurrency-related topics on the news, their mind naturally gravitates toward speculative activities. With so many digital assets, particularly high-risk altcoins like Shiba Inu minting a new generation of millionaires, it’s difficult not to view the so-called blockchain market as nothing more than a digital casino.

However, groundbreaking innovations like decentralized finance, or DeFi for short have introduced novel solutions to decades-long problems. At the root of the dilemma is the centralized mechanisms holding back the organic progress of capitalism. Put another way, centralized financial platforms are akin to forcing everyone to watch VHS tapes when the entertainment industry has already moved onto on-demand streaming services.

Yet there’s also great power and profitability for those who control the monopolized fiat-currency-based financial and investment systems. In large part, DeFi solutions like Balancer —an automated portfolio manager and trading platform — represent a threat to the established order because they break government-backed cartels in favor of true democratization.

To understand why it helps to contrast platforms such as Balancer against contemporary analog markets.

How the Old System Worked

Before the very idea of cryptocurrencies entered anyone’s consciousness, the Nasdaq exchange epitomized innovation for the masses. It was in this exchange that you could pick up shares of Apple (AAPL) or Microsoft (MSFT) while they were in their nascent stage. In fact, old Nasdaq advertisements boldly claimed it — not the venerable New York Stock Exchange — would be the market to go to for the next century.

At the time, you would have been hard-pressed to argue against the point. Everything about the Nasdaq was seemingly different from how the venerable New York Stock Exchange conducted business. In fact, the Nasdaq is really an electronic network that links the U.S. and foreign brokerage firms that make up the National Association of Securities Dealers (NASD) via an auctioneer-less system.

As Investor’s Business Daily’s publication, ‘Guide to the Markets’ points out, under this system, the“broker is your customer and is trading for his account. In so doing, he is ‘making a market,’ or creating liquidity in stocks that might not be much in demand. He’s absorbing some of the risk associated with growth stocks to make them more attractive.”

However, IBD points out that in return for the broker’s trouble and the risk he assumed, the “dealer profits on the spread—the difference between the price bid and the price asked.” Further, in situations where the underlying stock has become volatile, brokers are tempted to widen the spread to increase profitability for the enhanced risk profile.

At the same time, natural capitalistic tendencies prevent these analog market makers from widening the spread too much. Several market-makers basically underwrite stocks on the Nasdaq, meaning that they’re competing for your business.

While the Nasdaq certainly opened doors to new equity securities that would ordinarily not qualify for the NYSE, the platform itself remained a stodgy, rarified arena. And this is where Balancer comes into the picture.

Balancer and the New Way to Market

Although it’s always fun to speculate on growth stocks, the blunt reality is that this approach is a “downwind” market. While you can make serious money from gambling on stocks and variably priced assets, it’s also a “poor man’s initiative.”

By that, I mean only poor, peasant-type folks view speculation as a means to wealth creation. On the other hand, already-wealthy people tend to invest in higher-probability initiatives, such as the aforementioned market making. Thus, it’s no surprise that only the most affluent, well-educated, and most importantly well-connected individuals have a shot at being stock market dealers.

But what if this narrative could be flipped on its head where anyone with internet access can participate and make their own market? That’s the beauty of Balancer, which Coinmarketcap.com describes as an open platform that does“not rely on a central firm to manage accounts or orders. They use smart contracts to allow users to trade in a trustless, permissionless environment — and can generally be accessed by anybody, anywhere, without the need for an account.”

Better yet, Balancer offers myriad flexible options, making it distinct from other DeFi competitors. In particular, the platform’s market makers earn fees through the trading pools for which they provide liquidity — a concept that’s not unlike other DeFi solutions. However, Balancer allows these pool managers to set their own fees, which is a rarity in this space.

As well, Coinmarketcap.com states that it “also features support for multi-asset pools — allowing pool owners to include up to eight different assets in their pool. These multi-asset pools give pool managers the flexibility to create complete portfolios that are automatically rebalanced by traders.”

In other words, all sides of the trading equation can benefit through Balancer — “passive” users can earn yield through their portfolios via the rebalancing effect, market makers can generate profitability through their liquidity provisions, while traders can go after the big bucks through speculative activities.

The Almost Inevitable Growth Proposition

For the time being, Balancer and other DeFi solutions may find their growth hindered due to erroneous assumptions about the cryptocurrency sector. Although speculation is the primary activity in the crypto markets, it’s actually not the catalyst that will provide blockchain initiatives with long-term success. Instead, groundbreaking projects like Balancer will appeal to the masses thanks to the democratization of every aspect of the investing ecosystem.

This is the reason why Monte Thomas of PhoenixDAO is so excited about the future of Balancer and DeFi-based solutions. Thomas stated,

“The idea of aggregating what we do in the crypto/Blockchain space will eventually become a must as adoption and use cases grow which is why I love the Balancer solution. I look forward to a future where with the advent of flawless interoperable identity later we are able to use Balancer to manage our trading, and other assets portfolio.”

At this juncture, it seems almost inevitable that DeFi will eventually go mainstream. There are too many ways for interested individuals to participate, either as a speculator, market makers, or passive-income investors. About the only obstacle preventing integration is awareness — thanks to the internet, that could change overnight.

Leave a Reply

Your email address will not be published.

Related Articles
Read More

The Omicron Variant — Why Uncertainty Is Driving Market Chaos

When it first became obvious that the disease is no joke, and that coronavirus is highly-infectious, it had devastating effects on the market. Everyone still remembers quite vividly how the stock market crashed, followed by all other markets, including cryptocurrency. As time went by, and...
Total
0
Share