The core principles of Balancer v2 are security, flexibility, capital efficiency and gas efficiency. Highlights are as follows：
- Manage the agreed vault of all Balancer pool assets
- Gas Efficiency improvement
- Improving capital efficiency through Asset Manager
- Agreement fees determined through community governance
The main architectural change between Balancer v1 and v2 is the use of a single protocol vault to hold and manage all Balancer pool assets. v2 separates the automated market maker logic from the token management and bookkeeping. Token management/bookkeeping is done by the protocol vault, while the automated market maker logic varies from pool to pool.
In Balancer v1, because users had to send and receive ERC20 tokens from these pools separately, it was inefficient to trade gas with two and more pools. With Balancer’s newly introduced Protocol Vault, even if users execute bulk transactions involving different pools, only the final net token volume will be transferred in or out of the vault, a process that saves a significant amount of gas.
Only the final net token volume will shift, and arbitrage trading will become easier, Multiple transactions can be executed at once, with the final settlement aggregated by the agreed vault. It allows users to hold the balance of tokens in the pool. This is a huge boon for high frequency traders.
It is expected that aggregators will emerge in the future, using Balancer’s pool balances to provide users with low gas cost transaction services.
Lacking capital efficiency, most of the assets in the automated market maker are not really working. It is to solve this problem that the Asset Manager was introduced. The Asset Manager is an external smart contract designated by the pool that has full control over all tokens deposited into the vault by that pool, and the Asset Manager can lend tokens to lending agreements to increase the pool’s revenue. Note that the vault will ensure that the buffer mechanism is met, otherwise the transaction will fail: the vault can only sell tokens from the pool.
Governance-based agreement fees
- Transaction Fee: The proportional fee paid by the trader to the liquidity provider of the pool.
- Withdrawal Fee: A percentage fee (paid in assets withdrawn) charged to users when they withdraw funds (excluding transactions) from the Balancer Protocol Pool. This fee is not payable for transferring liquidity between Balancer pools.
- Lightning Loan Fee: The percentage fee (paid in assets used) that the user pays when using the Lightning Loan.