[RFC] Aave’s CDP for Uniswap V4 Positions

[AaveLabs]

Simple Summary

Aave Labs would like to introduce a specialized Uniswap V4 Position Manager, initially enabling GHO (Aave’s decentralized overcollateralized stablecoin) borrowing against LP positions, with plans to extend to additional assets. The system will allow leveraging of Uniswap V4’s liquidity positions while inheriting Aave’s risk framework for collateral parameters and oracle feeds. This specialized Position Manager has already been planned and partially developed, and it’s designed to be forward-compatible with Aave V4. This will further extend the tool allowing Uniswap V4 Liquidity Prodiders to borrow other stablecoins and volatile assets. The proposed implementation would be the first profit sharing integration for Uniswap, allowing for revenue to go directly into Uniswap protocol fee collector address.

Exploring synergies leveraging both protocol’s latest infrastructure, as this proposal is aiming to do, will significantly aid in cementing the consolidation of Aave and Uniswap as market leaders, as well as bringing new ecosystem expansion, user adoption, and revenue opportunities.

For this purpose, Aave Labs would like to request a grant for development, audits and security reviews, maintenance and growth costs coverage.

About GHO Stablecoin

GHO is Aave’s implementation of an overcollateralized stablecoin with a unique stabilization mechanism. The protocol enables users to mint GHO by depositing supported collateral into Aave’s liquidity pools, with specific collateral ratios determined by the protocol’s risk parameters. The protocol implements a modular design that separates facilitator contracts from the core logic. This separation enables flexible integration of new minting mechanisms while maintaining the protocol’s security model.

GHO key technical aspects

• Facilitator Model: GHO introduces the concept of Facilitators, which are entities that can trustlessly generate and burn GHO tokens based on their assigned Bucket capacity.
• Tight Integration with Aave: GHO is deeply integrated with the Aave Protocol, which acts as the initial Facilitator. Users can borrow GHO against their supplied collateral in the Aave Protocol.
• Governance Controlled Parameters: GHO is controlled by the Aave DAO, enabling dynamic risk adjustment per Facilitator through governance mechanisms.

About Aave V4

Aave V4, still in development, is the most recent implementation of the Aave Protocol. It’s implementing a variety of features and a completely revamped architecture to further optimize UX and capital efficiency while improving risk management. Some of the major innovations Aave V4 include:

• New Architecture: The implementation comprises a completely new architecture based on a hub and spoke design. This approach allows deeper unified liquidity, while at the same time provides more granular risk management.
• Risk Premiums: Through Risk Premiums, Aave V4 allows pricing of liquidity risk more efficiently optimizing yields and borrow rates.
• Dynamic Risk Configuration: In Aave V4, risk parameters can be adjusted without impacting existing borrowers. This enables more precise risk management while maintaining the protocol’s core trust assumptions.

Motivation

The goal of this proposal is to increase the synergies between Uniswap and Aave by allowing leveraged LP positions, further enhancing capital efficiency and resiliency of the DeFi ecosystem as a whole, and create new revenue opportunities for both DAOs.

The Aave Protocol and the Aave DAO are best prepared due to their unique positioning:

• Aave is currently the largest DeFi protocol by TVL and provides the safest venue to lend and borrow stablecoins and other assets.
• Aave Labs is one of the service providers of the Aave DAO, developers of the Aave Interface and the founding company of the Aave Protocol. At Aave Labs, we’re excited to support Uniswap’s vision for Uniswap V4, as we as well head towards Aave V4, and see these new architectures aligning under similar principles and building blocks.

Building upon the alignment between Uniswap V4 and Aave V4 architectures, this integration delivers multiple strategic benefits that strengthen the DeFi ecosystem.

• Integrating Aave technology with Uniswap to signal the Aave Labs support of the Uniswap V4 roadmap and strengthening the collaboration between the two protocols.
• Leveraging the pre-existing Aave infrastructure for liquidity and risk management with proven track record and large capacity for a fast GTM and large margin for scalability.
• Creating a simpler way and new optionality for LPs to borrow stablecoins.
• Introducing new creative ways of using Uniswap V4 LP Positions and a direct source of income for the Uniswap DAO by implementing a revenue sharing program with the Aave DAO.
• Strengthening the integration and relationship between the two most advanced DeFi protocols in the market, Uniswap V4 and Aave V4.

With the aforementioned in mind, we’re requesting a grant to bootstrap the development of the proposal.

Proposal Details

The Proposal, if approved, will introduce a new software component, designed and developed over the past year by Aave Labs with a working prototype already in place, that will act as a bridge between Uniswap V4, GHO, and once released, Aave V4. The prototype has been in an R&D phase for over a year. Initially developed on top of Uniswap V3, then migrated to the latest protocol iteration. The prototype is feature-complete and at 90% of the development stage, missing in depth testing, internal and external security reviews. These steps will be completed if the proposal moves forward. A high level diagram of the design of the component follows:

• UniV4PositionManager is an extension of the standard Uniswap V4 PositionManager that introduces the ability to borrow against the LP position. The logic leverages two main components, the Risk Module and the Collateralization Module. The Risk Module interfaces directly to the Aave V3 (and V4 in the future) Risk Management infrastructure to leverage the pre existing risk configuration. This will allow any pool utilizing the extended Position Manager to borrow against any asset whose risk configuration is available in the Aave Protocol. The Collateralization Module calculates the value of the position using external oracles to validate the assets value and composition, enforces collateralization limits and allows liquidations.
• BorrowableAssetManager allows the PositionManager to draw liquidity against the LP position either from GHO or in the future from Aave V4 liquidity hubs. The GHOBorrowableAssetManager must be granted a facilitator bucket from the Aave DAO to activate the borrowing facility. The Aave DAO will maintain the rights to expand or contract the debit facility to ensure the stability of GHO and maximize the potential for the LPs who decide to leverage their position. Once Aave V4 is released, the BorrowableAssetManager will be further extended and implemented as an Aave V4 Spoke, that will be plugged into the main Aave Liquidity Hub to allow LPs access to the wider pool of assets and deeper liquidity of the Aave V4 market.

Budget and Timeline

Aave Labs proposes the following for development budget and alignment between the Aave DAO and the Uniswap DAO:

• A grant of $3.3M in UNI allocated to Aave Labs in order to cover expenses associated with research and development, audits and security reviews, maintenance costs and growth of the platform. The grant will be distributed in equal quarterly installments of $550K over 18 months during which Aave Labs will:
  • Finalize the initial implementation of the module integrating Uniswap V4 positions and GHO borrowing and release it within six months from the governance approval.
  • Extend the component to integrate the System with Aave V4, allowing borrowing of other stablecoins and volatile assets against Uniswap V4 liquidity.
  • Implement specific UI components to allow users access to the System.
  • Facilitate the work with the Aave DAO for the activation of the GHO Facilitator needed for the system to work and subsequently the integration of the with Aave V4 hub.
  • Initial deployment targeting Ethereum Mainnet, and subsequent expansion of the system to other networks where both Aave and Uniswap V4 are available.
  • Explore and develop reinvestment features to automatically compound earnings for LP positions, further enhancing capital efficiency for Uniswap liquidity providers.
• An initial ecosystem allocation of 1,100,000 UNI:
  • 550,000 UNI allocated to the Aave DAO intended to be used for Uniswap governance participation and to provide upside for the DAO as it takes on increased insolvency risk and operational responsibilities, subject to a 24-month linear vesting period.
  • 550,000 UNI for immediate liquidity and adoption user incentives for GHO on Uniswap V4. The liquidity incentives program will be handled by the Aave DAO through the Aave Liquidity Committee, an entity internal to the Aave DAO focused on initiatives around growth for the Aave ecosystem. The incentives will be redistributed within Uniswap V4 to incentivize the usage of pools integrating the borrowing capabilities and to make Uniswap V4 a liquid venue for GHO, with the goal of absorbing the new demand generated by the component.
• An adoption-based user incentives fund of 1,200,000 UNI allocated to the AaveDAO, released in tranches based on asset borrowing milestones (one-time payments when specific outstanding borrow values are first reached), with each milestone split 50/50 between Aave DAO and user incentives:
  • 300,000 UNI at $50M total value borrowed against LP shares.
  • 300,000 UNI at $100M total value borrowed against LP shares.
  • 300,000 UNI at $300M total value borrowed against LP shares.
  • 300,000 UNI at $500M total value borrowed against LP shares.

This adoption-based approach ensures that significant incentives are only released as the product demonstrates success in the market, aligning interests while maintaining the potential for full support as adoption goals are met. The UNI allocation to the Aave DAO treasury ensures strategic alignment between both protocols, allowing appropriate governance oversight where Uniswap decisions could affect the integration, while also supporting the Aave DAO’s risk management responsibilities as it takes on increased exposure to Uniswap V4.

Revenue Sharing Breakdown

The proposal introduces a revenue-sharing model starting with 50% of the GHO borrow profit from the total value borrowed against LP shares through this module, which will be automatically deposited to the Uniswap protocol fee collector address.

As the protocol scales, the revenue-sharing model is designed to align with early adoption incentives while progressively transitioning towards a sustainable long-term framework. The revenue share extends with a breakdown of 50%-50% between the Uniswap DAO and the Aave DAO until all the milestones set in the previous section are reached –or three years have passed. Afterwards, the revenue generated will be split in 80% for the Aave DAO and 20% for the Uniswap DAO. The revenue generated will be automatically redirected to the Uniswap DAO fee collection address. Any extension or new implementation around this tool, including the Aave V4 integration, will follow the same revenue-sharing model.

Based on current estimates, this could generate up to $22.6M to the Uniswap DAO, assuming that 50% of the usable TVL from Uniswap V3 within Aave is supplied to the new Module.

These projections are based on the following assumptions:

• $2B of usable TVL available for borrowing. We define usable TVL as the TVL of pools with asset compositions that have an active risk configuration on the Aave Protocol.
• 8.65% average GHO borrow rate over the past year.
• LPs borrowing 50% of the supplied TVL.

This structure allows the Uniswap DAO to directly benefit from increased lending activity while enhancing capital efficiency across both ecosystems.

50% Rev Share Scheme
TVL Captured	LP Supplied	Borrowed Against LP	Yield Generated	Aave DAO Rev Share	Uniswap Rev Share
5%	$100.0M	$50.0M	$4.5M	$2.2M	$2.2M
10%	$200.0M	$100.0M	$9.0M	$4.5M	$4.5M
30%	$600.0M	$300.0M	$27.0M	$13.5M	$13.5M
50%	$1,000.0M	$500.0M	$45.2M	$22.6M	$22.6M

These numbers do not include potential yield generated by the integration with Aave V4 and the expansion to other networks such as Unichain.

Disclaimer

Aave Labs has not been compensated by any third party for publishing this RFC.

All revenue projections, estimates, and targets in this proposal are based on current market conditions, historical data, and reasonable assumptions. However, actual results may differ materially, and no guarantees are made regarding future performance.

Proposal Timeline

• Request for Comment: At least one week period of request for comments.
• Community Snapshot Check: Initiate a community vote including feedback gathered in RFC.
• On Chain Vote: Onchain proposal to approve and allocate funding.
• If the proposal passes, Aave Labs commits to a go to market of the product within six months from the governance approval.

[wario]

Appreciate this proposal and the intent behind increasing composability for Uniswap v4 positions. However, it’s important to highlight that collateralizing Uniswap LP positions is already possible through existing protocols such as Revert Lend, which is currently live on Arbitrum, will soon launch on mainnet and other L2s, and will extend seamlessly to v4 as well.

Introducing a DAO-funded grant to Aave for functionality that already exists within the ecosystem may inadvertently distort competition. Additionally, the projection that Aave could capture 50% of the TVL seems overly optimistic and potentially unrealistic. Such estimates may not fully consider practical limitations, like accepting only positions composed of assets supported by Aave, thereby narrowing the available collateral universe significantly.

Given that the infrastructure for collateralizing LP positions is already live and growing organically, it would be prudent to encourage open, competitive innovation rather than subsidize a specific implementation. I believe the DAO’s role should ideally be to foster a neutral, competitive landscape that benefits LPs through naturally emerging market dynamics.

[eek637]

Thanks to the Aave Labs team for this thoughtful proposal. Two major DeFi protocols collaborating in this manner is an exciting prospect and we are excited to watch the governance process progress. In talking with the Aave Labs team over the last few months, the UF determined that this proposal is currently out of scope for our grants program. We anticipate some questions around that rationale so thought we’d detail our thinking proactively.

The Foundation’s grants strategy is centered around enabling protocol-native growth — in particular, supporting the development and adoption of Uniswap v4’s hooks architecture and expanding on-chain liquidity infrastructure on Unichain. While the Aave CDP introduces new utility for LP tokens, in our view it does not materially increase the metrics the UF is benchmarking itself against (as presented in our governance proposal).

Further, funding this proposal in full would require approximately 15% of our total grants budget. After careful consideration, we’ve determined that this allocation would disproportionately impact our ability to fund the diverse range of initiatives outlined in our strategic roadmap, particularly early-stage hook teams, infrastructure builders, and liquidity incentive programs that compound protocol-native usage.

We are supportive of Aave Labs presenting this RFC to the DAO and proceeding through the Uniswap Governance process to determine if it will be funded. In order to maintain our focus on executing our strategic commitments to the DAO, the Uniswap Foundation will not actively participate in refining the proposal’s details. However, we did want to call out that as of today, the DAO is likely unable to be the direct recipient of revenue from GHO as it is possible such receipt would be maintained as a taxable event.

[CharlMoro]

Aave trying to bypass the foundation through the forum, which told them it wasn’t viable… Trying everything to save a poorly designed stablecoin… I find that petty of Aave.
I don’t see why we would pay you to do this when people are probably already working on it with Euler’s infrastructure without asking for anything.

[Doo_StableLab]

@eek637

However, we did want to call out that as of today, the DAO is likely unable to be the direct recipient of revenue from GHO as it is possible such receipt would be maintained as a taxable event.

Thanks for your comment but just to clarify, isn’t there ways for Aave Labs to provide rewards back to DAO in ways that have been tested before? For example, how Arbitrum did with grants with Uniswap . Or re direct incentives to pools on Unichain .

[SilentUser]

Hey everyone,
like my name is stating, I’m usually a Silentuser/reader here and some other DAOs aswell.
But I think it is important to make a comment now, as this proposal is a big change in DAO dynamics from what we have seen so far.

Aave Labs is proposing a simple and directly integrated way of allowing LPs to borrow stablecoins like GHO against their positions. First of all this doesn’t really sound amazing because there are already solutions in place like Wario from Revert Lend already stated but there is one thing to mention that no once can deny. Aave is the place of choice for liquidity and whenever an asset has been listed on Aave, it has easily gained millions if not billions in TVL within days or weeks. The recent example of Pendles PT token is the best example. Within 5 days nearly 500m of TVL has been captured, although protocols like Morpho listed them weeks before. Now the Aave protocol is the biggest PT Token holder onchain with more than double the amount Morpho has. So yeah, 50% might sound big and maybe far-fetched for some, it still could happen with Aave.

While I do not want to talk anyone bad for what they are doing, having an additional protocol like Aave offering what Revert does, is a net benefit. Especially considering the TVL comparison and TVL growth between Revert and Aave. While Aave has been growing and capturing more and more marketshare, Revert is now more or less sitting at the same TVL they had when launched in 2022. (Source Defillama)

There is simply no deep liquidity available right now to satisfy potential demand, which could change.

@eek637 from my understanding the benchmarks are growth of hooks and growth of TVL on Unichain, right?
So what is stopping the Uniswap DAO or UF to make a proposal to the Aave governance forum to deploy Aave on unichain?
It is pretty clear that whenever Aave has been deployed on a chain, that liquidity and TVL on this specific chain is growing insanely, just take a look at the recent launch on Sonic. Aave is the de-facto liquidity hub, if you want to grow, get liquidity so you get Aave.
And I would assume the DAO would be supportive of doing so and bootstrapping with incentives, etc. But thats just another topic to think about…

Also how is GHO revenue a taxable event while other revenue sources aren’t? As @Doo_StableLab said. Whats the difference between those? Maybe there are ways to have it the same way so its not a taxable event? Surely there are solutions available.

@Doo_StableLab

Arbitrum did with grants with Uniswap . Or re direct incentives to pools on Unichain

Additionally the proposed amount will be split between Aave Labs and the Aave DAO. Afaik the Aave DAO has its own governance platform participating in DAOs like Arbitrum.
Having another DAO participating in Uniswap governance is a mutual benefit, rather than having VCs controlling it…

And last but not least I want the DAO to think about this.
Aave and Uniswap are two behemots from 2017-2020 Era. These two protocols proved themselves in their respective verticale to be the number 1. Having these two working together, finding ways for new revenue sources and offering LPs basically infinite liquidity shouldn’t be handled lightly. Especially considering that competition like Fluid (insane DEX growth) and Morpho (also strong lending competitor) aren’t sleeping. But together this could give us a chance to further strengthen these protocols and being competitive.

While I do not have any personal impact on this proposal as I do not hold UNI nor do I hold AAVE token, I do use both protocols since inception as both stand for security, reliability and liquidity.

Thanks for reading this, and if this is too much for you to read, ask ChatGPT lol.

[Avantgarde]

Thank you Aave Labs for sharing this very fascinating proposal that clearly has a ton of potential.

If anything, it’s exciting to see two leading protocols explore this type of deep technical and economic synergy, especially as both look towards their V4 iterations. The concept of making LP positions more capital-efficient by allowing borrowing directly against them could unlock significant value for Uniswap liquidity providers.

Very helpful to also have the UF’s perspective on this (thank you @eek637) and the point about direct revenue is obviously a key detail that needs to be ironed out. Since @Doo_StableLab and others have already raised the point around workarounds there’s no need to reiterate, but we concur with the sentiment that surely (hopefully?) there must be a way around this. Otherwise we assume a DUNA structure would solve this?

Overall, we see significant potential in this collaboration and the utility this product could bring to Uniswap V4. But equally, this should be a very compelling proposal for Aave as well, so we want to better understand why the Uniswap DAO is being asked to pay for all/most(?) of the costs.

Would be helpful to get further clarity on a few follow-up questions:

1. Could Aave Labs provide a more detailed breakdown of the $3.3M UNI grant request for R&D, audits, security reviews, maintenance, and growth costs?
2. How much has this development cost Aave Labs so far, and are you looking to get this entirely covered from Uniswap DAO’s end, or will the Aave DAO likewise contribute?
3. In addition to the grant, the proposal includes significant UNI allocations for incentives and adoption milestones. Could you please elaborate on the strategy behind these specific UNI quantities and vesting/distribution structures, and how they were determined to be the most effective way to drive adoption and align incentives for this product?
4. What exactly are you hoping to achieve with the 500k delegation (right?)?

Thank you to Aave Labs for bringing this innovative proposal to the Uniswap community. We look forward to seeing how this progresses.

[Doo_StableLab]

We are happy to see Aave Labs posting the proposal here and believe that such DeFi to DeFi collaboration can be beneficial. That being said, we will evaluate in details in upcoming days as it is an ambitious proposal, but do believe having rev share element and milestone based payments are good faith ground to start the discussion.

[wario]

While Aave has been growing and capturing more and more marketshare, Revert is now more or less sitting at the same TVL they had when launched in 2022. (Source Defillama)

Just a quick clarification, Revert Lend launched in September last year exclusively on Arbitrum and has rapidly grown to over $5M TVL, and we expect the growth to accelerate as we launch on Mainnet and Base. Full data available on Dune: Revert Finance Dashboard.

[Userisky]

Initially, I was not in favor of the funding request in this proposal. However, distributing the grant over 18 months makes sense, as it holds Aave accountable to its deliverables.

I’ve observed only limited success with MakerDAO’s Oasis Uniswap v3 LP rehypothecation. That said, considering the range of initiatives the Uniswap DAO is currently funding, this proposal stands out as offering strong value. It presents meaningful upside potential, along with a clear risk/reward profile for the DAO. I also appreciate that revenue will flow into the fee collector—this sets a solid precedent for similar proposals in the future.

My primary feedback concerns Uniswap’s compensation structure: beyond the proposed revenue split, where is Uniswap’s upside in Aave’s success? If this initiative helps GHO become a major competitor in the stablecoin market, how does Uniswap benefit from the broader success of GHO and Aave?

Would it make sense for Uniswap to also receive AAVE tokens for governance participation, or even better the fee collector gets an AAVE bonus for hitting certain milestones? I.e. TVL captured hits 5 billion, AAVE puts more rev share into the Uniswap Fee collector? Or puts $5million worth of AAVE into the fee collector over x months if x TVL target hit etc.

Should Uniswap also share in GHO’s total interest revenue, especially given its role in driving adoption? Stablecoin market is potentially a trillion dollar+ market cap space. Uniswap v4 helps GHO compete against USDC, USDT, BUIDL etc.

It’s common for stablecoin issuers to provide distributors with a share of interest or other financial incentives. There needs to be a more balanced structure—beyond just a revenue share—to ensure long-term alignment.

Overall, I support the proposal, but I encourage further discussion on how Uniswap can more directly participate in the upside.

[SEEDGov]

There are three key concerns we have regarding this proposal:

• Why should Uniswap fund part of this development?
  One of DeFi’s core principles is its permissionless and composable nature — anyone can build on top of another protocol without seeking permission or financial support. In this case, any protocol can create solutions involving Uniswap LP positions if they see value in doing so. As @wario mentioned, a similar product has already been built on Arbitrum without any grant from Uniswap. So why should Uniswap fund Aave’s development? Presumably, Aave sees a value proposition and expects to generate revenue — that should be incentive enough.
• Is this a sound investment for UniswapDAO to allocate $3.3M?
  Will this grant yield a positive ROI, or will it be a sunk cost? The figures provided by Aave, projecting up to $22.6M in earnings, seem overly optimistic, assuming a 50% TVL capture — a scenario we find unrealistic.
• It is crucial to clarify the point raised by @eek637 regarding how the DAO would benefit financially from this.
  We request the proposer to elaborate on this aspect: how does the proposal envision UniswapDAO capturing a portion of the potential revenue if the grant is approved?

[SilentUser]

Sorry, seems like defillama data is wrong then. But nevertheless the TVL difference is big.

[Userisky]

No offense to Revert, but launching over a year ago and reaching only $5M in TVL is relatively modest. Revert is also building on top of Uniswap v3 LP’s; a model that was previously explored through Gelato’s G-UNI on Oasis/summer.fi, which, to my knowledge, has since been deprecated or discontinued due to limited success.

Even if this proposal is approved, competition will still remain. There is real value in gaining exposure to Aave’s user base and branding while leveraging Uniswap v4 on the backend; particularly with the potential to develop custom Uniswap v4 hooks that could make LP strategies like rebalancing or re-hypothecation more viable. Aave currently holds over $19 billion in TVL, representing a massive ecosystem to integrate with. Reaching 1 billion LP Supplied, is not that unrealistic.

Opposing this collaboration on the basis of competition, is like suggesting Uniswap shouldn’t allow a major blockchain protocol to integrate because a smaller project might find it harder to compete. In practice, this kind of integration grows the pie. Revert would benefit from increased visibility of competitors and a larger pool of users who become familiar with its service offerings.

[Doo_StableLab]

@Userisky

to my knowledge, has since been deprecated or discontinued due to limited success.

Providing perspective from Maker / Sky if curious. But minting Dai from such LP positions itself was large and successful but the issue was it was difficult to have big income from it (aka high stability fee). Especially as the Maker moved to RWA focusing on US Treasury bonds, simpler focus on PSM and putting into US Treasury bonds that provide much higher yields were seen as a more attractive option.

[wario]

Thanks for engaging constructively on this!

Just to clarify a few points:

1. Launch Date & Growth: Revert Lend launched 7 months ago (September last year), exclusively on Arbitrum, and has seen steady organic growth reaching over $5M in TVL. This trajectory is expected to accelerate significantly as we prepare imminent deployments on Mainnet and Base.

2. Realistic TVL Expectations: While Aave’s total TVL is indeed~$19B, that is not the limiting factor. Uniswap v3’s total TVL currently stands around $2B. Assuming similar growth for v4, and considering that pooled lending protocols, like AAVE, can only support positions where the underlying assets are both approved collateral assets, the practically addressable TVL for collateralization would likely be closer to ~$1B, making the notion of capturing the full amount highly unrealistic.

3. Comparability with G-UNI: Gelato’s G-UNI program on Oasis/Summer.fi isn’t directly comparable here. That initiative primarily involved managed vaults, not allowing LPs to collateralize their own Uniswap v3 positions directly.

Finally, I want to reiterate support for Aave collaborating closely with Uniswap v4. Such integrations indeed expand the ecosystem. However, the key concern remains about allocating multimillion-dollar grants from the DAO to well-established, heavily capitalized projects. Ensuring a competitive and balanced environment means thoughtfully directing resources, potentially prioritizing smaller or early-stage innovations rather than substantially funding large incumbents.

[Userisky]

@Doo_StableLab

Providing perspective from Maker / Sky if curious

I’d say another major issue was the high initial fees required to set up the vault. For a pool large enough to make the APR worthwhile, the setup fee was several hundred dollars.

@wario

However, the key concern remains about allocating multimillion-dollar grants from the DAO to well-established, heavily capitalized projects. Ensuring a competitive and balanced environment means thoughtfully directing resources, potentially prioritizing smaller or early-stage innovations rather than substantially funding large incumbents.

However, UNI holders would recover most of that cost with just $100 million supplied to this CDP program. The recoup would also go out to UNI holders directly via the Fee Collector; instead of UNI just sitting in the treasury or just being dumped on the communities head. Are you assuming that the Uniswap Treasury should only be used to fund small, innovative startups with very low chances of providing any feedback loop to cover the UNI DAO’s continual expenditures? What you’re describing is exactly the role of the Uniswap Foundation; to bootstrap innovation without any expectation.

Does Revert plan to provide Uniswap revenue sharing once its similar product offering reaches scale? It has also received grants from various DAOs, correct? If I were a company, I probably wouldn’t want a program like this to go through either; it sets a precedent that you can’t just ask a DAO for funding without a clear alignment for all. Not just developers and founders.

[wario]

I don’t want to derail the conversation further, but to quickly answer your questions: Revert, and likely 99% of projects in this space, would gladly accept a grant under terms similar to those proposed here. For transparency, we previously received a grant of 70k ARB from the Uniswap-Arbitrum grants program, partially covering a Code4rena audit contest, with two additional audits funded directly from our treasury. We’re genuinely grateful for that support.

Anyway: welcome, Aave! it’s great to see more strong teams building for Uniswap LPs. We’re excited to keep growing alongside you and everyone contributing to the ecosystem.

[Tane]

First of all, we want to express our gratitude for this proposal. It’s exciting to see a leading DeFi player like Aave, who has significantly shaped the DeFi market from its early days and continues to have a strong presence, proposing deeper collaboration with Uniswap. We believe such collaboration is beneficial not only for both parties but also for users and the broader ecosystem.

In principle, we support the idea of leveraging Uniswap V4 infrastructure for Aave’s risk management or enabling borrowing against Uniswap V4 LP tokens to access GHO and potentially other assets. Collaborative incentives or joint support around this integration certainly align with the strategic expansion of Uniswap V4’s utility, and partnering with a reputable project like Aave increases the likelihood of success.

However, despite these positives, we have significant reservations and thus oppose this specific proposal as it stands. Reaching a utilization of $1B from $2B in deposits is not only ambitious but historically unsupported.

Firstly, we find it challenging to justify the requested investment scale, $3.3M plus additional UNI tokens exceeding 2M. As @Wario pointed out, Aave’s projection of capturing 50% of TVL seems overly optimistic.

@wario

Introducing a DAO-funded grant to Aave for functionality that already exists within the ecosystem may inadvertently distort competition. Additionally, the projection that Aave could capture 50% of the TVL seems overly optimistic and potentially unrealistic. Such estimates may not fully consider practical limitations, like accepting only positions composed of assets supported by Aave, thereby narrowing the available collateral universe significantly.

Indeed, historical cases indicate that stable asset LP tokens typically achieve better performance as collateral due to capital efficiency and lower liquidation risks. For instance, MakerDAO successfully collateralized $1.2B G-UNI LP tokens, specifically stable pairs such as DAI-USDC (reference). On the contrary, LP tokens with volatile assets carry greater impermanent loss and liquidity risks during liquidation, as highlighted by Gauntlet’s analysis (reference). Given these considerations, a 50% utilization rate for LP tokens in Uni v4 seems highly optimistic.

Focusing on GHO alone, its current market presence (around $240M) and relative instability compared to other major stablecoins raises further doubts about prioritizing GHO integration as a key utility within Uniswap. While we acknowledge ongoing efforts by Aave to address concerns regarding GHO’s peg stability and utility, we see these developments as still very much in progress. Consequently, we do not yet see sufficient reason for prioritizing GHO over other stablecoins from the Uniswap perspective.

Moreover, we are particularly skeptical about the financial structure of this proposal. Given that GHO’s growth primarily benefits Aave, the rationale behind Uniswap funding most of the development costs appears unclear. Ideally, the development should be primarily funded by Aave. Even if partial Uniswap funding were justified, $3.3M seems excessively high, especially considering the speculative nature of the projected revenues.

Furthermore, the logic behind this additional UNI tokens remains ambiguous.

@AaveLabs

550,000 UNI allocated to the Aave DAO intended to be used for Uniswap governance participation and to provide upside for the DAO as it takes on increased insolvency risk and operational responsibilities, subject to a 24-month linear vesting period.

We believe that if this integration is truly beneficial for Aave, as we indeed think it is, it should ideally be pursued without requiring funding from Uniswap. The most appropriate scenario would be for Aave to independently undertake this initiative based on its own conviction and speculative assessment of future value, subsequently enabling mutual benefits to be shared naturally. This approach aligns closely with the foundational principles of DeFi, which emphasize composability (“money legos”) and permissionless innovation. Therefore, conditioning this integration on receiving funding or governance power from Uniswap DAO seems fundamentally misaligned with these core values.

If this initiative were approached as a mutual treasury swap, involving significant Aave token contributions, it might be more defensible. However, the current proposal’s financial dynamics do not reflect equitable risk sharing. We would be open to exploring partial funding with revenue-sharing or collaborative incentives, but as it stands, this proposal appears financially and strategically imbalanced from Uniswap’s perspective.

[Thms]

Complementing what @wario posted: Arcadia Finance built this product at no cost for Uniswap. It is currently live on Base and expanding to other chains, including Unichain. Anyone can use it to borrow against liquidity positions, autocompound fees, and autorebalance. It works with both Uni v3 and Uni v4, without the need for a new custom position manager.
https://docs.arcadia.finance/introduction/overview

The total development cost was well below the requested $3M (plus $10M in extra incentives). We can provide a full breakdown of development costs upon request.

Aave is a strong partner with deep liquidity and a solid reputation, which might bring additional TVL and revenue to Uniswap—we understand that. However, if the goal is to increase Uniswap’s TVL, in our opinion, the grant should be based on the actual TVL brought to Uniswap via leveraged positions. The DAO should encourage open competition rather than subsidizing a single protocol implementation, which would inevitably kill competitive market dynamics.

[ilo_0x]

Some major concerns around this proposal

1- Aave earned $1m in revenue in the past 7 days, with ~$60m in annual revenue. Why would Aave DAO request a grant when it is fully equipped to pay for development itself? Especially considering the product is a) untested in production and b) already available through various other service providers who did not receive such a grant.

2- The numbers don’t add up. Here’s a summary of the growth of Leveraged Farming and Liquidity Manager protocols as a percentage of DEX TVL. - DeFiLlama data

Current percentage of total DEX TVL - as of May 8th

• Liquidity Manager: 3% ($600m)
• Leveraged Farming: 1.5% ($300m)

Historic ATH percentage of DEX TVL

• Liquidity Manager: 7.3% (Jul 27th, 2022)
• Leveraged Farming: 6% (Sep 4th, 2021)

Aave saying they can get $500m in borrows against LPs is like saying they will single-handedly double the Leveraged Farming market. That seems highly unlikely, and a more realistic yet still optimistic estimation would be in the $100m ballpark, making the deal a net-cost to Uniswap DAO. ($4.5m in revenue against $13m+ in costs)

3- Even if Aave can capture significant market share, we can expect a sizeable part of that TVL to come out of existing protocols’ TVL, thus reducing the net impact on Uniswap’s growth (capital simply migrates) while simultaneously executing a vampire attack against existing protocols using freely acquired UNI incentives.

What is the potential impact?

All of the above points suggest this proposal would actually instigate a net-negative for the ecosystem. Uniswap DAO is unlikely to see the promised TVL growth, and in any case it would do so at the expense of existing protocols by being complicit in a vampire attack. If Antitrust laws existed in DeFi, this proposal would certainly perk ears.

The only one standing to benefit is Aave DAO and the GHO stablecoin. If they genuinely want to grow the use of Leveraged Farming and ALMs for Uniswap pools through their GHO stablecoin, there are far more conducive courses to explore.

How Aave could support the Uni ecosystem fairly

For example, Aave DAO could support and incentivize the use of GHO in existing Leveraged Farming markets, using its infrastructure to provide a direct line of liquidity (aka protocols plug into Aave’s market). This is a far more neutral approach which Aave DAO could easily fund itself, and which constitutes a net-positive on the ecosystem:

1. Diversification of debt assets (most protocols use USDC to leverage up)
2. Cheaper borrowing leads to better yields for farmers (lend pool utilisation in Leveraged Farming protocols can be a growth bottleneck, which Aave could help ameliorate)
3. Aave contributing in a wholesome manner could draw additional TVL to LP management verticals unilaterally, resulting in growth for everyone (Uniswap, GHO, and ecosystem protocols alike).

A word of caution

I urge anyone voting on this proposal to think carefully about the implications. This proposal creates a massive precedent for collusion. Uni is the biggest DEX, Aave is the biggest money market. It is entirely against the spirit of DeFi to have them vampire attack already aligned ecosystem protocols, using UNI bribes to damage the competitive market, for a product that is untested and not part of their core business.