Aave Launches AMM Liquidity Pool, Hints at "New Frontiers" Beyond Ethereum

Key Takeaways

• Aave has launched an AMM liquidity pool allowing Uniswap and Balancer users to deposit liquidity provider tokens as collateral.
• Users who deposit the tokens will be able to borrow a variety of assets, while others can deposit assets to borrow the tokens.
• Aave alluded to “the potential” for the liquidity pool “to be included on other networks as well.”

Aave, one of Ethereum’s leading DeFi protocols, has announced a major upgrade. 

Aave Goes Multi-Market 

“In DeFi, there are no Aave users, and there are no AMMs users. There are only DeFi users.”

The lending and borrowing protocol will now allow Uniswap and Balancer liquidity providers to deposit liquidity provider tokens as collateral in what it’s calling an “AMM Liquidity Pool.” In doing so, users will be able to borrow DAI, USDC, ETH, wBTC, and USDT. Similarly, other users can borrow liquidity provider tokens by depositing DAI, USDC, ETH, or wBTC. 

Liquidity provision is one of the core principles of decentralized finance. It’s used in automated market makers like Uniswap.

When someone deposits assets to a liquidity pool, they can earn a liquidity provider token representing their assets plus any returns they accrue, usually from trading fees. Liquidity provider (LP) tokens often represent ETH and another asset in a 50/50 ratio. 

By enabling users to collateralize LP tokens from Uniswap and Balancer, Aave helps DeFi become more composable, meaning that each protocol can be used in different combinations to benefit the end-user. DeFi’s composability is often referred to interchangeably with so-called “money legos”—building bricks of value that can be stacked on top of one another. 

Aave previously tested the multi-market approach, launching an Aave Uniswap V1 market that supported Uniswap LP tokens. Now, support has been added for a wide variety of Uniswap V2 LP tokens.

The full list includes DAI/USDC, WBTC/USDC, DAI/WETH, USDC/WETH, AAVE/WETH, LINK/WETH, BAT/WETH, SNX/WETH, UNI/WETH, YFI/WETH, CRV/WETH, MKR/WETH, REN/WETH, and WBTC/WETH. 

For Balancer users, WBTC/WETH and BAL/WETH LP tokens are supported. 

Interestingly, Aave noted on Twitter that the AMM liquidity pool would initially launch on Ethereum, “with the potential to be included on other networks as well, opening up ‘new frontiers’ for the community.”

The tokens’ value will be gathered using Chainlink’s oracle, and ConsenSys Diligence has audited the smart contract that calculates the value. 

In the blog post announcing the update, Aave suggested that more liquidity pools could be added in the future, pending the community’s decision. Any additions would have to be decided by AAVE holders who participate in governance. 

The announcement concluded with an inspiring message related to the DeFi ecosystem. It read: 

“In DeFi there are no Aave users and there are no AMMs users. There are only DeFi users.”

Disclosure: At the time of writing, the author of this feature owned ETH, AAVE, SNX, and several other cryptocurrencies. They also had exposure to AAVE, SNX, UNI, MKR, REN, BAL, and YFI in a cryptocurrency index. 

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