Limitations of a Market for UNI-V2 Collateral Be Created?

Hey folks!

The migration’s going on right now, but I still wanted to get the discussion started in regards to implementing a Uniswap-V2 market on Aave. As of now, we can deposit our UNI-V1 tokens in their respective market.

Anyway, I was wondering if anyone more well-versed in the intricacies of Aave’s contract code and limitations could answer these two questions:

  1. Does the implementation of different markets (like what was done with UNI-V1 and soon SETs) have a negative impact on the gas fees (as is the case with each additional added collateral) of all Aave markets?

  2. Are there technical limitations in regards to the structure of the UNI-V2 tokens that could cause an issue with Aave integration; in other words, Is it possible?

Lastly, if this integration would be deemed more beneficial than detrimental, what do you guys think the consequences of implementing UNI-V2 tokens as collateral on Aave would be?

Thanks in advance for your input!


Uniswap v2 market is something that Aave team can deploy with the v2 of the protocol if the there is enough support from the community. Here are some answers:

  1. No negative effects as the markets are deployed on their own smart contracts, meaning that gas cost will not increase for other markets

  2. Not any technical limitations that I would see at the moment, so Uniswap v2 market is possible :)

  3. As it could be added as a separate market (as was done with Uniswap v1 money market) it does not add additional risk to the main or other markets. Also interesting note is that with stablecoin LP pairs there is actually less volatility and less market risk in that sense. Hence they are quite interesting assets as collateral.


for me this is a green light, bring it on.


Any news regarding this ?

Adding the UNI V2 market directly at the release could be great. Should we do an opinion poll ?


I think now that the V2 is live definitely would be good to poll out since new markets can be rolled out.


Lets do it, I fully support this idea.

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I totally support this market, so much possibilities !

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Just an update for anybody who might have stumbled upon this thread- the proposal is already being built!


Uniswap V2 Risk Analysis

Uniswap is an automated liquidity protocol: a decentralised exchange based on open source smart contracts and a constant product formula. Uniswap V1 liquidity tokens were the first secondary market on Aave Protocol V1. Since Uniswap V2 has gathered most of the liquidity thanks to significant improvements including ERC pairs, improved oracle, optimised gas and flash swaps - more details can be found in the whitepaper. Uniswap V2 now holds $3 billion of liquidity reaching $1 billion of daily volume.

Users who provide liquidity to Uniswap pools get UniTokens representing a share of the liquidity. These tokens are derivatives of the underlying Ethereum/ERC20 pair. They are backed and instantly redeemable in the two underlying assets through the smart contract. Therefore, UniTokens hold the risk of this smart contract code and architecture as well as the risks of the underlying assets.

A technical smart contract review of Uniswap V2 LP tokens concluded that the code is really simple and does not carry any additional risk. Furthermore the contracts have been battle tested and market proven as shown by the historical data and usage review.

Liquidity providers are rewarded through commissions composed of 0.3% swap fees and spread which depends on the market conditions. The automated liquidity protocol is based on a constant product formula, which may result in impermanent loss, depending on the volatility of the pair as explained in the Uniswap documentation.

Anyone can contribute to an Uniswap liquidity pool, by depositing an equivalent value of the 2 assets forming the exchange pair. Similarly, anyone can also use the products offered to swap tokens.

UniTokens V2 on Aave would provide the potential to leverage the $ 3 billion of liquidity on Uniswap V2. These tokens have a risk profile close to their underlying assets with some specificities: the UniToken V2 contract, additional downside risk due to impermanent loss and upside with fee accrual. To avoid potential contagion, UniTokens need an independent secondary market initially not covered by the Safety Module with the possibility to propose cover. Given the more complex nature of these assets, they may only be used as collateral to borrow against stablecoins or top assets.

This initial assessment focuses on pairs already listed as collateral on Aave Market, with good liquidity and volume.



Risk Map

UniTokens risk correspond to the average risk level of the underlying assets.

Risk Parameters

The Liquidation Bonus LB is set at 15% to ensure smooth liquidations given the friction of the wrapping and the large market capitalisations. This parameter may be adapted once there is some data on liquidations.

The Loan To Value LTV and Liquidation Threshold LT are from the underlying assets, with a max LT at 70% to prevent from bad liquidations given the 15% LB

Asset Loan to Value Liquidation threshold Liquidation bonus Reserve Factor
AAVE-ETH 60% 70% 15% 5%
BAT-ETH 60% 70% 15% 15%
DAI-ETH 60% 70% 15% 10%
DAI-USDC 60% 70% 15% 10%
ETH-CRV 50% 60% 15% 15%
LINK-ETH 60% 70% 15% 15%
MKR-ETH 60% 70% 15% 15%
REN-ETH 60% 70% 15% 15%
SNX-ETH 40% 60% 15% 20%
UNI-ETH 60% 70% 15% 15%
USDC-ETH 60% 70% 15% 10%
WBTC-ETH 60% 70% 15% 15%
WBTC-USDC 60% 70% 15% 15%
YFI-ETH 50% 60% 15% 15%
DAI 75% 80% 5% 10%
USDC 80% 85% 5% 10%
USDT 10%
WBTC 70% 75% 10% 20%
WETH 80% 83% 5% 10%

Borrow Assets

Stablecoins - DAI, USDC, USDT could be borrowed at a variable rate against UniTokens with the following parameters:

  • Uoptimal = 80%
  • Base = 0%
  • Slope 1 = 4%
  • Slope 2 = 75%

ETH & WBTC could be borrowed at a variable rate against UniTokens with the following parameters:

  • Uoptimal = 65%
  • Base = 0%
  • Slope 1 = 8%
  • Slope 2 = 100%

UniTokens could be borrowed at a variable rate with the rate model of top collateral assets with the following parameters:

  • Uoptimal = 45%
  • Base = 3%
  • Slope 1 = 10%
  • Slope 2 = 300%


Thank you for that risk analysis, Alex. I’m just wondering if the interest rate models for the borrowable assets is too low.

For example, for lending ETH, the interest rate model in V2 is:

  • Uoptimal = 65%
  • Base = 0%
  • Slope 1 = 8%
  • Slope 2 = 100%

What is the incentive to supply liquidity if you are likely to get better interest in other markets?

Hi @razaraz

Each market has its own risk profile, depositors can therefore choose where to allocate their liquidity based on their risk appetite

In this initial review of the Uniswap V2 Market, the Risk Team looked at UniTokens as collateral similar to the Uniswap V1 Market. In this first review ETH is not a collateral with no need of liquidity for liquidation. Furthermore most UniTokens are ETH pairs, as such they are highly correlated to ETH leading to less volatility risk. There is reduced risk when borrowing against the same asset and ETH not a collateral resulted in optimised risks for ETH

In the Aave V2 Market ETH’s average deposit APY is just 0.24% since inception showing there is little demand to borrow ETH. ETH is mostly used as a collateral. It is therefore crucial to ensure there is ETH liquidity available in case of the need to liquidated, this is where the aggressive borrow model kicks in from the optimal utilisation ratio.

The analysis is now being extended to the borrowing of UniTokens. In this case ETH is also a collateral with the need to protect liquidity with a more aggressive interest rate model so updating to the same borrow model as in Aave V2 Market

I believe Aave have a potential to be a building block to compete with Alpha Homora’s current leveraged LP offering when LP tokens are accepted as collateral.

The ETH low utilization assumption may not hold in this case tho. If we look at Alpha Homora, we can see a much higher ETH utilization ratio (~80%) than Aave, this is due to high borrowing demand for liquidity provisioning for different pairs.