Ethereum Watch

Balancer is hoping that the update will increase yields for liquidity providers. 

DeFi Mainstays Announce Collaboration 

Two of DeFi’s most popular protocols are coming together to increase yields for users. 

Balancer has announced its plans to launch Boosted Pools with Aave, allowing for greater capital efficiency and higher yields for liquidity providers. Fernando Martinelli, the CEO and co-founder of Balancer Labs, said of the update: 

“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.”

Aave founder and CEO Stani Kulechov added that the launch would offer users deeper liquidity and was “a prime example of [the] incredible innovation happening in DeFi.”

Boosted Pools work by using the full amount of liquidity deposited to a pool rather than the 10% that typically gets used when liquidity is deposited to an automated market maker pool. As trade sizes are smaller than the available liquidity, traders only use a portion of the liquidity. With Boosted Pools, liquidity providers can earn yield on their deposit by accessing lending protocols—in this case, the lending protocol is Aave. 

As there tends to be a high entry price to access lending protocols on Ethereum, Aave Boosted Pools create a way for users to optimize liquidity provision by making use of their full deposit. The race to achieve capital efficiency has become a central theme to DeFi in recent months, with projects like Uniswap and Curve announcing features like concentrated liquidity—which lets liquidity providers choose a price range to provide liquidity for—in a bid to offer the best user experience possible. 

Many of the leading DeFi projects on Ethereum have also looked to Layer 2 amid soaring gas fees on mainnet. The current leader among Ethereum’s various Layer 2 solutions is Arbitrum, which uses Optimistic Rollup technology to offer users high speed and low-cost transactions while benefiting from the security of mainnet. Balancer has already launched on the project’s scaling network, Arbitrum One, while Aave is set to follow sometime in the future. 

Disclosure: At the time of writing, the author of this feature owned ETH, AAVE, and several other cryptocurrencies. They also had exposure to BAL in a cryptocurrency index.