Hacked for $110 Million as the Final Straw! DeFi Protocol Balancer's Development Company to Cease Operations

Once a key player in the DeFi wave, the trading protocol Balancer is facing a major turning point. Co-founder Fernando Martinelli announced on Tuesday that the corporate entity responsible for incubating and funding the protocol’s development, Balancer Labs, will cease operations, but the protocol itself will continue to operate in a more streamlined form.

This difficult decision comes just about five months after the Balancer V2 hacker incident in November last year, when the protocol was drained of approximately $110 million in digital assets, including osETH, WETH, and wstETH cryptocurrencies.

This marks the third major security vulnerability for Balancer and has also raised legal risks, becoming a fatal blow to Balancer Labs. Fernando Martinelli stated on the governance forum:

Balancer Labs has now become a “burden” rather than an “asset” for the protocol’s development. With no revenue streams, the current operational model is no longer sustainable.

He further revealed that he had “seriously considered” shutting down the entire project, but ultimately decided to retain the protocol itself because Balancer still has profit potential.

According to DeFiLlama data, in October 2021, Balancer’s TVL reached as high as $2.96 billion, with annualized fee income once surpassing $6 million. However, the TVL has now fallen to $157 million, a 95% decline from its peak.

Moreover, the native BAL token’s market cap has shrunk significantly to $10 million, with the current price around $0.16 per BAL, corresponding to a fully diluted valuation (FDV) of $11 million, indicating the market is heavily discounting its asset value.

Despite this, Balancer has still generated over $1 million in annualized fee income in the past three months. While this revenue is insufficient to cover the expenses of its large team, it is more than enough to sustain a leaner, streamlined operation.

To this end, the Balancer team has proposed a rather aggressive restructuring plan. First, the issuance of additional BAL tokens will be “reset to zero.” Fernando Martinelli considers this a “vicious economic cycle of overspending and internal conflict.”

Second, the current veBAL governance model will be phased out. He explained that this mechanism has long been dominated by meta-governance protocols like Aura and bribery markets, which influence voting outcomes and prevent the results from truly reflecting the sentiments of Balancer’s core users.

The fee structure will also undergo significant reforms:

• Future protocol revenue will be 100% allocated to the decentralized autonomous organization (DAO) treasury, up from the current 17.5%;
• The fee share for V3 protocols will be reduced to 25% to attract more genuine “organic liquidity” (liquidity driven by real trading demand rather than subsidies);
• Initiate a BAL token buyback program to provide existing token holders with a fair exit mechanism.

Fernando Martinelli wrote:

If you believe in the restructured Balancer, you can stay; if not, you will have a fair opportunity to exit. This is an honest deal and can also help eliminate potential negative impacts.

In terms of organizational structure, core team members of Balancer Labs will be transferred to the newly established operating entity, Balancer OpCo, after governance approval. As for Fernando Martinelli himself, he will step down from all official roles after the company’s liquidation but has expressed willingness to serve as an advisor.

Looking ahead, the team will focus resources on five core product lines with competitive differentiation: reCLAMM liquidity pools, liquidity bootstrapping pools, stablecoin and liquidity staking token (LST) pools, weighted pools, and expansion plans to non-EVM blockchains. All other peripheral businesses will be completely cut.