After Shanghai, instead of simply holding $ETH, investors can convert to $ETH LSD products and even better join low-risk Yield Farming.
So which project should be considered? Let's find out with Holdstation through today's article.
What is Liquidity LSDs?
After Shanghai, a lot of $ETH will be withdrawn from the Beacon Chain. Most of them will look for a new source of Yield with more flexibility, higher APR to maximize their profits. And Balancer will be a good choice if you are looking for a destination for the amount of $ETH you are holding.
Liquidity for LSDs products will drive Ethereum growth for the sake of benefits;
Optimize capital efficiency, create leverage to encourage big boys, VCs to jump into the game
Create LSD positions for investors flexibly
Higher rewards than regular Liquid Staking Derivaties
Encourage more $ETH to participate in staking, improve the security and decentralization of the network
What is Balancer?
Balancer is an old AMM built on Ethereum chain then extended to Arbitrum, Polygon, zkSync, Gnosis, etc.
So why can Balancer become a liquidity hub for ETH LSDs?
Balancer Batch Swap
The reason comes from the Pool V2 update, the Balancer creates a Pool where all assets are entered into a single contract. When a transaction occurs, the liquidity pool only needs to calculate the amount of swap, assets are inserted and withdrawn.
Unlike other protocols, when you want to swap from token A to token B. If there is no A-B LP pair, the protocol will automatically swap assets through various liquidity pools. This will increase gas fees and (probably) create more slippage.
For example:
You swap from WBTC -> stETH in Curve Finance, the router logic will swap from WBTC -> ETH -> stETH. This means that swapping 2 times causes price slippage and higher gas fees than usual.
Another example is swap from rETH -> stETH
It can be seen that Balancer Batch Swap is working very effectively in terms of swapping between regular pairs and stable pairs.
Because of the above benefits, the transaction gas fee on the Balancer is also optimized, according to the statistics below comparing the gas between Balancer and Uniswap. If your transaction goes through 3 routers in Uniswap need to pay more than 310,000 gas cost but with Batch swap of Balancer only need 170,000 gas cost
With the above improvements, Batch Swap will bring users the benefits
Traders can optimize transactions with low slippage, low gas fees -> good for both Whale and Retails
Liquidity providers enjoy more swap fees -> Higher Pool APR
Boosted Pool
With liquidity pools like regular Pool2 or Curve Finance's pool3, the rewards for liquidity providers come from swap fees and inflation tokens. However, most pools only use about 20% of the liquidity in them, which leads to underutilized capital -> low swap fees -> low APR
In Boosted Pool, Balancer will wrap unused tokens and take them away to create more profitable strategies for providers such as AAVE, Morpho, Gearbox,etc
With the above improvements, Boosted Pool will bring users the following benefits:
Higher APR
Deeper liquidity combined with Batch Swap to help traders enjoy better prices
MEV Protect
You may be familiar with the “Sandwich Attack”. Recently, the market has recovered, leading to more transactions on DEXs, becoming a lucrative prey for MEV bots.
It is very likely that after the Shanghai Hard Fork takes place, there will be a large number of investors buying/selling in large volume. So anti-MEV exchanges will be the destination for those who want to trade in large volumes.
And Balancer has long cooperated with Cowswap to prevent MEV attack to ensure the safety of its users.
Summary
The reasons why Balancer can become a liquidity hub for Ethereum LSDs are:
Batch Swap helps users to trade at a good price and optimize fees
Boosted Pool helps liquidity providers optimize capital resources
If you want to stake your $ETH after Shanghai, you can refer to some projects like Aura Finance, Tetu, Beefy, etc. These are all Yield Boost built on top of Balancer's liquidity
