Balancer, one of the largest decentralized exchanges built on Ethereum, is coming to Algorand. It’s yet another example of a large DeFi project expanding beyond Ethereum to one of the Ethereum blockchain’s rivals.
According to a press release, Balancer “will be the first automated market maker (AMM) available for use by the Algorand community.” In doing so, it beats out larger rival AMMs Uniswap and SushiSwap.
Like Ethereum, Algorand runs smart contracts—the computer code that automates transactions and removes the need for third parties—and decentralized applications, meaning it’s a network that can host a wide range of services. That includes the suite of intermediary-free lending, borrowing, and trading tools collectively known as decentralized finance (DeFi).
Balancer is a key cog in Ethereum’s DeFi ecosystem. According to DeFi Pulse, it’s the fourth-largest decentralized exchange in terms of total value locked, which refers to the value of crypto in dollars that people have stored in the network.
Decentralized exchanges, or DEXs, are places where people trade cryptocurrencies and participate in DeFi without entrusting their funds to a third party. As an automated market maker (AMM), Balancer uses liquidity pools so that buyers don’t need to be directly matched up with sellers. Smart contracts do the heavy lifting.
But, as long as it’s on the Ethereum blockchain, Balancer’s protocol can only perform swaps for ERC20 tokens, a specific type of asset built atop Ethereum. Expanding to Algorand, then, lets it reach a whole new set of assets built atop that blockchain known as Algorand Standard Assets.
“By leveraging Balancer’s services on Algorand, exchanges will have the ability to create trading pairs with any Algorand Standard Asset (ASA), the DEX wrote in a press release. As the number of assets issued on Algorand’s high-performing blockchain accelerates, this represents a huge opportunity for mass adoption”.
Balancer won’t be alone. Circle’s USDC stablecoin announced last year that it was expanding to Algorand, adding an easier way for crypto traders to get started on that blockchain.
The move, of course, doesn’t mean Balancer is forsaking Ethereum. But it does put further pressure on the network as competitors such as, Algorand, Cardano, and Solana exploit Ethereum weakness: congestion and high fees.
That congestion is partially due to Ethereum’s first mover advantages as the original network to embrace smart contracts and the applications they make possible. But it’s also because Ethereum has not yet transitioned from proof of work to a proof-of-stake consensus algorithm, which is more scalable.
The move to Ethereum 2.0 is in progress. Phase 0 launched late last year and Ethereum devs recently suggested the proof-of-stake blockchain might be ready earlier than expected.