LP tokens can also be used as collateral! Aave announces the launch of AMM market, bringing more liquidity to DeFi.

The decentralized lending protocol Aave announced the launch of an Automated Market Maker (AMM) market yesterday, supporting some LP tokens from two major AMM platforms as collateral for borrowing.

Launching the AMM Market

Due to the higher risk of LP tokens compared to single assets, liquidity in the AMM market is independent of the borrowing markets in Aave V1 and Aave V2. In other words, collateral in the AMM market cannot be used to borrow assets from Aave V2, and the total collateral in the AMM market is currently around $5.34 million.

According to the official announcement by Aave, the AMM market currently only supports certain LP tokens from the two major AMM platforms, Uniswap and Balancer, as collateral for borrowing. The complete list is as follows:

Aave will obtain the market value of LP tokens through Chainlink's decentralized Oracle service, and the contract code has been audited by ConsenSys Diligence. However, the official handling of mining rewards for LP tokens (such as Balancer's weekly distribution of BAL) has not been specified. In addition, the initially available assets for borrowing are limited to five stable-price volatile cryptocurrencies: DAI, USDC, ETH, wBTC, and USDT.

The team mentioned that after the initial deployment, the AMM market will enter the second phase and be managed by the community. The community can vote to decide on adding other AMM platforms and LP tokens. Additionally, the initial AMM market does not support the Safety Module, but the community can vote to include the pools in the AMM market.