Balancer Price Analysis – Open-ended automated market-maker pools

The Balancer Protocol is a non-custodial portfolio management tool, liquidity provider, and price sensor, built on the Ethereum network. BAL is a governance token that can be used to vote on Balancer protocol changes and upgrades. BAL currently has a market cap of US$459 million, placing it 70th on BraveNewCoin’s market cap table, with US$70 million in trading volume over the past 24 hours.

Source: balancer.finance

Balancer Labs was co-founded in 2018 by Fernando Martinelli and Mike McDonald through an engineering and research company, Block Science, before being spun out independently. A private seed round in March 2020 raised US$3 million and sold 5 million BAL tokens. In total, 25 million tokens were distributed to the founders, core developers, advisors, and investors with associated vetting periods. A remaining 75 million tokens will be distributed over the next 8-9 years through liquidity mining. BAL currently has a 10.8 million token circulating supply, with a 100 million capped token supply.

The Balancer Protocol went live on the Ethereum (ETH) mainnet in March 2020. The protocol uses automated market-makers (AMM) which allow pools to hold variable amounts of tokens and crypto assets, opposed to the typical xy=k formula. Any user can create or add liquidity to customizable pools and earn trading fees. This structure resembles an inverse exchange-traded fund (ETF) where the fees are collected from traders, rather than paying fees to a portfolio manager.

There are three types of pools within the Balancer ecosystem; private pools, shared pools, and smart pools. Private pools only allow the owner to add liquidity and have full permissions over the pool. Shared pools have static tokens, weights, and fees that are permanently set, allowing anyone to add liquidity. Ownership of these pools is tracked by the Balancer Pool Token (BPT). Smart pools allow for the owner to set pool parameters and allow for anyone to add liquidity, with ownership tracked through BPTs.

Incentivized liquidity mining on the Balancer protocol began in June 2020, with the expectation of 7.5 million BAL tokens entering circulation over the next 8 years through this process. Incentivized liquidity staking began in August 2020, with 145,000 BAL tokens entering circulation each week through this process.

Currently, over US$1.15 billion is locked within the Balancer protocol in a mixture of assets, including BTC, ETH, and dai. The total value locked into contracts on Balancer is ninth by total value locked in comparison to other DeFi dapps.

Source: DefiPulse

On-chain BAL token stats reveal ranging transaction counts and steadily increasing transaction sizes. Transactions per day hit an all-time high of 3,800 on August 9th, with the average transaction size reaching US$102,000 on September 28th. Since late December, transaction counts have doubled and transaction sizes have quadrupled.

Source: CoinMetrics

The weekly Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (green line) has ranged from 50 to 180 over the past few months. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Weekly active addresses stabilized in October and have slowly increased over the past four months to 850.

Source: CoinMetrics

On the development side, the Balancer GitHub account has 24 repos. There have been over 1,000 commits across several repos over the past year by nine Balancer Labs devs. Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

A smart contract bug on the Balancer protocol in late-June 2020 led to the loss of US$500,000. The exploit allowed the attacker to drain two liquidity pools containing deflationary tokens. All losses were fully reimbursed by the Balancer team.

Source: GitHub – balancer-labs/pool-management-vue

Source: GitHub – balancer-labs/balancer-exchange

Technical Analysis

Roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pivot Points, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.

BAL has a limited trading history and needs to be analyzed on lower timeframes, as opposed to the daily chart. On the four-hour timeframe, the 50-period Exponential Moving Average (EMA) and 200-period EMA crossed bullish on December 28th, which has resulted in a 197% increase. Upside resistance while in price discovery, based on monthly pivots, sits at US$42, US$52, and US$64.

Price is currently 1.5x from the 200-period EMA and has not touched the 200-period EMA since January 11th. If the current consolidation zone fails to resolve in bullish continuation, the next significant support sits at US$34 based on monthly pivots and the 50-period EMA. Additionally, there are no current bearish divergences on volume or RSI to suggest weakening bullish momentum.

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Cloud metrics on the four-hour timeframe, with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$30. Kijun support also sits at US$34.

On the four-hour BAL/BTC pair, trend metrics are neutral to bullish with price above the 200-period EMA and inside of the Cloud. A definitive long entry signal will trigger if the spot price moves above the Cloud. Downside support based on the 200-period EMA, VPVR, and monthly pivots sit in the 69,500 sat to 78,500 sat zone. Upside resistance based on VPVR and monthly pivots sits at 90,000 sats to 100,000 sats with long-term upside resistance at 140,000 sats.

Conclusion

The Balancer protocol brings a variable approach to the AMM DeFi ecosystem. In opposition to exchange curated pools and weights, any user can create variations of the 50:50 split so typical in AMM pools. Thus far, the BAL token has shown little on-chain activity since distribution, and heavy inflationary pressures in early stages, despite having minimal impact on governance decisions.

Technicals for the BAL/USD pair show a bullish trend with prices over the 33-day EMA and four-hour Cloud. Upside resistance sits at US$42, US$52, and US$64 with significant support at US$34. Technicals for the BAL/BTC pair are neutral to bullish with downside support in 69,500 sat to 78,500 sat zone and upside resistance in the 90,000 sats to 100,000 sats zone.