Since inception, our goal at Balancer Labs has been to decentralize and diversify governance of the Balancer Protocol. We have looked into several approaches and designs, and have landed on an approach we are proud to share: the Balancer Protocol Governance Token (BAL).
We believe alignment between token holders and protocol stakeholders is crucial for successful decentralized governance. More explicitly, we believe BAL tokens are the vehicle to drive alignment and participation in the protocol. BAL tokens are not an investment; BAL token holders should be people who interact with the protocol in some way, are committed to its future development, and want a seat at the governance table.
The Balancer protocol allows any Ethereum account to add liquidity in the form of tokens to existing Balancer pools, or even create their own pools.
Liquidity attracts traders, trading generates fees, and ultimately pool profitability attracts more liquidity. This is a flywheel effect that we are beginning to see happen within the Balancer protocol.
Regardless of the venue, early liquidity providers take on more risk and opportunity cost: including contract risk, low initial pool profitability, etc. We believe that these protocol users should get to participate early on in deciding how the protocol evolves. Toward this end, Balancer Labs proposed and implemented the concept of liquidity mining, where Balancer governance tokens (BALs) are distributed to liquidity providers. See below for further details.
Balancer V1 launched without a native token, and confirmed our assumption that Balancer’s approach would resonate with the community. However, in order for the protocol to keep up with the fast evolving Ethereum and DeFi space, we are convinced that many new versions and continuous development of the protocol will be essential.
BALs are a key way of decentralizing the governance of the protocol such that it remains resilient over time, and protected from the failure of any single stakeholder. Our governance needs to be as resilient as our technology infrastructure.
We expect token holders to help guide the protocol to its fullest potential through experimentation and active participation. For example, implementing new functionality, deploying the protocol on additional smart contract blockchains beyond Ethereum, using layer 2 solutions for scaling, introducing a protocol level fee, etc. Anything contentious will certainly go to the BAL token holders for review.
The total supply of BAL tokens will be capped at 100M. This does NOT mean that this cap will ever be reached. It will be up to governance (controlled by BAL token holders) to decide if the distribution should end before this cap is reached.
25M BAL tokens were initially allocated to founders, stock options, advisors and investors, all subject to vesting periods.
5M were allocated for the Balancer Ecosystem Fund. This fund will be deployed to attract and incentivize strategic partners who will help the Balancer ecosystem grow and thrive. BAL holders will ultimately decide how this fund is used over the coming years.
5M were allocated for the Fundraising Fund. Balancer Labs raised a pre-seed and seed round. This fund will be used for future fundraising rounds to support Balancer Labs' operations and growth. BAL tokens will never be sold to retail investors.
The remaining 65M tokens are intended to be mostly distributed to liquidity providers in the coming years.
Every week 145,000 BALs, or approximately 7.5M per year, are distributed to liquidity providers. This means that in the first year of BAL’s existence there would be 30% supply inflation from the initial supply of 25M tokens (here we are not considering the two funds, since they are not yet allocated).
This high rate of supply inflation is meant to kickstart the distribution of governance rights of the protocol to those who earn it. At the the current rate of 145,000 BAL per week, it would take 8.666 years to distribute the whole 65M BAL remaining, before reaching the 100M cap.
The schedule of BAL distribution over the next few years - and whether it should stop before the 100M cap is reached - will be extensively discussed within the Balancer community, and will ultimately be decided by BAL holders.
For full transparency, the seed series price of one BAL token was $0.60.