Balancer V2 is the second major iteration of the Balancer protocol — a powerful automated market maker (AMM) and decentralized exchange (DEX) designed for flexible liquidity and programmable DeFi infrastructure. Released in May 2021, Balancer V2 introduced a major architectural redesign, focused on efficiency, gas optimization, and custom AMM logic.

With its novel "Vault" system, Balancer V2 separates asset management from AMM logic, offering unprecedented flexibility for liquidity providers, developers, and traders alike.

Core Architecture: The Vault

At the heart of Balancer V2 is the Vault — a single smart contract that holds and manages all tokens for every liquidity pool.

Key Advantages of the Vault:

• Unified Token Management: All assets are stored in one contract, reducing redundant transfers.
• Gas Efficiency: Internal netting of trades minimizes gas usage and transaction costs.
• Flexible Pool Logic: Developers can create custom AMMs while the Vault handles tokens and accounting.

This modular design improves performance while allowing innovation in DeFi strategies.

Key Features of Balancer V2

1. Custom AMM Pools

Balancer V2 supports multiple pool types under the same infrastructure:

• Weighted Pools (e.g., 80/20 or 60/20/20)
• Stable Pools (for stablecoins and correlated assets)
• MetaStable Pools (assets that are correlated over time)
• Managed Pools (for DAOs or treasuries with custom permissions)
• Composable Pools (for complex DeFi protocols and integrations)

This makes Balancer V2 extremely versatile compared to most AMMs that only support one type of pricing curve.

2. Flash Loans and Batch Swaps

Because all assets are held in one contract, Balancer V2 enables advanced functionality like:

• Flash loans (borrow without collateral and repay within the same block)
• Batch swaps (combine multiple token swaps into one transaction)
• Multihop swaps (efficiently route across pools to find the best price)

This is especially beneficial for developers and arbitrage traders.

3. Protocol Fees and Governance

Balancer V2 introduces protocol-level fees collected from:

• Swap fees
• Flash loans
• Asset management

These fees go to BAL holders via the veBAL (vote-escrowed BAL) system, which also enables governance voting. veBAL holders can vote on:

• Incentive allocation
• Pool whitelisting
• Fee parameters

This aligns liquidity mining with long-term governance.

4. Balancer Gnosis Protocol (BGP)

Balancer V2 integrates with Gnosis Protocol to offer MEV protection and batch auction-based trading. This protects users from front-running and maximizes value capture for traders and LPs.

Benefits for Users and LPs

• Lower Gas Fees due to shared Vault logic
• Customizable Pools that suit diverse DeFi use cases
• Earn BAL incentives through liquidity mining and staking
• Secure and Audited, with robust community governance

Final Thoughts

Balancer V2 represents a leap forward in AMM design — turning the protocol into a DeFi liquidity layer rather than just a DEX. By separating logic and liquidity, Balancer V2 provides unmatched flexibility, composability, and efficiency, making it a preferred platform for advanced users, DeFi developers, and DAOs managing on-chain treasuries.