Aave and Balancer Jointly Rolled Out Hybrid AMM Liquidity Pool and Lending Feature

By Shannon Wilson | February 28, 2021
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In the most recent development of DeFi money Lego magic, lending platform Aave collaborated with automated market maker Balancer to build a hybrid liquidity-and-lending update. 

Specifically, Head of Balancer Fernando Martinelli reportedly disclosed details of the initiative – which goes by the name the Balancer V2 Asset Manager. 

Particularly, the integration will reportedly equip users with the ability to generate earnings of two forms of return on their deposits – trading fees and yield farming, apart from generating lending interest from Aave.

In Balancer’s existing infrastructure, users will carry out fund depositing into a liquidity pool, in an effort to initiatie decentralized asset trading. In return, they will receive a sum of the trading fees, apart from yield farming returns in the form of Balancer’s native governance token, BAL.

Nonetheless, the large part of assets in AMM pools reportedly normally sit around idly, since their involvement is not necessary, unless an abnormally large trade occurred. 

“Large trades cause a lot of slippage, so traders avoid them. This means that as long as prices don’t shift too much, a pool would be able to facilitate exactly the same trades with much lower liquidity actually being available,”

The Aave-Balancer Asset Manager will help solve this matter, where lending of untouched tokens in the Balancer liquidity pool will be carried out on Aave to generate earnings of extra yield, with support from the automated Asset Manager for the transfer of funds between protocols.

This reportedly paved the way for the combination of two of DeFi’s most powerful, most common Lego bricks – as put by Martinelli – “the best of both worlds.”

“I’d say maybe around 80% of the average of the AAVE yields of the different tokens + all the trading fees from Balancer. 80% because we will keep a buffer (20% I’d estimate) for swaps to be able to happen.”

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