Balancer's liquidity mining program is very different from FCoin, the infamous Chinese crypto exchange that lost around $130 million of user funds, according to Dragonfly Capital's Haseeb Qureshi.
In a recent webinar with The Block, Qureshi pointed out that unlike FCoin, which incentivized users to wash trade by rewarding transactions with the exchange's native token FT, Balancer Labs' has designed its liquidity mining program in a way that encourages users to behave beneficially to the protocol.
"What Balancer is doing is they actually a pretty good metric for it. It's very hard to fake. You provide liquidity, we will reward you... Balancer just rewards liquidity, and liquidity is exactly the thing that matters on Balancer. It's the only thing that matters," said Qureshi.
Balancer launched its liquidity mining program in early June when it started to allocate its governance token BAL to the protocol's liquidity providers. In late June, BAL began trading on several exchanges, which soon boosted the platform's total asset under management above $100 million. That figure continues to grow.
As the pioneer of liquidity mining, FCoin also experienced initial success when it first launched in early 2018, with its daily trading volumes at one point hitting over $5.6 billion.
However, the exchange eventually became insolvent after the price of its native token FT crashed and users withdrew their money from the exchange in a panic.
"When you think of what FCoin was incentivizing, FCoin really incentivized lots and lots of wash trading. And that was the primary way that people got exposure to mining FCoin. It didn't actually make FCoin that much better of an exchange. It didn't make a lot of people want to buy FCoin," said Qureshi.
During the webinar, dForce CEO Mindao Yang also pointed out that compared to FCoin, Balancer has much more transparency.
"For FCoin, they are a totally centralized platform. You don't know what is going on there. And for Balancer and Compound, everything is on-chain. You know the risk of liquidity mining," said Yang.