Liquidity mining launched! Balancer token surges 145% in a day, next COMP on the horizon?

Uniswap's competitor, Balancer, distributed governance token BAL to its liquidity providers last night and officially launched the liquidity mining mechanism. According to CoinGecko data, the token surged by 145.7% in the past 24 hours. If liquidity mining can bring Balancer the same growth rate as Compound, it may become the third largest DeFi platform in the current market.

Balancer Officially Launches Token Issuance

Following the issuance of the COMP token by the decentralized lending protocol Compound, the unique "liquidity mining" mechanism immediately became the focus of the market. Recently, another DeFi project has launched its long-awaited token issuance plan. According to the announcement, the automated market maker protocol Balancer officially began distributing governance token BAL to its liquidity providers last night (23rd). The protocol's "liquidity mining" will distribute 145,000 BAL tokens weekly, aiming to provide early adopters with economic incentives for liquidity provision and grant them the power to participate in protocol governance.

In fact, Balancer started calculating the BAL tokens that liquidity providers of its pools could receive as early as June 1. However, these tokens were not distributed until the token issuance mechanism was launched yesterday. The Balancer team distributed the accumulated 435,000 BAL tokens to the liquidity providers of the pools. According to data from DeFi Pulse, the total value locked (TVL) in the Balancer protocol has increased from $15.9 million on the reward calculation date (May 31) to $62.5 million at the time of writing this article. Balancer Labs CEO Fernando Martinelli commented on the token issuance mechanism:

"The main reason we are doing this is to decentralize (governance). We believe in a decentralized, trustless future. And we hope Balancer can achieve that. We need to distribute the tokens in a healthy way."

BAL Token Issuance Mechanism

The total supply of BAL tokens is 35,435,000, with 25% allocated to founders, core developers, advisors, and early investors (according to reports, the token price for the seed round is $0.6). These tokens need to be locked up for a period before they can be released (the exact lock-up period is currently unknown). The remaining 75% of the tokens will be distributed to liquidity providers at a rate of 145,000 tokens per week, releasing approximately 7.5 million tokens per year. Based on the Ethereum block time, it would take about 9 years to fully issue the tokens under the issuance plan. However, as BAL is a governance token, holders can also accelerate the issuance speed through voting at any time.

The weekly token distribution will consider factors such as the total liquidity provided by liquidity providers and the pool fee rate. Generally, the more liquidity provided, and the lower the fee rate, the more tokens can be obtained.

As of the time of writing, the price of 1 BAL token is approximately $22.5, with the majority of trading volume coming from the MXC exchange, accounting for 65% of the total trading volume.

Becoming the Third Largest DeFi Platform?

Balancer's issuance of governance tokens through the protocol, known as "liquidity mining," is similar to the highly discussed "lending mining" of COMP. This approach allows actual participants in the protocol to have a say in the decision-making process.

At the same time, this issuance mechanism can bring high visibility and adoption rates to DeFi protocols. Taking Compound as an example, since June 15, due to the ability to earn COMP tokens through lending and borrowing, a large amount of funds flowed into Compound, leading to a more than six-fold increase in its total locked value, making it the largest platform in DeFi.

It is important to note that these two projects are at different stages of the product life cycle. Compound started operating in September 2018 and had been running for a long time before issuing tokens. Balancer, on the other hand, is a new platform launched in the first quarter of this year. Whether it can lead a trend similar to Compound is still unknown. However, if Balancer's protocol can grow at the same rate as Compound, it is likely to rise in the DeFi space and become the third-largest DeFi platform, following Maker.

Jake Brukhman, founder of CoinFund and an investor in the Balancer seed round, stated:

"I believe that what will play a key role in the competition among these DeFi protocols is token issuance rather than the technology itself. Uniswap has not yet announced intentions to reward its liquidity providers, and branding indeed plays a significant role, but I think we will see Balancer quickly establish a very successful brand."