Balancer Launches 'Boosted Pools' on Aave to Improve DeFi Yields

By Tim Hakki

Balancer Labs today announces the launch of Boosted Pools on DeFi protocol Aave. Aave is the industry’s most popular lending and borrowing protocol, boasting more than $13.4 billion in total assets (excluding assets being borrowed). 

Aave’s lenders earn interest by locking up their crypto in liquidity pools and borrowers can take out loans by providing crypto as collateral. The project is also responsible for developing flash loans. For its part, Balancer doubles as a decentralized exchange and a sort-of DIY crypto-index fund provider, with users earning fees for creating attractive pools of liquidity for speculators.

Now the two are partnering up to lift yields across both projects.

Only around 10% of the liquidity deposited into an automated market maker (AMM) like Balancer is utilized by traders since trade sizes tend to be much smaller than the money deposited in the pool to avoid slippage. 

Thanks to Balancer’s new Boosted Pools platform, users can deposit a given percentage of unused liquidity in AMM pools onto lending protocols like Aave where it earns an additional yield. 

Typically, to increase capital efficiency (the ratio between spending and growth), AMM liquidity pools hold Aave DAI (aDAI), an interest-bearing token on Ethereum that can be redeemed for DAI at a 1:1 exchange rate. The aDAI token is minted on deposit and burned once redeemed, but wrapping tokens is a complicated process that can be too costly to do during a trade.

Aave Boosted Pools solves this problem by outsourcing the wrapping and unwrapping process to arbitrageurs, who are incentivized to do it. 

Balancer first announced their collaboration back in February this year, when CEO and founder Fernando Martinelli wrote a blog post about an upcoming “Balancer V2 Asset Manager.” 

Martinelli said in a statement today that “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 innovations that lead to concrete results,  deeper liquidity, more efficient integrations for liquidity, and higher yields.” 

Recommended News