What is Balancer?
Decentralized finance (DeFi), a general term that includes products such as decentralized exchanges, automated market makers, and non-custodial lending protocols, started to gain significant traction in 2020. As of May 2021, the overall market cap of this growing community is over $155 billion.
The Balancer platform is one such DeFi protocol that operates as a decentralized exchange and automated market maker for crypto assets. A little over one year after its launch in March 2020, Balancer has a total value locked-in (TVL, analogous to Assets Under Administration) of $3.5B and its governance token, BAL, has a market cap in excess of $500 million [May 2021.]
A market maker is a trading entity that buys and sells assets within a public market to create liquidity. Balancer offers a couple different products, positioning its Invest product as a “set-and-forget protocol for investors,” essentially a self-balancing weighted portfolio. Users deposit crypto assets and Balancer algorithmically manages those assets by conducting trades behind the scenes and rebalancing the user’s portfolio. Investors — users who deposit assets into liquidity pools — receive incentives in BAL, Balancer’s governance token, so that they may participate more actively in Balancer’s development and vote on proposals. Anyone with two or more ERC-20 tokens available to deposit can be a liquidity provider on Balancer.
Balancer’s Trade product is a decentralized exchange, enabling user-controlled custody of assets and instant crypto trading. Users can also opt to have a portion of their trade gas fees reimbursed in BAL.
Balancer is a permissionless and non-custodial platform. Once a contract is on the blockchain, there is no way for Balancer Labs (the team behind Balancer) to change it. The platform doesn’t control the funds, the investors do.
What is BAL?
BAL is similar to other ERC-20 tokens created and minted for the purpose of distributing a protocol’s governance more broadly. Balancer Labs is the research team behind the Balancer platform, but in the spirit of decentralization and community, the team did not want to retain full control over the project. Shortly after the launch of the platform, the team created BAL, reserving 25% of the tokens for the core developers and advisors, allocating another 10% to ecosystem funds, and the rest are released to platform’s liquidity providers at a programmed rate.
As stated in its documentation, BAL is not an investment vehicle; rather, it grants voting power to people who interact with the protocol and who want a seat at the governance table. Notably, however, the popularity of the Balancer platform has created market demand for BAL outside of just its voting functionality.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.
No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform.
Wealthsimple has performed an assessment of whether BAL can be supported by Wealthsimple’s platform, including whether BAL is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.
We evaluated Balancer based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Balancer, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Balancer;
- The supply, demand, maturity, utility and liquidity of Balancer;
- Material technical risks associated with Balancer, including any code defects, security breaches and other threats concerning Balancer and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with Balancer, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of BAL; and
- Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether BAL, or generally about whether the type of crypto asset, is a security and/or a derivative.
Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to BAL may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support BAL.
Like all other crypto assets, there are some general risks to investing in BAL. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading BAL. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision).
The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Last updated: January 1, 2024