Aave AMM Market Released
The Aave Protocol is a decentralised liquidity protocol, which allows users to unlock liquidity across various assets in a multi-pool approach. The new AMM Liquidity Pool enables liquidity providers (“LPs”) of Uniswap and Balancer to use their LP tokens as collateral in the Aave Protocol.
The Rise of AMMs
With the rise of Uniswap in 2018 and the emergence of “Automated Market Makers” (AMMs) in the DeFi ecosystem, users of Ethereum are now able to swap assets without the need for centralised third-party intermediaries. Users are able to facilitate the provision of liquidity and earn fees for doing so.
How do LP tokens work?
By providing liquidity, users automatically obtain LP tokens from the AMM. In most cases, LP tokens represent the crypto assets the user deposited into the AMM along with a proportional scale of the trading fees collected over time in the particular liquidity pool into which the user deposited assets. (Frequently, the LP token represents a 50/50 ratio with ETH and another crypto asset, making them potentially less volatile than their underlying assets.) Because LP tokens typically accrue trading fees over the time the user’s assets remain in the liquidity pool, the LP tokens potentially accrue value over time as well.
AMMs were one of the first ways to earn a passive income in the DeFi ecosystem and remain so today.
A first successful Proof of Concept
Last year, the Aave Protocol developed an “AMM Liquidity Pool” proof of concept with the “Aave Uniswap V1 Market,” which allowed users to deposit Uniswap v1 LP tokens in the Aave Protocol and use them as collateral. Given the community’s interest in this pool, users will now be able to use LP tokens from several AMMs, with proposals and decisions from Aave Governance about which AMM protocols and collateral to add.
The Multi-Market Approach
The AMM Market is the first of many markets of Aave, on Ethereum, and potentially also on different networks, allowing the community to explore “new frontiers” with Aave.
Launch Collaterals and Protocol Support Phase 1:
Today, users will be able to begin depositing LP tokens from both Uniswap v2 and Balancer.
Uniswap is the center of gravity of AMM protocols. Its robust, simple code and innovative model inspired actors across several blockchains.
Uniswap has significant daily volume and $4B of liquidity.
At launch the following Uniswap V2 LP tokens are supported:
Balancer is one of the most innovative AMMs in the ecosystem. Their smart pool system broke the 50/50 ratio status quo and allowed for more sophisticated liquidity pools.
There are significant synergies between Balancer and the Aave Protocol. Balancer co-hosts art of the Aave Safety Module protecting Aave liquidity providers.
In addition, based on the smart pool architecture, Balancer LP token holders will continue to earn BAL rewards each week.
At launch the following Balancer LP tokens (BPT) are supported:
At this time, users who deposit LP tokens may borrow the following crypto assets: DAI, USDC, ETH, wBTC. and USDT. Users who deposit DAI, USDC, ETH and wBTC may borrow tokens.
To give an accurate estimation of the value of the LPs tokens from both Uniswap & Balancer, the Aave Protocol leverages Chainlink’s decentralised oracle service. The smart-contract to calculate the value of the LP tokens has been audited by ConsenSys Diligence.
Launch Collaterals and Protocol Support Phase 2:
As noted above, it will be possible to deploy additional AMM liquidity pools over time, particularly upon proposals from Aave Governance — and such pools will be deployed in a second phase (coming soon). The AMM liquidity pools will be released to Aave Governance in full in short order.
The AMM Liquidity Pools will not be covered by the Aave Safety Module at launch, but Aave Governance can decide to include these pools through the AIP process.
The Aave community will decide on the following steps
The Aave Protocol is decentralised and owned by its community of AAVE token holders (referred to as “Aave Governance”). For the support of new collaterals and new AMM protocols, feel free to make proposals in the governance forum and contact your community representative to whom you delegated your votes.
We can’t wait to see the AMM Liquidity Pools bloom with your input.
In DeFi there are no Aave users and there are no AMMs users.
There are only DeFi users.