[BPT-80BAL-20WETH] MIP6 Collateral Onboarding Application

MIP6 Collateral Onboarding Application for 80% BAL 20% ETH Balancer Pool Token

  1. Who is the interested party for this collateral application?

@monet-supply

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

Balancer is a decentralized exchange that uses a constant function market maker formula to allow liquidity pools with multiple tokens and custom allocations. Traders can swap between any of the tokens listed on Balancer in exchange for a swap fee (paid to liquidity providers) and slippage based upon the relative trade size. BAL is the governance token of the Balancer exchange, entitling holders (including those providing BAL liquidity on Balancer) to vote on proposals and changes.

The 80% BAL / 20% ETH Balancer pool token represents an ownership share of the assets in the underlying Balancer pool. It is currently the largest and most liquid pool on the Balancer exchange with over $50 million in total liquidity. The Balancer exchange is also offering a long term liquidity incentive program, which was recently updated to favor liquidity between key BAL pairs. This has resulted in this pool currently earning BAL rewards of around ~200% APY (this figure may change with new governance proposals or changes in asset price).

  1. Provide a brief history of the project.

Balancer was co-founded by Mike McDonnald and Fernando Martinelli in 2019. Balancer Labs held a seed round in March 2020 and launched the exchange to the public. Liquidity and usage grew substantially after Balancer began offering BAL reward distributions to liquidity providers, with total value locked in their contracts currently over $1 billion.

  1. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

Whitepaper: https://balancer.finance/whitepaper/

Blog: Balancer AMM DeFi Protocol

Documentation: https://docs.balancer.finance/

Website: https://balancer.finance/

Source Code: Balancer Labs · GitHub

80% BAL / 20% ETH LP token contract: https://etherscan.io/address/0x59a19d8c652fa0284f44113d0ff9aba70bd46fb4

BAL token: https://etherscan.io/token/0xba100000625a3754423978a60c9317c58a424e3D

  1. Link any available audits of the project. Both procedural and smart contract focused audits.

Audit section of Docs: https://docs.balancer.finance/protocol/security/audits

  1. Link to any active communities relating to your project.

Twitter: https://twitter.com/BalancerLabs

Forum: https://forum.balancer.finance/

Discord: Discord

  1. How is the applying collateral type currently used?

BAL is the governance token of Balancer Exchange. It is used in governance voting (primarily concerning modifications to the liquidity mining program. BAL has recently been given a few advantages in the liquidity program, including a “BAL factor” where any liquidity with BAL is more heavily weighted for rewards, as well as “BAL liquidity staking” where 31% of total rewards are reserved for liquidity between BAL and the most important defi tokens (including ETH). Any BAL deposited in liquidity pools is also counted for voting weight purposes.

The applying collateral type (80/20 BAL/ETH Balancer Pool token) represents an ownership share of the underlying assets in the liquidity pool. Users can trade against the pool in exchange for 0.15% fee per trade as well as slippage depending on the trade size and liquidity depth. With 80% of the pool allocated to BAL and 20% ETH, the pool will suffer relatively less impermanent loss from price changes and will maintain stronger BAL exposure than a Uniswap pool with 50/50 weights.

  1. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

No, Balancer Exchange and the BAL token are decentralized. Balancer Labs is a privately held company which created Balancer v1 and is still heavily involved in directing the project.

  1. Where does exchange for the asset occur?

The LP tokens can be created from or redeemed for their underlying assets (BAL and ETH) via the Balancer UI and contracts. Most BAL liquidity is on Balancer itself, but BAL is also traded on centralized exchanges including Binance, FTX, and OKEx.

  1. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

I am not aware of any publicly available legal opinions addressing the project or token’s regulatory standing.

  1. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.

None as far as I’m aware.

  1. (Optional) List any possible oracle data sources for the proposed Collateral type.

Centralized exchanges from (9) may offer price feeds for BAL. Ratio of Balancer LP tokens to BAL and ETH is freely accessible on chain via Balancer contracts.

  1. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

n/a

Special considerations: Holders of this LP token receive weekly BAL distributions via airdrop, currently amounting to around ~200% APY. We’ll need to be sure that vault owners (or Maker in the case of liquidation) are able to recover these tokens. The process for BAL redirection described in Balancer Github here may be helpful.

Disclosure: I hold BAL.

11 Likes

We’ve got to find a better naming convention for liquidity pool tokens. It’s especially an issue for balancer, because people can setup multiple 80/20 BAL/ETH weighted pools. I guess we can include the contract address in polls and such to make it more clear.

3 Likes

We should only accept pooled BAL if we accept BAL.

1 Like

It seems almost inevitable that if this 80/20 BAL/WETH pool is accepted, pure BAL will also be accepted at some point. I don’t see any reason why BAL would need to be accepted first, though. The pool seems less risky.

I’m interested in the mechanics of how BAL rewards could be redirected to each individual vault holder.

Similar to uniswap liquidity, we would be accepting the risk of all of the subcollateral. If we have not done the normal diligence for subcollateral, we could end up accepting a pool that is worthless overall.

Suppose there is a balancer pool that is 99% WETH, 1% SHIT. Under your position we might value the WETH enough to accept the collateral. But the unverified SHIT then hyperinflates to zero, and we are unable to liquidate the liquidity before most all of the WETH is gone. In this scenario, the mere presence of SHIT is significant enough to threaten the whole pool.

We must not skip due diligence for all subcollateral. Subcollateral is collateral.

5 Likes

@wjmelements, I agree completely. BAL/WETH 80/20 pool tokens should only be accepted as collateral if BAL itself is deemed safe enough to add on its own.

That said, if BAL is deemed safe enough, I think it would acceptable to add the pool token before pure BAL.

2 Likes

Renamed the token here so it follows our conventions a little better. Definitely need a better way to represent these.

1 Like