The Aave Protocol is a decentralized liquidity protocol. It allows users to unlock liquidity across various assets in a multi-pool approach. According to the recent announcement by Aave, the AMM Liquidity pool is allowing liquidity providers of Uniswap and Balancer to use their LP tokens as collateral in the Aave Protocol. Also, Balancer LP token holders will continue to earn BAL rewards each week.
With the rise of Uniswap and Automated Market Makers in the Defi ecosystem, users can easily swap assets without any third-party intermediaries. Users can also provide liquidity and earn fees for doing so. 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. It also represents trading fees collected over time in the particular liquidity pool into which the user deposited assets.
AMMs are one of the first ways to earn passive income in the DeFi ecosystem. The AMM Market is the first of many markets of Aave, on Ethereum. It is potentially also on different networks, allowing the community to explore new frontiers with Aave.
Users will be able to deposit LP tokens from both Uniswap v2 and Balancer starting from 16th March. Uniswap has significant daily volume and $4B of liquidity. Balancer is also one of the most innovative AMMs in the ecosystem.
At launching time, users who deposit LP tokens may borrow DAI, USDC, ETH, WBTC, and USDT, And users who deposit DAI, USDC, ETH, and WBTC may borrow tokens. The Governance over the AMM Liquidity Pool will be handed to AAVE holders shortly. The AMM liquidity pool will not cover by the safety Module for this initial phase, but the Aave Governance can vote to include it through the AIP process.