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There are two categories of users who can benefit from the Balancer Protocol: liquidity providers - who own Balancer Pools or participate in shared pools, and traders - who buy or sell the underlying pool assets on the open market.
Anyone can be a liquidity provider. For example:
- Portfolio managers, who want to have controlled exposure to different assets without complicated and expensive rebalancing
- Investors who have ERC20 tokens sitting idly in a wallet, and would like to put them to work earning passive income from fees
Traders can choose from a diverse set of pools, each presenting a unique set of investment opportunities and challenges through its particular configuration of tokens, weights, and fees. The interplay between these settings, pool volume, and external prices generates market forces which incentivize traders to maintain stable token ratios, thereby preserving asset value for liquidity providers.
There are three main categories:
- "Retail" traders seeking to exchange tokens with low slippage at favorable rates
- Arbitrageurs seeking profit through leveling market inefficiencies between DEXs or CEXs
- Ethereum smart contracts seeking liquidity for a variety of reasons, such as liquidating positions on other protocols, trading on behalf of users, etc.