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Balancer Liquidity Provision Guide

⚠️ Recent Security Incident

Balancer experienced a major exploit in November 2025 where approximately $110 million was drained from the protocol. The exploit was caused by a faulty access control vulnerability in the "manageUserBalance" function, allowing unauthorized withdrawals from Balancer V2 vaults.

This marks the third known security breach for Balancer (following incidents in 2021 and 2023). While the protocol team has addressed the immediate vulnerability, liquidity providers should be aware of ongoing smart contract risks when using Balancer or any DeFi protocol.

Always do your own research and never invest more than you can afford to lose. See our Risks guide for more information on DeFi security.

Source: CoinDesk - Balancer Hit by Apparent Exploit

Balancer is a multi-asset AMM that supports up to 8 tokens per pool, custom weightings, Stable Pools, and dynamic fees-empowering LPs to earn yield through diverse strategies.

🧭 Why Use Balancer?​

Balancer stands out in the DeFi ecosystem by offering flexibility that goes beyond traditional two-token pairs. While most AMMs require you to provide liquidity in pairs (like ETH/USDC), Balancer lets you create pools with up to 8 different tokens, each with custom weightings. This opens up entirely new strategies for liquidity providers who want to diversify their exposure or create more sophisticated portfolio positions.

Multi‑token pools: One of Balancer's most powerful features is the ability to combine multiple assets like ETH, DAI, and USDC in a single pool without needing to pair them off individually. This means you can provide liquidity across your entire portfolio in one position, rather than splitting it across multiple pairs. For example, you could create a pool with 50% ETH, 30% USDC, and 20% DAI, earning fees on all trades involving any of these tokens. This flexibility is particularly valuable for LPs who want to maintain exposure to multiple assets while still earning yield.

Custom fees: Unlike many DEXs that offer fixed fee tiers, Balancer pools can set fees anywhere from 0.0001% to 10%, giving pool creators and LPs more control over their strategy. Some pools even use automated optimization tools like Gauntlet to dynamically adjust fees based on market conditions, volatility, and trading volume. This means you can find pools optimized for your specific risk tolerance and yield goals, whether you're looking for low-fee, high-volume pools or higher-fee pools that compensate for lower volume.

Stable Pools: Balancer's Stable Pools are specifically designed for assets that should trade at similar values, like wstETH/WETH or different stablecoins. These pools use a specialized bonding curve that minimizes slippage and impermanent loss for correlated assets. If you're holding staked ETH (stETH or wstETH) and want to earn yield while maintaining flexibility, Balancer's stable pools offer an ideal solution with deep liquidity and minimal price impact.

🧱 How to Add Liquidity​

Adding liquidity to Balancer is straightforward, but understanding the different pool types will help you choose the right strategy for your goals. The process is similar across all pool types, but each offers different risk and reward profiles.

Choose a pool type: Balancer offers several pool types, each designed for different use cases. Weighted pools allow you to set custom token weightings (like 80% ETH and 20% USDC), giving you control over your exposure. Stable pools are optimized for assets that should trade at similar values, minimizing impermanent loss. Managed pools allow pool managers to adjust weights over time, which can be useful for more sophisticated strategies. You can explore available pools via the Balancer App or tools like Enkrypt to find pools that match your risk tolerance and yield goals.

Connect your wallet: Balancer supports all major Ethereum wallets including MetaMask, WalletConnect, Coinbase Wallet, and others. The protocol is available across multiple networks including Ethereum mainnet, Polygon, Optimism, and Arbitrum, giving you options to choose the network that best fits your gas budget and strategy. Layer 2 deployments like Arbitrum and Optimism offer the same functionality with much lower fees, making them ideal for smaller positions or frequent rebalancing.

Add liquidity: One of Balancer's most user-friendly features is its flexible deposit system. You can deposit tokens proportionally (matching the pool's current ratios) or use single-token input, and Balancer will automatically handle the swaps and adjustments needed to add your liquidity. This means you don't need to hold all the tokens in a pool-you can deposit just ETH, and Balancer will swap the appropriate amount to match the pool's composition.

Approve & confirm: After approving the token spend and confirming the transaction, you'll pay gas fees (which can be significant on Ethereum mainnet) and receive Balancer Pool Tokens (BPTs) representing your share of the pool. These BPT tokens are ERC-20 tokens that you can hold, transfer, or stake in gauges to earn additional BAL token rewards.

💸 How You Earn Fees​

Balancer offers multiple ways to earn yield, making it attractive for both passive and active liquidity providers. Understanding how fees accumulate and how to maximize your returns is key to successful LPing on Balancer.

LP Fees: Every trade that happens in your pool generates trading fees, which accumulate directly in the pool. As fees accumulate, the value of your BPT tokens increases over time-you don't need to manually claim fees, they're automatically reflected in your position value. This means your BPT holdings grow organically as trading activity increases. The fee rate varies by pool, but typically ranges from 0.01% to 1% depending on the pool type and volatility of the assets involved.

BAL Incentives: Many Balancer pools offer additional rewards through the protocol's gauge system. By staking your BPT tokens in gauges, you can earn BAL tokens on top of the trading fees. These incentives are particularly strong for stable pools and pools that the Balancer DAO wants to incentivize. The BAL rewards can significantly boost your overall yield, sometimes doubling or tripling your returns depending on the pool and market conditions. However, claiming these rewards requires additional transactions, so factor in gas costs when deciding how frequently to claim.

⚠️ Risks & Mistakes to Watch​

1. Smart Contract Risk ⚠️ CRITICAL​

Balancer has experienced multiple security incidents, including a major exploit in November 2025 that drained approximately $110 million. The vulnerability was in the access control mechanism of the "manageUserBalance" function, which allowed unauthorized withdrawals from Balancer V2 vaults.

Key points to understand:

  • Smart contract risk is real: Even audited, battle-tested protocols can have vulnerabilities
  • Balancer's vault architecture: All tokens from every Balancer pool are held in a single vault contract, which means a vulnerability can affect all pools
  • Third-party integrations: Services built on top of Balancer (like Beets Finance) were also impacted, showing how vulnerabilities can cascade
  • Historical incidents: This is Balancer's third known security breach (2021, 2023, and 2025)

What this means for LPs:

  • Never invest more than you can afford to lose
  • Monitor protocol security updates and incident reports
  • Consider diversifying across multiple protocols to reduce single-point-of-failure risk
  • Be aware that even "safe" protocols can be exploited

2. Impermanent Loss​

Impermanent loss can be severe on volatile pairs, especially in weighted pools where token ratios can diverge significantly. Stable Pools minimize this risk by design, but even correlated assets can experience IL during market volatility.

Mitigation strategies:

  • Use Stable Pools for assets that should trade at similar values (like wstETH/WETH)
  • Consider wider weight distributions in weighted pools to reduce IL impact
  • Monitor your positions regularly and be prepared to exit if IL becomes significant

3. Gas Costs​

Mainnet transactions and reward claims (e.g., BAL) can be expensive, especially during network congestion. Frequent rebalancing or claiming can eat into your profits.

Solutions:

  • Use Layer 2 deployments (Arbitrum, Optimism, Polygon) where gas fees are much lower
  • Batch multiple operations into single transactions when possible
  • Consider the cost-benefit of frequent claims vs. letting rewards accumulate

4. Selecting Wrong Fee Tiers​

Dynamic pools may automatically adjust fees, and choosing the wrong pool type for your strategy can result in lower yields than expected.

Best practices:

  • Understand the pool's fee structure and how it's determined
  • Research pool history and performance before depositing
  • Start with smaller positions to test pool behavior before committing larger amounts

5. Vault Architecture Risk​

Balancer's V2 architecture uses a single vault contract that holds all tokens from all pools. While this design has benefits (simpler pools, better composability), it also creates a single point of failure. A vulnerability in the vault can affect all pools, as demonstrated in the November 2025 exploit.

Considerations:

  • Be aware that your funds are held in a shared vault, not isolated per pool
  • Monitor Balancer's security updates and incident reports
  • Understand that protocol-level risks affect all positions, not just individual pools

📊 Example: ETH/wstETH Stable Pool​

Balancer/s composable Stable Pools (e.g. ETH/wstETH) are optimized for low slippage on correlated assets. Here's how to get started:

  • Approve ETH and wstETH in your wallet
  • Deposit using the Balancer App or SDK
  • Optionally stake BPT in gauge for extra BAL rewards

📚 Further Learning​

Next Steps​

  1. Pick a pool that fits your strategy (weighted vs stable, gas-optimized, reward-focused).
  2. Deposit tokens and monitor performance via Balancer App or portfolio trackers.
  3. Stake BPT if rewards are available, and claim periodically.
  4. Compare your results with strategies on Uniswap or Solana guides.
  5. Stake your BPT in AAVE's Safety Module for governance rewards - AAVE allows staking of specific BPT tokens (like 80/20 AAVE/ETH pool tokens) in their Safety Module to earn Safety Incentives while participating in protocol governance.
  6. Explore Balancer/s GitHub repository for advanced integration and automation.

👉 Looking for narrower-range LPing? See Uniswap V3 strategies →
👉 Want a quick Solana LP overview? Go to Solana guide →