Balancer and Gnosis Are Launching a New Ethereum Exchange

Balancer and Gnosis, two Ethereum mainstays, are uniting to launch a decentralized exchange called the Balancer-Gnosis-Protocol (BGP).

DeFi Favorites Link Up 

Balancer is one of Ethereum’s most popular automated market makers (AMM). Unlike Uniswap, it allows for multi-token pools of more than two assets. It’s regarded as a staple of the DeFi ecosystem and works by allowing traders to provide liquidity or trade tokens in a pool.

Gnosis builds market mechanisms for use in decentralized finance. It was launched as part of ConsenSys in 2015 but has since gone independent. 

Balancer said that the BGP partnership would “revolutionize the [decentralized exchange] space to deliver the best experience to traders—across price, UX, and transparency.” 

The Balancer-Gnosis-Protocol will combine Balancer V2’s Vault system and Gnosis’s price-finding mechanism. It will specifically offer traders the most favorable trade prices while protecting them from value extraction known as Miner Extractable Value (MEV).

A hot topic in the DeFi space, MEV refers to the value miners can draw from a trade by reordering or excluding transactions in a block. For example, if a miner notices an arbitrage opportunity worth $5,000, they may exclude the transaction to take advantage of the arbitrage for themselves. The MEV is the $5,000 sum.

MEV is also what leads to gas price bidding wars between arbitrage bots. Many believe that MEV is damaging to the health of Ethereum because it can disrupt consensus.

In recent weeks, the Flashbots project has helped target gas wars between bots by developing a system that moves the bidding to another channel. According to ETH Gas Station, it’s helped reduce the gas prices on Ethereum; it currently costs about 53 gwei for an instant transaction (transaction costs have previously ranged from 500-1,000 gwei during periods of extreme congestion). 

Balancer-Gnosis-Protocol Targets MEV 

Martin Köppelmann, Gnosis CEO, explained that the Balancer-Gnosis-Protocol was created to mitigate the effects of MEV on Ethereum. He said: 

“MEV is a phenomenon currently extracting value of up to 1% of all [decentralized exchange] trades on Ethereum, with value going from users to miners or other arbitrageurs. With BGP, and in particular Gnosis Protocol V2, we built a trading protocol that protects users and makes sure the value stays with them.”

The Balancer-Gnosis-Protocol is hoping to adopt a self-regulated format, using a governance structure to adapt rules according to the market conditions. The rules will aim to limit MEV and provide all users with more favorable prices. 

Fernando Martinelli, Balancer’s CEO, added that cooperation between projects would make DeFi stronger in the long run. He said: 

“By collaboration, we can out-cooperate the competition—traditional finance—and bring traders unparalleled decentralization, transparency, and value. We’re proud to bring two teams known for great engineering, Balancer Labs and Gnosis, together in this collaboration.” 

The Balancer-Gnosis-Protocol will launch in several stages.

Balancer recently launched V2 of its AMM for developers. It will allow traders to transfer liquidity in the coming weeks. CowSwap, a Gnosis-built decentralized exchange that offers significant gas fee savings, launched in alpha today to test Gnosis Protocol V2. Finally, Balancer V2 will be integrated into Gnosis Protocol V2, with an incentive program to launch the merge.

It’s scheduled to go live in mid-June. 

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies. They also had exposure to BAL in a cryptocurrency index.