Ambient AAVE

This is a Strategy Layer that uses Tranche Borrowing (Range vs. Tranche) to take the inactive ticks deposited for an AMM and move them into AAVE to earn the lending premium.

Reward

The reward is a straight forward yield: ~30-40% of each token's lending APR.

E.g. An ETH/USDC pool where the ETH lending APR is 3% and USDC APR is 10% gets an average boost of +4.55%.

Risk

There are two risks:

• The Tranche Rebalancing Premium since it is a tranche borrowing strategy.

• Illiquidity: It's possible the entire AAVE pool for either of the two tokens is totally borrowed out and because of that we can no longer swap. This is okay and perhaps even profitable for a few reasons:

  • The downside is we would no longer earn any swap fees.

  • The upside is the lending APR increases dramatically if the entire pool is borrowed. For b-tier tokens where this has a non-trivial probability of happening, that APR is roughly 300%. (We'd like this number to be higher and are exploring other lending pools.)

  • The most important reason though, is if the entire pool is borrowed out then the token is must be experiencing incredibly high volatility. That is NOT the time you want to be LPing. The impermanent loss will be much higher than any swap fees so in that case it's better to just sit tight.

How it works

For a given pair, say ETH/USDC, a given liquidity tick is entirely in USDC if the current price is above it and entirely in ETH if below. So for inactive tick tranches above the current price, we move their assets (which is ETH) into AAVE and move it back when the tranche is close to being active. And for tranches below, we move their USDC into AAVE in the same way.

So while the average is ~30-40% in each token, just know that if your range is mostly below the current price you'll be collecting more USDC yield and if your range is above you'll collect more ETH yield.