Aave Integrates Uniswap Liquidity Tokens As Lending Collateral

Published: May 28, 2020
Written By:
Shannon Ullman
Shannon Ullman
Managing Editor

Aave – the sector rising lending protocol – just unveiled a Uniswap Money Market, allowing users to borrow against Uniswap LP tokens.

As we alluded to in our Aave governance article, the introduction of the Uniswap Market integrates a new form of collateral to the platform – Uniswap Liquidity Tokens.

For those unfamiliar with Unsiwap, users who pool capital to any given token pair receive UNI tokens which represent a pro-rata claim on the underlying capital pool and the 0.3% trading fees. We even have a tutorial on how to do this here.

Now, users can take those UNI tokens and lock them as collateral to borrow against any of Aave’s 20+ DeFi tokens, all while continuing to collect fees on Uniswap.

The introduction of the Uniswap Market marks the migration to a much larger ecosystem, with Set Protocol – and the ability to borrow against TokenSets – next to receive an Aave Market in the coming months.

Aave’s CEO – Stani Kulechov – echoed this trend telling DeFi Rate that “The Uniswap Market launch is part of the Aave multipool strategy. We believe that in the future there will be a diverse set of different money markets each with their own type of assets.”

As defined in the original post, this position’s Aave as much more than a lending platform, rather as a larger protocol for money market creation. By using their native token, LEND, as the foundation for governance on these money markets, Aave democratizes asset management and risk profiling of DeFi tokens.

What’s New?

With this new upgrade, Aave users can navigate to different Markets of their choosing, starting with Uniswap.

This is where users can lock collateral for supported Uniswap V1 trading pairs like ETH/DAI, ETH/LEND, and ETH/LINK. Each of these UNI pairs has a unique Loan-to-Value (LTV) ration, meaning that specific pools allow for greater borrowing power than others. A great overview on how LTV is determined can be found in Aave’s Risk Framework.

While the Uniswap Market currently only supports a select few V1 trading pairs, Stani adding that “(Aave) will add V2 tokens as their new protocol ripens”. The new feature is still being seeded, with roughly 55ETH worth of liquidity being provided to the new Uniswap Market since launch.

Looking Ahead

For our more frequent readers, we’ve been pretty vocal about our support for Aave in their quest to create new money legos. While Uniswap and Set Protocol are two sure winners, this is just the beginning of a flourishing ecosystem.

“Eventually, Aave governance will decide which money market will be able to benefit from the LEND-based insurance that secures the protocol,” said Kulechov.

To this end, we expect those interested in integrating lending support for their native tokens to become active participants in Aave governance. From concrete examples like Curve yTokens to NFTs, renTokens, and Balancer Liquidity, we’re now seeing the ability for users to further put their capital to work.

To stay up with Aave, follow them on Twitter or join the conversation on Discord.

Shannon Ullman
Shannon Ullman
Managing Editor
Managing editor working to make crypto easier to understand. Pairing editorial integrity with crypto curiosity for content that makes readers feel like they finally “get it.”