DeFi is trending towards capital efficiency as protocols look to maximize users’ bang for their smart contract controlled-buck.
Balancer, an automated market maker (AMM), is trying to take advantage of the trend with the launch on Dec, 15 of a protocol called Boosted Pools. It allows unused liquidity to earn yield in Aave, the DeFi lending protocol.
Users generally deposit tokens into AMMs like Balancer to earn fees as other users trade those deposited assets. But according to a Balancer post, less than 10% of the liquidity actually gets used by traders, with the rest going unused.
With Boosted Pools, Balancer will deposit those unused tokens into Aave, earning yield and increasing capital efficiency.
Balancer’s post emphasized that Aave was just the start in terms of where the AMM ends up depositing spare liquidity however. The protocol also named Compound Finance, Rari Capital’s Fuse, Yearn Finance, and BadgerDAO as potential recipients of spare liquidity. The last two protocols being yield aggregators indicates Balancer isn’t limiting the yield opportunities to lenders.
Balancer has $3.04B in value locked as of Dec. 15, according to DeFi Llama. That value is distributed across Ethereum, Polygon and Arbitrum, the Layer 2 and places the AMM fifth among all DEXs on all chains, again according to DeFi Llama.
Balancer comes in fourth in terms of volume among Ethereum DEXs as well, according to a popular Dune Analytics dashboard — the AMM had 2.2% of total volume, compared with Curve Finance’s 5.9%, SushiSwap’s 7.7, and Uniswap’s 77.2% as of Dec. 13, the most recent day for which data is available.
It will be interesting to watch whether TVL spikes based on the potentially heightened yield of Boosted Pools. Some of that value may spill over into Aave and any other pools which integrate with Balancer’s new feature.