Following their recent announcement of the upcoming V2 upgrade, Balancer Protocol is also partnering with Aave to release a hybrid liquidity-and-lending feature that looks to increase Balancer’s capital efficiency to a greater extent than ever before.
As we’ve explored in this previous piece regarding Balancer V2, assets in Balancer will now be held in a single protocol vault where designated asset managers can put the idle capital to work and generate yield for liquidity providers. This new partnership is made possible by the composable nature of DeFi as explained below by Stani Kulechov, Founder and CEO of Aave.
“Part of what makes DeFi so exciting is its composability, and with Balancer this has resulted in a partnership that optimises the experience for liquidity providers through the Aave-Balancer Asset Manager and opens up new possibilities for Aave stakers with the AAVE/ETH Safety Incentive pool. We look forward to exploring more synergies with Balancer in the future.”
Balancer V2 aims to solve the issue of costly swaps that involve wrapping & unwrapping assets while also adding the benefit of generating yield on the underlying tokens for liquidity providers. In order to avoid situations where all assets are lent out on Aave and additional token swaps cannot be made, a small buffer of each token will be reserved to ensure token swaps are readily available at any time. Whenever this buffer comes close to running out, the Aave-Balancer asset manager will replenish the buffer by redeeming a portion of the assets previously deposited in Aave to prevent swaps from failing.
The teams at Aave & Balancer are also working with Alex Evans from Placeholder VC to figure out how often this buffer should be replenished and the most gas-efficient way of doing it. This is just one of many collaborations that Balancer & Aave have worked on this year.
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