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.”
Today, users can begin depositing and borrowing crypto assets from the Aave AMM Liquidity Pool, enabling @Uniswap and @BalancerLabs liquidity providers to use their LP tokens as collateral in Aave Protocol 👀https://t.co/Gf0WZ6fWiy
— Aave (@AaveAave) March 16, 2021
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.
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