Balancer shutters for-profit entity after $128m hack as CEO says ‘next 12 months will be crucial’ for the DeFi exchange

Balancer Labs, the for-profit entity behind the Balancer exchange, is shutting down.

Fernando Martinelli, the firm’s CEO and co-founder, announced the news in a post on the Balancer governance forum on Monday, attributing it to the exploit the protocol suffered in November that saw attackers swipe some $128 million from users.

However, it isn’t the end for the decentralised crypto exchange and automated market maker.

“Balancer still has a chance to turn things around and prove to token holders who stay that there can be product market fit and sustainability,” Martinelli said.

“The next 12 months will be crucial for the team to prove this [is] possible.”

The news comes amid a wave of shutdowns, restructurings and job cuts impacting decentralised finance projects in recent weeks.

Projects that have shuttered include Tally, a DAO governance platform, Step Finance, a Solana portfolio management app, and Parsec, a DeFi and NFT data hub.

Among the reasons cited by the firms were failures to secure new funding, the impact of hacks, and misalignment with the shifting crypto market.

‘Ongoing legal exposure’

Balancer’s November exploit “created real and ongoing legal exposure” that could threaten the existence of the protocol in the future if left unchecked, Martinelli said.

“The reality is that Balancer Labs, as a corporate entity, has become a liability rather than an asset to the protocol’s future, and is just not sustainable as is without any sources of revenue.”

Balancer DAO, the protocol’s token holder collective, and the Balancer Foundation, a corporate entity that works with the DAO, will continue to operate.

Launched in March 2020, Balancer is a decentralised exchange and automated market maker primarily on Ethereum.

It pioneered self-balancing liquidity pools, where the protocol adjusts the proportion of assets in pools to maintain targeted percentage weights, even if individual token prices fluctuate.

On November 3, a hacker exploited Balancer’s code, allowing them to swap tokens at wildly favourable prices, draining the protocol’s liquidity pools.

“This was a highly sophisticated exploit,” BlockSec, a crypto security firm, said shortly after the hack.

Balancer’s future

The exploit caused investors to flee the protocol, taking its deposits from $775 million before the hack, to just $154 million as of March 23.

Martinelli said he considered shutting support for Balancer down altogether, but decided against it because the protocol is still generating revenue.

“Over the last three months, Balancer generated over $1 million in total fees annualised. That’s not nothing,” he said.

The protocol will undergo some big changes going forward, however.

Essential Balancer Labs team members will be absorbed into a new entity, called Balancer OpCo, pending a governance vote. Martinelli himself will cease to have any formal relationship with the protocol, but said he is happy to help out as an advisor.

New emissions of BAL tokens will stop completely, and all fees the protocol generates will be routed to the DAO treasury, where they will be used to buy back existing BAL tokens on the open market.

This, Martinelli said, offers BAL holders the ability to exit their investments at a fair price.

“If you believe in the restructured Balancer, you stay. If you don’t, you get a fair exit,” Martinelli said.

“That’s honest dealing, and it clears the overhang.”

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.