An AMM, or Automated Market Maker is a general term that defines an algorithm for creating and managing liquidity. Instead of paying fees to portfolio managers to rebalance the users' portfolio, they collect fees from traders, who rebalance their portfolio. Users can earn returns by providing liquidity or as a trader swap between any assets in the global liquidity pool.

The protocol operates a few types of pools:

Private pools give the owner governance over the pool, and make the person the sole contributor of liquidity to the pool. Also, all the parameters are mutable by the owner.
Shared pools are for those who want to become liquidity providers (LPs). The LPs are rewarded with the Balancer Pool Tokens (BPTs).
Smart pools are similar to private pools but are controlled by a smart contract. They also reward using BPTs and allow anyone to contribute liquidity to the pool.

For Balancer, security is a top priority and that is why the protocol has been fully audited three times by Trail of Bits, ConsenSys and OpenZeppelin. There are no admin keys or backdoors, hence, making it trustless, and the balancer pools are not upgradeable. Balancer does not support tokens that do not conform to the ERC-20 standard, even though they may be in use on some pools. The tokens held on Balancer pools are not controlled by Balancer, but are smart contracts. Nevertheless, that does not remove the inherent risks of smart contracts. The configurable rights pools (CRPs) ensure that tokens with known issues are barred from being used in pools. It further ensures that all other tokens safely interact with the protocol.

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