Crypto Users Could Soon Receive Interest From Two DeFi Protocols at Once

The Aave lending protocol introduced a new market based on Uniswap liquidity tokens, which lets depositors borrow assets against these synthetic tokens.

The Uniswap market was launched and announced on May 28, and it lets holders of specific liquidity tokens use them as collateral to borrow crypto assets from the protocol.

Each liquidity token represents ownership in a Uniswap liquidity provider pool, and they can be redeemed for the actual tokens at any point.

Liquidity providers receive a portion of the trading fees acquired by the Uniswap protocol, making it one of the many ways of earning passive income through decentralized finance.

The liquidity tokens cannot be borrowed, which means that no additional income is received when depositing these tokens on the Aave platform.

Stani Kulechov, Aave's CEO, told Cointelegraph that this will be enabled later on, effectively letting users receive interest from two protocols at once.

The loan-to-value factors for these tokens were set to fairly conservative thresholds of below 70%, which puts a limit to the maximum obtainable leverage.

An important risk addressed by Aave is the correct pricing of these liquidity tokens.

As these are fully synthetic tokens whose value is algorithmically derived by the underlying assets, failures in Uniswap could threaten the Aave system as well.

Deviations from the price of a token on Uniswap and the actual market price can still occur in certain circumstances, which Aave assumes to be an attack on the platform.