Balancer Labs announced today a $5 million investment round led by DeFi (decentralized finance) mainstays Three Arrows Capital and DeFiance Capital. The two VCs now join Pantera Capital and Alameda Research in investing, bringing Balancer’s series A round to a total of $12 million raised.
The investment might come as a surprise to some, given that in a recent podcast Arthur of DeFiance Capital gave a less-than-glowing review of Balancer as an automated market maker (AMM) relative to its peers:
“It’s definitely one of the bigger mysteries in DeFi on why, despite the similar features, Balancer is behind Uniswap or even SushiSwap so high in terms of the user number or even the volume number,” he said. “[...] A commonly cited reason is the user interface and user experience, is just not as good as both Uni and Sushi, and gas costs are higher.”
“I like Balancer as a product, the innovation and the features, but the fact is it’s not gained as much traction as Uni and Sushi for a number of reasons,” he concluded.
Balancer’s forthcoming V2 in many ways seems targeted to address these concerns. The V2 will significantly reduce gas costs, allow for gasless arbitration trades, and enhance the customizability of pools even further by allowing users to set the parameters of pool curvature.
In an interview with Cointelegraph, Balancer co-founder and CEO Fernando Martinelli said that Arthur’s comments were both welcome and useful.
“Arthur and Su Zhu reviewed all DeFi protocols in this episode of UCC and talked about Balancer in a frank and harsh way. It was important constructive feedback.”
This kind of feedback and input is exactly what makes VC investment so valuable, says Martinelli. While some projects are opting to forego traditional VC raises in lieu of more community-minded efforts, other firms are becoming active participants in governance and the growth of a protocol.
“Different investors help in different ways: some help with connections, some with more technical expertise, some just help with strategy and brainstorming sessions,” said Martinelli.
It’s a dynamic that will become more and more important throughout 2021 as VCs increasingly have to interact with DAOs as opposed to more traditional business entities. Instead of simply passively investing in favorable rounds, VCs will have to bring real value to the table.
“We expect more and more from VCs and investors that they are active on our forums, discord channels and community in general. This is essential as we transition to a fully community-driven protocol over time.”