I have a generic question for the balancer protocol. For balancer protocol, in a liquidity pool, weight of let’s say two tokens can be 50-50 or 20-80 and so on, what is the significance of this, can anybody explain?
The weights play an important role in how the pool calculates its value and enables trades.
From an investor’s point of view, the larger the % of an asset’s allocation in a pool, the more exposure you have to that asset’s price movements.
For example - in a 50% - 50% pool with two assets, you are equally exposed to both tokens.
In an (A) 80% - (B) 20% pool, you are allocating more to asset (A) - which means the pool will be more affected by price changes in the token (A) than the token (B).
As an investor - it’s important to decide for yourself if you believe Token (A) to outperform, underperform or move equal to Token (B). When you have decided on your conviction, you can decide if you want to participate in an 80% - 20%, 50%-50%, or another pool.