- Balancer Labs is working with Aave lending protocol.
- The former is launching its Boosted Pools.
- This will decrease capital efficiency with yields on tokens deposited in AMM Pools.
Balancer Labs announces the official launch of Boosted Pools. The latter aims to solve the issue of decreased capital efficiency with yields on tokens deposited into Automated Market Maker (AMM) Pools. In fact, the first iteration of this revolutionary product will be with Aave.
The CEO & Co-Founder of Balancer Labs — Fernando Martinelli, says:
The collaboration with Aave as the first iteration of the Boosted Pools launch is a natural fit and solidifies their place in the Balancer ecosystem. There are various levels of Boosted Pool (NASDAQ:POOL) innovations that lead to concrete results, deeper liquidity, more efficient integrations for liquidity, and higher yields.
Usually, only 10% of the liquidity deposited into an AMM pool is used by traders. This is because the trade sizes are much smaller than the liquidity available. In contrast, Boosted Pools allow the remaining portion of liquidity to be deposited into lending protocols. Here, this liquidity earns additional yield.
Historically, for providing higher capital efficiency, AMM Pools usually hold wrapped tokens of yield-bearing assets aDAI instead of DAI. This improves the overall pool yield. However, the problem arises as wrapping and unwrapping tokens can only be done with a relayer. This process is pricey for a simple swap.
Aave Boosted Pools solves this issue. Specifically, it eliminates the costly effort of wrapping/unwrapping tokens during a swap. In particular, it leaves these expensive tasks to arbitrageurs, who are, of course, correctly incentivized to do it. Another challenge in the industry is that lending protocols can be quite expensive to join or exit. Thus, Boosted Pools can be a game-changer for both liquidity providers and traders. In detail, Boosted Pools allow users to deploy a set percentage of the liquidity into a pool to money markets like Aave.
In turn, users can keep a smaller percentage inside the pool itself. Then, this fund is for traders to use as liquidity. More so, the portion deployed on Aave will attract interest from the Aave platform and, in extension, any distribution that the Aave pools have. Lastly, the Founder &CEO of Aave — Stani Kulechov, shares his enthusiasm for the project and the industry. “The collaboration with Balancer for the launch of Aave Boosted Pools is a prime example of incredible innovation happening in DeFi.”
To add on, he also says that he has been following Balancer’s V2 launch closely, and Boosted Pools offer users deeper liquidity and more access to Aave. Finally, he remarks, “with the help of Balancer, we look forward to providing users a seamless earning experience”.