Smart Treasury (Balancer)

What Is Smart Treasury (Balancer)?

In decentralized finance (DeFi), smart treasury refers to a mechanism utilized by projects to automate and optimize token buybacks from the market.

It draws inspiration from the concept of share repurchase, or buyback, commonly seen in traditional finance.

The goal of smart treasury is to increase the valuation and market capitalization of a project’s native tokens, thereby enhancing the ecosystem’s overall health.

Empowering Liquidity

Smart treasuries are closely associated with automated market makers (AMMs), resulting from the emergence of decentralized exchanges (DEXs).

Decentralized exchanges, enabled by smart-contract-enabled blockchains like Ethereum, allow users to trade assets directly without relying on a centralized authority.

However, providing continuous liquidity in a decentralized environment can be challenging.

AMMs address this liquidity challenge by utilizing smart contracts to manage liquidity pools sourced from liquidity providers.

These liquidity pools facilitate trading between buyers and sellers at any time. Liquidity providers contribute their assets to the pools and receive liquidity pool tokens in return.

Enhancing DeFi Ecosystems

The concept of smart treasury, initially introduced by the Balancer AMM protocol, extends the responsibilities of AMMs to include the management of token buybacks.

The tokens bought back from the market are stored in the smart treasury, which can also function as an issuance and liquidity pool.

This allows for the potential reintroduction of treasury tokens into the DeFi ecosystem, similar to how treasury shares are handled in traditional stock markets.

By implementing a smart treasury, projects can automate the buyback process, providing a lower bound on the valuation of their native tokens and promoting a healthier ecosystem within the DeFi space.