First time here? Check out this tutorial for a walk-through on how to add/withdraw liquidity.
In short, you'll need:
ETH to pay for gas fees
An Ethereum address you can use with one of the following compatible wallets
A WalletConnect compatible wallet
Balancer LPs can earn yield in a few ways:
Returns from Asset Managers
In addition, some pools in V2 are eligible for Governance Distributions through the Liquidity Mining program.
To read more about fees, click here.
When there is a trade in a pool, the pool collects a trade fee. The trade fee is denominated in the input token.
As the pool collects fees, your Balancer Pool Tokens automatically collect fees because they represent your proportional share of the pool.
Let's say Alice, Bob, Chuck, and Diana all provide liquidity in the same pool starting out worth $100. After some time, it has earned many trade fees and is now worth $200. The pool itself grows while their proportional shares stay the same.
Value After Trading
In general the AMM logic determines the prices that traders pay. For example, Weighted Pools, use a constant product formula and Stable Pools, use a StableSwap formula.
Balancer allows anyone to create a self-balancing index fund. Instead of paying a portfolio manager to continuously rebalance the fund, as investors do with an ETF, liquidity providers collect fees as traders rebalance the trading pools. This works because market actors are incentivized to rebalance the portfolio to take advantage of arbitrage opportunities.