Telcoin x Balancer: Phase 1
Telcoin is now on Balancer! Learn more about our latest DEX, how it works, and how to use it with TEL.
By Parker Spann
DEXes are one of the key building blocks Telcoin is using to bring TEL remittances, and every other future complementary financial product, to the masses. Balancer is a novel asset management and decentralized exchange platform that offers some unique advantages over traditional Automated Market Makers. This article first discusses Telcoin’s ongoing DEX roadmap, gives an overview of Balancer and how it works, and then provides a simple how-to-guide for TEL holders.
Telcoin’s DEX roadmap takes a phased approach. In phase one, Telcoin creates new markets and teaches TEL holders how to use them. In phase two, Telcoin initiates liquidity rewards in order to capture the data needed to sustainably and efficiently bootstrap TEL pool liquidity and lower transaction costs as much as possible for end users. Subsequent phases and infrastructure additions to the Telcoin platform stack will be announced at time of launch.
Over the course of the first two phases of the Telcoin x Uniswap launch, the TEL community has been successful at creating the first self-servicing, liquid, on-chain market for TEL. This is a fantastic first step towards achieving our intended design goals which are to:
- Create open, accessible, and highly liquid markets for TEL.
- Optimize TEL-denominated remittances and future product offerings in the Telcoin platform to be as cost effective as possible for end users by reducing slippage.
- Reward long term TEL holders for providing the value of creating more liquid TEL markets in a sustainable manner (read TEL Liquidity Mining).
- Ensure execution, clearing, and settlement of TEL trading within the Telcoin platform takes place automatically, on chain, without middlemen.
On October 1 at 6:00 pm Central Daylight Time, I will be conducting a live AMA with the community to answer your questions and do a recap of month one of the ongoing TEL liquidity mining program on Uniswap.
Telcoin x Balancer
Now that we have successfully executed phases 1 and 2 on Uniswap, it’s time to introduce phase 1 of the next TEL exchange in focus: Balancer.
Similar to Uniswap, we plan to integrate full TEL Balancer functionality into a simple, sleek, easy to use interface with one click options for swapping and pooling, so that users can access the best TEL price possible when swapping and earn rewards for pooling without ever having to leave their Telcoin wallet.
But why Balancer? A few reasons:
Now let’s dive in!
Website and FAQ: https://balancer.finance/
Exchange Interface: https://balancer.exchange/#/swap
Pool Interface: https://pools.balancer.exchange/#/
TEL-ETH 80/20 pool: https://pools.balancer.exchange/#/pool/0x6cb5c5cb789fae62ce5ce280e1fbc5dd3bbdad81/
White Paper: https://balancer.finance/whitepaper/
Description: Balancer is an automated liquidity and asset management protocol. It is a non-custodial, ethereum-based automated market maker (AMM) that enables anyone to create or add liquidity to fully programmable, customizable pools of up to eight tokens and earn trading fees or swap assets.
Liquidity pool exchanges (also known as Automated Market Makers, or AMMs), where trades are conducted directly against smart contract token reserves rather than order-books and specific counter-parties, have exploded onto the scene over the past year as the primary mechanism for on-chain trading, powering nearly US$20 billion in volume in the past month alone. For context, the total USD value of ICO investment in the 2017 boom was US$4.9 billion or over 10% less than last week’s total US$5.5billion DEX volume on ethereum.
Though traditional AMMs like Uniswap have been successful in creating extraordinarily liquid markets with a ton of volume (the ETH trading pair with the most volume depth is on Uniswap), up until Balancer, pool design has been limited to a fixed set of parameters.
Uniswap uses the constant product market maker formula to price pools(x*y=k) , limiting pool composition to two equally weighted assets along with a fixed 0.3 percent trading fee. On the other hand, Balancer uses a generalized formula, called the constant mean market maker function (more on this below), which allows between 2–8 different tokens per pool - with completely customizable pool weights and trading fees.
This expressiveness essentially means Balancer functions as a customizable, income generating, self-sustaining index creator and asset manager for investors and a live, 24/7/365 permissionless exchange with an unlimited number of potential trading pairs and arbitrage opportunities for traders.
Borrowing from Placeholder VC’s Balancer Thesis:
Balancer is a new financial primitive that combines asset management and decentralized exchange. For investors, Balancer currently offers indexed management of cryptoassets. Instead of paying fees to portfolio managers, investors earn fees for contributing their assets to Balancer pools. For traders, Balancer is a permissionless and non-custodial trading venue with competitive prices where the fees from trading increase returns for the asset depositors. In conventional finance, this would be akin to smashing Fidelity asset management together with NASDAQ’s exchange, funneling NASDAQ’s trading profits to Fidelity’s asset holders.
Balancer turns the idea of an index fund on its head: instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders who rebalance your portfolio by following arbitrage opportunities.
There simply is no corollary for Balancer in traditional finance. It is an entirely new framework for asset management and exchange, and Telcoin is thrilled to integrate it into the TEL ecosystem and Telcoin platform.
As of September 16th, the total value pooled on Balancer sits at US$600 million. On June 16th, the TVL was US$38 million, while on August 16th it was US$225 million. That means, the TVL on Balancer has increased nearly 1,500 percent in three months and over 140 percent in the past month!
Volume growth has been equally impressive, clocking in US$42 million in trading volume on September 16th, up from US$1.2 million on June 16th — over a 30x increase in volume in three months!
Programmable: Smart pools can be coded for an unlimited number of use cases and self execute.
Customizable: Pool token weights, asset composition, and trading fees can be customized by the pool creator.
Permissionless: Anyone with an internet connection can access Balancer; this can boost financial inclusion, one of Telcoin’s core missions.
Efficiency: Balancer is a self-sustaining asset manager and decentralized exchange powered by code, not humans/middlemen. This also means there are no listing fees.
Automated: Unlike traditional orderbook exchanges, market making, trade execution, clearing, and settlement, trading fee distribution on Balancer is automated on chain. Balancer does all of the work for you!
Non-custodial: There is no need to trust a centralized third-party to custody funds or validate transactions; you keep control of your assets. This significantly reduces counter-party risk and enables fluid on chain transaction utility without relying on any financial intermediaries.
Composable: Balancer can be combined with different protocols and applications to create new financial products and services. Balancer will serve as a key infrastructure layer of the Telcoin application.
User-owned: Suppliers (Liquidity Providers or LPs) earn the native governance token of Balancer, BAL, for providing liquidity to the platform, and directly vote on protocol updates, changes, and initiatives to improve it.
Open Source: Anyone can develop on or modify the code.
Transparent: Ethereum is completely transparent and auditable.
How Balancer works
It is recommended that readers review Telcoin x Uniswap before moving further, as basic liquidity pool knowledge is a prerequisite for understanding the concepts explained below.
Many existing AMMs, such as Uniswap, use a constant product (x*y=k) formula for pricing. Balancer generalizes this using a constant mean formula:
This means that LPs can create pools with more than two assets and weights outside 50/50. Similar to Uniswap 50/50 pools, Balancer “public pools” (described further below) will always maintain the token weight set by the pool creator and whenever someone trades in the pool, prices change. Usually external arbitrage traders step in to make sure prices match other sources of liquidity.
For example, with regard to the TEL-ETH 80/20 Balancer pool, which we will dive into in more detail later, will always maintain an 80% TEL, 20% ETH token weight in the pool.
Liquidity pools are smart contracts that hold balances of between 2–8 tokens and enforce rules around depositing, withdrawing, balancing assets, and trading fees.
Liquidity providers or LPs are investors who deposit (pool) their assets in a liquidity pool according to the parameters set by the pool creator. LPs are distributed a Balancer Pool Token (BPT) when they pool their assets, which denotes their percentage ownership of the pool. Unlike Uniswap LP tokens, BPTs are transferable and tradable on the open market. Trading fees are distributed proportionally based on pool ownership upon removal of liquidity.
Traders swap their assets for other assets in a given pool.
Arbitrageurs maintain the price of assets within that portfolio in accordance with the market price in exchange for a profit.
LPs: Chad owns TEL and wants to add liquidity to the TEL/ETH pool. He navigates to the TEL- 80/20 Balancer pool and adds either TEL, ETH or both. He then receives a BPT and can add or remove to his position at any time.
Traders: Karen owns ETH and wants to buy TEL. Karen navigates to the Balancer exchange interface. She inserts ETH in the “Tokens to Sell” box on the left hand side along with the amount of ETH she’d like to sell for TEL, and inserts TEL in the “Tokens to Buy” box on the right. She clicks “Swap,” confirms the transaction, and her TEL tokens are immediately sent to her wallet.
Arbitrageurs: Bob notices that TEL on Uniswap is priced at US$1.10 while TEL on Balancer is priced at US$1.00. Bob buys TEL on Balancer for US$1.00 and sells it on Uniswap for US$1.10, making 10 percent on the trade.
Balancer offers a new feature set that will expand the backend functionality of the Telcoin platform for TEL end-users, traders, and holders. Below is a non-exhaustive list of Balancer’s features and subsequent benefits to the TEL ecosystem.
Pool weights are customizable and set by the liquidity pool creator.
Benefit: As we will walk through below, this substantially decreases impermanent loss due to portfolio volatility one might see on Uniswap.
Trading fees are customizable and set by the liquidity pool creator.
Benefit: By bringing TEL trading fees on Balancer as close to 0 as possible, Telcoin will be able to offer users an extremely affordable remittance solution, subsidizing trading fees with time-locked inflation rewards.
Index your portfolio by adding between 2–8 assets in a pool.
Benefit: TEL holders can essentially create an index fund with their portfolio holdings and earn trading fees.
Pool design is only limited by a developer’s ability to code smart contracts. Balancer introduces private pools, public pools, and smart pools, enabling anyone with access to a computer to create an unlimited scope of asset pools.
Benefit: Telcoin can design various pool types to optimize for different markets and use cases.
Single asset pooling means users can pool TEL without holding any other assets, earning trading fees and liquidity mining rewards. For single asset deposits, you can deposit one of the assets in the pool but in return, you’ll receive a lower amount of BPT tokens.
Benefit: This means liquidity providing and mining for TEL can be more inclusive, attracting more prospective LPs, and thus more TEL liquidity and less slippage (lower costs to users).
LP tokens are fully functional.
Benefit: This enables more seamless and automated liquidity mining programs along with the ability for LPs to trade their assets as an index rather than in separate transactions.
BAL, the Balancer governance token, is distributed via liquidity mining to eligible pools over time at a rate of 145,000 BAL a week. BAL holders govern the platform via this portal.
Benefit: LPs, including TEL LPs if the Balancer governance forum passes a vote to make TEL pools eligible, earn the Balancer governance token for using the platform, get to vote and have a direct stake in making it a successful, functioning exchange that evolves over time with the ethereum ecosystem. Therefore, TEL trading functionality will continue to optimize over time with the latest innovations in the space.
Pool types and use cases
In addition to the extensive feature set offered by Balancer, token projects and users can also create various different types of pools for different use cases.
Private pools where only the creator can contribute liquidity and has full permissions to update the parameters of the pool.
Public pools where the pool’s tokens, weights, and fees are permanently set and the pool creator has no special privileges. Anyone can add liquidity to public pools and ownership of the pool’s liquidity is tracked with a special token called BPT- Balancer Pool Token.
Smart pools are controlled private pools that are owned by a smart contract which enables any sort of arbitrary logic to be built and changed. Smart pools may also accept liquidity from anyone and issue BPTs to track ownership.
Features of smart pools:
- Adjustable pool weights
- Adjustable fees
- Add or remove tokens
- Pause swaps/trading
- Whitelist liquidity providers
Types of smart pools
Liquidity Pools that grow both liquidity and staking participation with automated staking and rewards distribution.
Use cases: Balancer enables a more seamless, automated way of creating incentivized pools for liquidity mining such as with the TEL/ETH Uniswap pool.
Liquidity Bootstrapping Pools (LBPs) involve a smart pool template that allows teams to release a project token while at the same time building deep liquidity. LBPs are designed to decrease the weight of a token over time to create a constant downward pressure on the price.
Use cases: Token sales with price discovery and for bootstrapping secondary-market liquidity if markets already exist for the asset, e.g. Perpetual Protocol’s initial DEX offering.
Volatility Reflective Pools that increase fees during times of high demand. This attracts more liquidity (less slippage) to a pool as it becomes more profitable than a fixed-fee pool.
Use cases: A surge pricing pool that increased fees substantially during Black Thursday on March 13th, when the crypto market collapsed, liquidity providers could earn a substantial increase in fees to compensate for pooling the volatile assets in the pool.
Overall, the pool design space enabled by Balancer is tremendously exciting for Telcoin. We intend to design, deploy, and bootstrap the optimal pool types for each product offering starting with remittances, and then obfuscate the complexity of pooling and swapping into a simple, easy to use, one-click interface, so that all TEL holders and users can participate and get rewarded for making TEL markets healthy.
Comparing Balancer & Uniswap
Balancer improves the Uniswap model via its programmability and flexibility. This has some major benefits for liquidity providers.
In Uniswap, where all pools are 50/50, impermanent loss (the percentage by which a pool is worth less than what one would have if they had instead just held the tokens outside of the pool) can disincentivize liquidity provision.
On Balancer, with fully customizable pool weights, impermanent loss can be mitigated substantially.
Whereas a 50/50 pool on Uniswap will have an impermanent loss of 25 percent if one of the underlying pool assets 5x’s in value, a Balancer 95/5 pool will capture 95 percent of the upside of the move (not including liquidity mining rewards or trading fees). On the flip side, a 50/50 pool with the same liquidity and trading fees will also have less slippage than a 95/5 pool. For further review of impermanent loss on Uniswap and Balancer, please see Andrew Kang from Mechanism Capital’s Uniswap vs Balancer Impermanent Loss spreadsheet.
The TEL/ETH 80:20 Balancer Pool
In order to optimize for impermanent loss and transaction costs, we decided to meet in the middle for the first TEL-ETH public pool and launch it with an 80/20 token weight and 0.10% trading fee.
You can now pool and swap TEL on Balancer!
Now let’s learn how to use it.
How to use TEL on Balancer
This guide walks through five functionalities available on Balancer today:
- Swapping ETH for TEL
- Adding liquidity to the TEL-ETH 80/20 Balancer pool
- Removing liquidity from the TEL-ETH 80/20 Balancer pool
- Creating new pools
- Read: An Evolution of Exchange, Telcoin x Uniswap, and TEL x Uniswap liquidity rewards program
- A basic understanding of TEL, ethereum, and AMM’s
- Metamask or another Web3 wallet
- TEL and ETH, along with any other assets you’d like to pool
- The TEL smart contract address: 0x467Bccd9d29f223BcE8043b84E8C8B282827790F
- Know how to add liquidity to an existing TEL pool on Uniswap (e.g TEL-ETH)
- You will need to get Wrapped ETH (WETH) in order to pool — luckily you can wrap it directly on Balancer through the liquidity pool dashboard
*Risk disclaimer: Though Balancer has been audited extensively, it is still very much a beta product. Unlike traditional financial services, which primarily involve counter party risk, Balancer has technical risk. There are no counter-parties or admin keys. Telcoin takes no responsibility over lost funds.
How to buy TEL on Balancer
- Navigate to https://balancer.exchange/#/swap
2. Connect your ethereum wallet. Balancer currently supports MetaMask, Coinbase Wallet, and a number of others.
3. Insert ETH in the “Token to Sell” box on the left along with the amount of ETH you would like to swap for TEL.
4. Click on the box under “Token to Buy” and insert the TEL smart contract address.
5. Click “Unlock,” then confirm the transaction.
6. Enter the amount of ETH you would like to sell for TEL.
7. Click “Swap,” then confirm the transaction in your ethereum wallet. Your TEL will be delivered as soon as the transaction is confirmed!
How to add liquidity to the TEL-ETH Balancer pool
- Head on over to the TEL-ETH 80/20 pool https://pools.balancer.exchange/#/pool/0x6cb5c5cb789fae62ce5ce280e1fbc5dd3bbdad81/.
2. Connect your ethereum wallet.
3. Wrap the amount of ETH you would like to contribute to the pool in the bottom left hand corner and confirm the transaction.
4. Click on “Add Liquidity” in the top right.
5. Click on “Multi assets” if you would like to add both TEL and ETH to the pool, or “Single asset” if you would like to add just one of the assets.
6. Insert the amount(s) you would like to pool, click the red checkmark box, and then click “Add Liquidity.”
7. Confirm the ethereum wallet transaction. Once your transaction confirms, you simply wait for it to go through and you are all set! Balancer does the rest of the work for you.
How to remove liquidity from the TEL/ETH Balancer pool
- Removing liquidity is very easy. First visit the TEL-ETH 80/20 pool page.
- Click “Remove Liquidity,” choose how much you would like to withdraw as a percentage of the total, and confirm on your ethereum wallet.
3. In return, you will receive your tokens in the correct proportion and any earned swap fees.
How to create a new Balancer pool
- Navigate to https://pools.Balancer.exchange/#/pool/new.
2. Connect your ethereum wallet.
3. When the “Setup proxy” popup appears, click “Setup” and confirm the transaction (it will say 0 ETH — ignore that).
4. Wrap the ETH you are pooling into WETH in the bottom left hand corner (for example, 10 ETH to 10 WETH if you intend to create a pool with 10 ETH).
5. Click the top token box and insert the TEL smart contract address: 0x467Bccd9d29f223BcE8043b84E8C8B282827790F
6. Insert and add any other tokens you’d like below and set your own pool weights.
7. Click “unlock” on each of those tokens and confirm the transactions in your wallet.
8. Customize the pool “Swap fee.”
9. Read the disclaimer and chick the red check box.
10. Click “Create,” confirm the transaction in your ethereum wallet.
You have now have created your very own Balancer index fund!
Note: creating a pool means you are deploying a smart contract. The gas costs are significantly higher than a simple swap.
We are excited to continue pushing the envelope in order to create the best possible product for users. Please feel free to reach out over telegram if you have questions about Telcoin, TEL, or Balancer!
Send Money Smarter. Exchange Assets Smarter. Index Assets Smarter. Telcoin.
Compare Balancer pools on http://pools.vision/
Track your pools on https://liquidity.vision/
Disclaimer: Balancer is a very new protocol and is still very much a beta product. Telcoin has no control over lost funds on Balancer and takes no responsibility for user or protocol level errors.