BAL Liquidity Staking [Alpha Tractor]

Providing BAL liquidity on Balancer just got a whole lot sweeter. Here's why.

THIS STRATEGY EXPOSES LIQUIDITY PROVIDERS TO IMPERMENANT LOSS.

This is the fourth post in our Alpha Tractor series - giving you intel into the freshest yield for the most honest farmers only.

Balancer Overview

Balancer has quickly blossomed into one of the most liquid protocols in DeFi. The automated asset management platform features customizable liquidity that support up to eight assets in one pool, flexible weighting, and dynamic trading fees. LPs can enter and exit pools with a single asset, giving it a unique advantage to protocols like Uniswap where traders must provide an even amount of ERC20 tokens and ETH.

With $313M in TVL, Balancer made a big splash with the unveiling of liquidity mining as the main form of distribution for it’s BAL governance token. Each week, 145k BAL is distributed to LPs. We previously covered how this works here.

Useful Liquidity

Over the past month, Balancer governance has incorporated a variety of factors that tie into how BAL rewards are distributed to LPs. These include:

• feeFactor - Pools with lower fees earn more BAL.

• capFactor - Different pools have a cap on the amount of liquidity that earns BAL.

• wrapFactor - Pools which feature same-peg assets earn lower BAL rewards.

• ratioFactor - Pools with 50/50 weighting earn the most BAL.

• balFactor - Pools which feature BAL liquidity earn a 1.5x multiplier.

With the passing of the balFactor, BAL liquidity has been netting the highest Return on Liquidity (ROL) on Balancer over the past few weeks.

Now, the incentive to provide BAL liquidity has been buffed through the introduction of Liquidity Staking.

What’s Liquidity Staking?

As illustrated in this governance proposal, Liquidity Staking looks to further incentivize BAL liquidity in ‘useful’ pools, or those which feature uncapped assets like WETH, DAI, USDC, and WBTC.

In order to do this, 31% of the weekly distribution (or 45k/145k BAL) will be allocated solely to non-shareholder BAL liquidity providers.

“The goal is to increase the incentive for liquidity provisioning with BAL, which should increase BAL liquidity therefore providing better conditions for a wider distribution of BAL ownership.” - followthechain

With this new change in place, BAL liquidity APY’s saw a drastic spike, sitting around anywhere from 250-300% depending on which pool you enter. We recommend this tool to track which BAL pools are earning the highest APY at any given time.

Source: pools.vision filtering by “BAL” pools

If you’re a BAL holder and have yet to put your capital to work in the form of Balancer liquidity, there is no better time than now.

Please note that as with any Balancer pool, LP’s are exposed to impermanent loss. This means if the price of BAL drastically outperforms ETH, your relative allocation of BAL will drop as the pool rebalances to meet its target weighting.

While the premise of liquidity mining is nothing new, we believe this shift in incentives merits taking a strong look if you’ve yet to already.

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All info in this newsletter is purely educational and should only be used to inform your own research. We're not offering investment advice, endorsement of any project or approach, or promise of any outcome. This is prepared using public information and couldn't possibly account for anyone's specific goals or financial situation. Be careful and keep up the honest work!