Thank you for the clarifications. A few points still need tightening before we can credibly claim the proposal aligns risk-adjusted value for the Uniswap DAO.

1. Quantify “new” vs “shifted” TVL

Your thesis hinges on incremental TVL, not deposits that merely migrate from existing Uniswap pools.
Could you share concrete data from past LP-CDP launches (Maker G-UNI vaults, Pendle PT markets, etc.) showing what % of TVL was net-new after 2, 6, and 12 months of incentives?
Without that baseline we can’t attribute future Uniswap revenue to this integration alone.

2. Front-loaded incentives: yes, but with guardrails

I agree a cold-start bonus is required. The issue is magnitude versus proof-of-life.
Below I keep your four-stage design but (i) restore the triggers to total borrowed, not TVL, and (ii) trim the unconditional spend.

* 0.524 M UNI grant + 1.100 M UNI initial incentives = 1.624 M UNI.
† Cap remains 1.20 M UNI if the DAO prefers to keep the full four-tranche pool; otherwise it can be lowered proportionally.

Result: unconditional up-front spend falls to ≈ $ 3.2 M (0.50 M UNI × $6.3) while leaving upside room once real borrowing materialises.

3. Symmetric skin-in-the-game

If the DAO keeps the original 1.62 M UNI front-load (≈ $10 M), a matching commitment from Aave DAO (in AAVE or GHO) would align incentives and mute “vendor-financing” concerns. Has the Aave community signalled appetite for a treasury match?

4. Revenue-share dynamics

Your model assumes an 8.65 % GHO rate and a static 50 % split. What happens if

• GHO APY drops below 4 % (revenue halves)?
• Borrow demand plateaus at $ 300 M?

A sliding-scale rev-share—e.g., 70 % to Uniswap while net protocol revenue < $ 10 M / yr, ratcheting down to 50 % above that—would protect downside while preserving upside.

5. Risk-management disclosures

Given the insolvency risk Aave takes on, can Gauntlet or Chaos provide a preliminary risk-parameter sheet (LT, RF, liquidation bonus) for the first three LP pairs you expect to list? That will let delegates gauge how realistic the $ 500 M borrow ceiling is.

I’m encouraged by the constructive dialogue and remain open to flipping my vote once the above items are addressed. Let’s keep iterating toward a package that is both capital-efficient and mutually accretive.

My vote is no. However I am more interested in @AaveLabs response to what I have to say.

You want people to invest in your coin (AAVE), alright, so tell me how your product (GHO) competes with centralized stablecoins (hint: it doesn't. they use real world cash reserves)

The only way GHO can succeed is by being foundationally more secure than centralized stablecoins.

I want to point out that the CDP mechanism used by most protocols is generally not my preferred cup of tea.

back in 2020, the maker dao "black thursday" crash occured. gas fees skyrocketed and eth crashed (-43%), causing liquidations in the makerdao system

The events that follow are those of controversy. The system forced positions to eat the gas price and liquidate (In order to stabilize DAI). People were able to bid on positions for 0 DAI, as the system forced positions to liquidate even if the gas price was equal to the value of the position.

However, the system worked as intended, and there was no mistake in the coding. The mistake is political, not technical. The positions were sold at a loss to ensure DAI did not fluctuate in price. The system was intended to ensure DAI stays pegged.

If we approach the situation with a different idea (DAI can fluctuate), vault holders would not lose money. It would go like this:

1. $ETH drops 43%, Gas skyrockets
2. No one is auctioning ($ETH is too risky) (CRITICAL MOMENT)
3. The auctions dont sell at a loss. Because $DAI can no longer access REAL capital in $ETH, it drops in price.
4. the gas price returns to normal (AS IT ALWAYS HAS, SINCE TIME IMMEMORIAL).
5. DAI can now access REAL capital in $ETH. DAI now has value and is worth $1.
6. No money is lost.

This brings me back to my main point. MakerDAO, AAVE, and all the other money lending markets are too scared to innovate (Please correct me if I am wrong). The trend of stablecoins thus far is unsustainable.

Centralized stablecoins are not attractive, DAI vaults are no longer in service, and GHO does not seem groundbreaking.

Thanks, @0xuniact, for your detailed feedback and focusing the discussion on value accrual for the Uniswap DAO. A key metric for evaluating this proposal is how much new TVL and protocol revenue can be driven to Uniswap as a direct result of this integration, beyond what’s already present in the ecosystem.

The main hypothesis here is that this integration increases Uniswap’s competitiveness by adding a strong use-case in DeFi. Similar integrations in the past have driven significant adoption. Those who supply LP tokens can simultaneously access GHO and Aave V4 liquidity and maintain their yield exposure on Uniswap. For more sophisticated users, there’s even the potential to loop between the two protocols, driving additional volume, activity, and fee generation on Uniswap.

As for the structure of incentives, these are intentionally front-loaded to drive initial adoption and liquidity. If incentives only unlocked after significant protocol revenue was already being generated, it would undermine the purpose. It’s precisely those early incentives that attract the critical mass of users needed to start that revenue flywheel. The proposal is milestone-based, reflecting that incentives track real adoption and usage.

On the topic of competition and grant size: the requested budget reflects the quality of development, depth of risk management, and long-term support expected for a cross-protocol integration of this scale. The work involves substantial technical complexity and ongoing operational responsibility, not just a one-off deployment. While DeFi is inherently open and any team is free to propose similar solutions, what’s being requested here is grounded in real development costs and the need for robust infrastructure that can safely support Uniswap LPs. We believe this approach is fair given the scope, quality, and time commitment involved.

Regarding the revenue share, our analysis shows that at the highest milestone - $500M in total borrowed - Uniswap DAO stands to receive an estimate of $22M in annual revenue, which is a strong ROI relative to the incentives and well-aligned with the DAO’s long-term interests. This figure is not a hard cap (revenue does not drop to zero once reached), but is simply the estimated revenue figure achieved once all the incentives are unlocked. Additional revenue will come in perpetuity as the tool continues to operate and gains traction. Adopting a strict “recover the principal before adjusting rev share” model could, paradoxically, result in less total revenue for Uniswap DAO versus the milestone-based approach we’ve proposed. Additionally, the incentives would be reinvested into Uniswap to drive TVL and protocol activity.

Ultimately, the goal is to deliver lasting, mutually reinforcing value to both ecosystems.

Thank you for the clarifications. A few points still need tightening before we can credibly claim the proposal aligns risk-adjusted value for the Uniswap DAO.

1. Quantify “new” vs “shifted” TVL

Your thesis hinges on incremental TVL, not deposits that merely migrate from existing Uniswap pools.
Could you share concrete data from past LP-CDP launches (Maker G-UNI vaults, Pendle PT markets, etc.) showing what % of TVL was net-new after 2, 6, and 12 months of incentives?
Without that baseline we can’t attribute future Uniswap revenue to this integration alone.

2. Front-loaded incentives: yes, but with guardrails

I agree a cold-start bonus is required. The issue is magnitude versus proof-of-life.
Below I keep your four-stage design but (i) restore the triggers to total borrowed, not TVL, and (ii) trim the unconditional spend.

* 0.524 M UNI grant + 1.100 M UNI initial incentives = 1.624 M UNI.
† Cap remains 1.20 M UNI if the DAO prefers to keep the full four-tranche pool; otherwise it can be lowered proportionally.

Result: unconditional up-front spend falls to ≈ $ 3.2 M (0.50 M UNI × $6.3) while leaving upside room once real borrowing materialises.

3. Symmetric skin-in-the-game

If the DAO keeps the original 1.62 M UNI front-load (≈ $10 M), a matching commitment from Aave DAO (in AAVE or GHO) would align incentives and mute “vendor-financing” concerns. Has the Aave community signalled appetite for a treasury match?

4. Revenue-share dynamics

Your model assumes an 8.65 % GHO rate and a static 50 % split. What happens if

• GHO APY drops below 4 % (revenue halves)?
• Borrow demand plateaus at $ 300 M?

A sliding-scale rev-share—e.g., 70 % to Uniswap while net protocol revenue < $ 10 M / yr, ratcheting down to 50 % above that—would protect downside while preserving upside.

5. Risk-management disclosures

Given the insolvency risk Aave takes on, can Gauntlet or Chaos provide a preliminary risk-parameter sheet (LT, RF, liquidation bonus) for the first three LP pairs you expect to list? That will let delegates gauge how realistic the $ 500 M borrow ceiling is.

I’m encouraged by the constructive dialogue and remain open to flipping my vote once the above items are addressed. Let’s keep iterating toward a package that is both capital-efficient and mutually accretive.

My vote is no. However I am more interested in @AaveLabs response to what I have to say.

You want people to invest in your coin (AAVE), alright, so tell me how your product (GHO) competes with centralized stablecoins (hint: it doesn't. they use real world cash reserves)

The only way GHO can succeed is by being foundationally more secure than centralized stablecoins.

I want to point out that the CDP mechanism used by most protocols is generally not my preferred cup of tea.

back in 2020, the maker dao "black thursday" crash occured. gas fees skyrocketed and eth crashed (-43%), causing liquidations in the makerdao system

The events that follow are those of controversy. The system forced positions to eat the gas price and liquidate (In order to stabilize DAI). People were able to bid on positions for 0 DAI, as the system forced positions to liquidate even if the gas price was equal to the value of the position.

However, the system worked as intended, and there was no mistake in the coding. The mistake is political, not technical. The positions were sold at a loss to ensure DAI did not fluctuate in price. The system was intended to ensure DAI stays pegged.

If we approach the situation with a different idea (DAI can fluctuate), vault holders would not lose money. It would go like this:

1. $ETH drops 43%, Gas skyrockets
2. No one is auctioning ($ETH is too risky) (CRITICAL MOMENT)
3. The auctions dont sell at a loss. Because $DAI can no longer access REAL capital in $ETH, it drops in price.
4. the gas price returns to normal (AS IT ALWAYS HAS, SINCE TIME IMMEMORIAL).
5. DAI can now access REAL capital in $ETH. DAI now has value and is worth $1.
6. No money is lost.

This brings me back to my main point. MakerDAO, AAVE, and all the other money lending markets are too scared to innovate (Please correct me if I am wrong). The trend of stablecoins thus far is unsustainable.

Centralized stablecoins are not attractive, DAI vaults are no longer in service, and GHO does not seem groundbreaking.

Thanks, @0xuniact, for your detailed feedback and focusing the discussion on value accrual for the Uniswap DAO. A key metric for evaluating this proposal is how much new TVL and protocol revenue can be driven to Uniswap as a direct result of this integration, beyond what’s already present in the ecosystem.

The main hypothesis here is that this integration increases Uniswap’s competitiveness by adding a strong use-case in DeFi. Similar integrations in the past have driven significant adoption. Those who supply LP tokens can simultaneously access GHO and Aave V4 liquidity and maintain their yield exposure on Uniswap. For more sophisticated users, there’s even the potential to loop between the two protocols, driving additional volume, activity, and fee generation on Uniswap.

As for the structure of incentives, these are intentionally front-loaded to drive initial adoption and liquidity. If incentives only unlocked after significant protocol revenue was already being generated, it would undermine the purpose. It’s precisely those early incentives that attract the critical mass of users needed to start that revenue flywheel. The proposal is milestone-based, reflecting that incentives track real adoption and usage.

On the topic of competition and grant size: the requested budget reflects the quality of development, depth of risk management, and long-term support expected for a cross-protocol integration of this scale. The work involves substantial technical complexity and ongoing operational responsibility, not just a one-off deployment. While DeFi is inherently open and any team is free to propose similar solutions, what’s being requested here is grounded in real development costs and the need for robust infrastructure that can safely support Uniswap LPs. We believe this approach is fair given the scope, quality, and time commitment involved.

Regarding the revenue share, our analysis shows that at the highest milestone - $500M in total borrowed - Uniswap DAO stands to receive an estimate of $22M in annual revenue, which is a strong ROI relative to the incentives and well-aligned with the DAO’s long-term interests. This figure is not a hard cap (revenue does not drop to zero once reached), but is simply the estimated revenue figure achieved once all the incentives are unlocked. Additional revenue will come in perpetuity as the tool continues to operate and gains traction. Adopting a strict “recover the principal before adjusting rev share” model could, paradoxically, result in less total revenue for Uniswap DAO versus the milestone-based approach we’ve proposed. Additionally, the incentives would be reinvested into Uniswap to drive TVL and protocol activity.

Ultimately, the goal is to deliver lasting, mutually reinforcing value to both ecosystems.

I’ve been steadily building a sizable UNI position because I’m convinced Uniswap will become the DeFi backbone. Governance is mission-critical to that trajectory, so I want to weigh in on Aave’s CDP proposal.

Props first – big thanks to the Aave team for pushing composability forward.
That said, in its current form I’m a “no” vote for three quantitative reasons:

1. ROI is fragile

Projected inflow to the Uniswap DAO tops out at $ 22.6 M (50 % of GHO borrow yield if 50 % of usable TVL is rehypothecated).
Best-case ROI ≈ 1.3 × – a thin margin given execution, peg and smart-contract risk.

2. Break-even still needs a one-third TVL capture

Using Aave’s own parameters (8.65 % borrow rate, 50 % LTV, 50 % rev-share), Uniswap recoups the $ 17.8 M only after ≈ $ 0.82 B of LP collateral is borrowed against – ~31 % of today’s $ 2.68 B Uniswap v3 TVL.

3. Concentration risk with limited upside

• GHO float is only $ 265 M – about 5 % of USDC. Depth and peg resilience remain unproven at scale.
• Aave’s annual protocol revenue is ≈ $ 46.6 M; Uniswap would need ~38 % of that entire revenue stream just to break even.

🛠️ Concrete changes I’d need to flip to YES

1. Cap the grant at ≤ $1.5 M (audit + bug-bounty coverage only).
2. Milestone-based streaming – UNI vests only after specified revenue, not gross TVL, hits the fee-collector.
3. Open RFP – 30-day window so Morpho, Euler, Ajna, etc. can bid for the same integration; best economics win.
4. Dynamic rev-share – start 50/50 and ratchet to 80/20 only after Uniswap has recovered its principal.

I’m eager to back a tighter, data-driven revision – but as it stands, the risk-reward still doesn’t pencil out.

Thank you @Tane for the questions and considerations. The figures outlined in the proposal are scenario estimates rather than fixed forecasts. Capturing 50% of the TVL represents the bull-case outcome and therefore defines the final milestone. The milestone structure is intentionally front-loaded toward that 50% threshold so that the incentives and the revenue-sharing schedule are impacted once material traction is demonstrated.

GHO is proposed as the initial asset because its native fee mechanism provides flexible, onchain revenue that can be programmatically shared between the Aave and Uniswap DAOs from day one. Once Aave V4 is live, its modular architecture will allow additional assets to be integrated without re-engineering the core module, broadening borrowable options while preserving a clear fee-sharing pathway.

Under the current design, the insolvency risk is borne exclusively by the Aave DAO through its protocol liquidity. The Uniswap protocol is not exposed to such risk; its economic exposure is limited to the discretionary UNI incentives committed by its DAO. Consequently, the proposal already aligns risk with the party best equipped to manage it, while affording Uniswap upside participation through the shared-fee model described above.

Hello @Avantgarde - happy to provide more clarity around the budget, incentive strategy, and the rationale behind the delegation.

On the $3.3M UNI grant: this request is meant to cover the full lifecycle of the integration over an 18-month window. It includes continued R&D on the Uniswap V4 Position Manager, integration with Aave’s risk layer and oracle infrastructure, as well as ongoing security reviews and audits. As with any collateral-backed lending product, especially one tied to volatile LP positions, we expect multiple audit rounds. The budget also accounts for maintenance and iteration post-launch as the market evolves, and for growth efforts such as onboarding support and frontend enhancements, including integration with Aave V4, which will potentially require a new design spec and more audits.

Aave Labs has already invested heavily in the early architecture and design phases, and the grant helps accelerate full deployment. While the ask comes from the Uniswap DAO, the Aave DAO is contributing in-kind through liquidity provisioning (GHO), risk infrastructure, and operational support.

Regarding the additional UNI allocations, the goal is to drive meaningful adoption while aligning long-term governance interests. The delegation to Aave DAO ensures protocol-level alignment and involvement in the governance process. The liquidity incentives will be managed by the Aave DAO Liquidity Committee and are modeled after proven growth strategies across DeFi. The milestone-based tranches only unlock once clear usage thresholds are met, which helps maintain accountability and impact.

On the broader topic of permissionless integration versus collaboration

While it is true that products that implement similar features on top of previous Uniswap iterations exist, the broader scope of this proposal encompasses a full collaboration between the two most prominent DeFi protocols rather than a simple permissionless integration. Aave Labs believes that the current proposal brings some important benefits for Uniswap over a simple ad hoc integration:

1. This feature would be built under the Uniswap brand and become part of the Uniswap ecosystem, not as a standalone protocol - factually adding a new feature to the existing Uniswap infrastructure, rather than building a new product on top.
2. Access to the very deep Aave liquidity and battle tested risk management infrastructure; As pointed out before by some community members, it is common occurrence for Aave to become the most liquid venue for new asset classes (eg Pendle Tokens) very quickly once these assets get access to Aave liquidity. Other products require ad hoc liquidity provisioning, which is a major factor limiting their ability to scale.
3. The proposal encompasses a meaningful revshare component, exclusively generated by the borrowing demand, with the Uniswap DAO that is not present in existing products and wouldn't necessarily be present in permissionless integrations.
4. Integrating the functionality at a deeper level in the uniswap protocol, rather than for example wrapping the LP positions, allows for a more gas efficient and less convoluted implementation.

Ultimately, this proposal is meant to be a temperature check to understand if a broader collaboration between the two largest DeFi protocols is something of interest for both DAOs. Given that the tool represents a great opportunity for growth for Aave and Aave Labs already defined specification and prototype implementation, it will be implemented as a permissionless integration, should this proposal not move through - but the upside for the Uniswap DAO will be much more limited.

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.

Thank you @eek637, the Uniswap Foundation, and broader community for the thoughtful feedback. Aave Labs fully respects UF’s focus on native protocol growth through hooks and Unichain. To clarify, the grant is being requested from the Uniswap DAO, rather than the Uniswap Foundation itself. Additionally, the scope of this proposal will expand to other networks, including Unichain as a prime candidate.

After extensive technical exploration, it was concluded that the proposal cannot be easily implemented using hooks alone - which would introduce unnecessary complications and be error prone. To support risk management, oracles, and liquidations, Aave Labs built a custom position manager that integrates directly with Aave’s infrastructure. While the Uniswap interface doesn’t currently support custom managers, this module is designed to remain fully compatible with the Aave Interface.

Aave Labs has spoken with several Uniswap delegates to gather their feedback and adjust the proposal accordingly. During these conversations, it was also noted that, regarding tax concerns, the proposed fee mechanism aligns with how existing protocol fees are currently handled in the Uniswap protocol and nothing additional is needed when the fee switch goes into effect.

The proposal is an opportunity to grow the Uniswap ecosystem together with Aave’s deep liquidity and stablecoin infrastructure, benefiting both protocols.

I’ve been steadily building a sizable UNI position because I’m convinced Uniswap will become the DeFi backbone. Governance is mission-critical to that trajectory, so I want to weigh in on Aave’s CDP proposal.

Props first – big thanks to the Aave team for pushing composability forward.
That said, in its current form I’m a “no” vote for three quantitative reasons:

1. ROI is fragile

Projected inflow to the Uniswap DAO tops out at $ 22.6 M (50 % of GHO borrow yield if 50 % of usable TVL is rehypothecated).
Best-case ROI ≈ 1.3 × – a thin margin given execution, peg and smart-contract risk.

2. Break-even still needs a one-third TVL capture

Using Aave’s own parameters (8.65 % borrow rate, 50 % LTV, 50 % rev-share), Uniswap recoups the $ 17.8 M only after ≈ $ 0.82 B of LP collateral is borrowed against – ~31 % of today’s $ 2.68 B Uniswap v3 TVL.

3. Concentration risk with limited upside

• GHO float is only $ 265 M – about 5 % of USDC. Depth and peg resilience remain unproven at scale.
• Aave’s annual protocol revenue is ≈ $ 46.6 M; Uniswap would need ~38 % of that entire revenue stream just to break even.

🛠️ Concrete changes I’d need to flip to YES

1. Cap the grant at ≤ $1.5 M (audit + bug-bounty coverage only).
2. Milestone-based streaming – UNI vests only after specified revenue, not gross TVL, hits the fee-collector.
3. Open RFP – 30-day window so Morpho, Euler, Ajna, etc. can bid for the same integration; best economics win.
4. Dynamic rev-share – start 50/50 and ratchet to 80/20 only after Uniswap has recovered its principal.

I’m eager to back a tighter, data-driven revision – but as it stands, the risk-reward still doesn’t pencil out.

Thank you @Tane for the questions and considerations. The figures outlined in the proposal are scenario estimates rather than fixed forecasts. Capturing 50% of the TVL represents the bull-case outcome and therefore defines the final milestone. The milestone structure is intentionally front-loaded toward that 50% threshold so that the incentives and the revenue-sharing schedule are impacted once material traction is demonstrated.

GHO is proposed as the initial asset because its native fee mechanism provides flexible, onchain revenue that can be programmatically shared between the Aave and Uniswap DAOs from day one. Once Aave V4 is live, its modular architecture will allow additional assets to be integrated without re-engineering the core module, broadening borrowable options while preserving a clear fee-sharing pathway.

Under the current design, the insolvency risk is borne exclusively by the Aave DAO through its protocol liquidity. The Uniswap protocol is not exposed to such risk; its economic exposure is limited to the discretionary UNI incentives committed by its DAO. Consequently, the proposal already aligns risk with the party best equipped to manage it, while affording Uniswap upside participation through the shared-fee model described above.

Hello @Avantgarde - happy to provide more clarity around the budget, incentive strategy, and the rationale behind the delegation.

On the $3.3M UNI grant: this request is meant to cover the full lifecycle of the integration over an 18-month window. It includes continued R&D on the Uniswap V4 Position Manager, integration with Aave’s risk layer and oracle infrastructure, as well as ongoing security reviews and audits. As with any collateral-backed lending product, especially one tied to volatile LP positions, we expect multiple audit rounds. The budget also accounts for maintenance and iteration post-launch as the market evolves, and for growth efforts such as onboarding support and frontend enhancements, including integration with Aave V4, which will potentially require a new design spec and more audits.

Aave Labs has already invested heavily in the early architecture and design phases, and the grant helps accelerate full deployment. While the ask comes from the Uniswap DAO, the Aave DAO is contributing in-kind through liquidity provisioning (GHO), risk infrastructure, and operational support.

Regarding the additional UNI allocations, the goal is to drive meaningful adoption while aligning long-term governance interests. The delegation to Aave DAO ensures protocol-level alignment and involvement in the governance process. The liquidity incentives will be managed by the Aave DAO Liquidity Committee and are modeled after proven growth strategies across DeFi. The milestone-based tranches only unlock once clear usage thresholds are met, which helps maintain accountability and impact.

On the broader topic of permissionless integration versus collaboration

While it is true that products that implement similar features on top of previous Uniswap iterations exist, the broader scope of this proposal encompasses a full collaboration between the two most prominent DeFi protocols rather than a simple permissionless integration. Aave Labs believes that the current proposal brings some important benefits for Uniswap over a simple ad hoc integration:

1. This feature would be built under the Uniswap brand and become part of the Uniswap ecosystem, not as a standalone protocol - factually adding a new feature to the existing Uniswap infrastructure, rather than building a new product on top.
2. Access to the very deep Aave liquidity and battle tested risk management infrastructure; As pointed out before by some community members, it is common occurrence for Aave to become the most liquid venue for new asset classes (eg Pendle Tokens) very quickly once these assets get access to Aave liquidity. Other products require ad hoc liquidity provisioning, which is a major factor limiting their ability to scale.
3. The proposal encompasses a meaningful revshare component, exclusively generated by the borrowing demand, with the Uniswap DAO that is not present in existing products and wouldn't necessarily be present in permissionless integrations.
4. Integrating the functionality at a deeper level in the uniswap protocol, rather than for example wrapping the LP positions, allows for a more gas efficient and less convoluted implementation.

Ultimately, this proposal is meant to be a temperature check to understand if a broader collaboration between the two largest DeFi protocols is something of interest for both DAOs. Given that the tool represents a great opportunity for growth for Aave and Aave Labs already defined specification and prototype implementation, it will be implemented as a permissionless integration, should this proposal not move through - but the upside for the Uniswap DAO will be much more limited.

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.

Thank you @eek637, the Uniswap Foundation, and broader community for the thoughtful feedback. Aave Labs fully respects UF’s focus on native protocol growth through hooks and Unichain. To clarify, the grant is being requested from the Uniswap DAO, rather than the Uniswap Foundation itself. Additionally, the scope of this proposal will expand to other networks, including Unichain as a prime candidate.

After extensive technical exploration, it was concluded that the proposal cannot be easily implemented using hooks alone - which would introduce unnecessary complications and be error prone. To support risk management, oracles, and liquidations, Aave Labs built a custom position manager that integrates directly with Aave’s infrastructure. While the Uniswap interface doesn’t currently support custom managers, this module is designed to remain fully compatible with the Aave Interface.

Aave Labs has spoken with several Uniswap delegates to gather their feedback and adjust the proposal accordingly. During these conversations, it was also noted that, regarding tax concerns, the proposed fee mechanism aligns with how existing protocol fees are currently handled in the Uniswap protocol and nothing additional is needed when the fee switch goes into effect.

The proposal is an opportunity to grow the Uniswap ecosystem together with Aave’s deep liquidity and stablecoin infrastructure, benefiting both protocols.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Even after our initial questions and @AaveLabs ‘s response, our position did not change significantly.

https://gov.uniswap.org/t/rfc-aave-s-cdp-for-uniswap-v4-positions/25568/24

We generally agree with the sentiment @0xuniact provided above, and would love to share a different version of the modification, which we believe is slightly better for the Uniswap DAO.

https://gov.uniswap.org/t/rfc-aave-s-cdp-for-uniswap-v4-positions/25568/34

TL;DR

• A success-based reward structure is preferable over fixed payments.
• Considering current market benchmarks, the target of $500M in borrow appears overly optimistic.
• While detailed debate about projections isn't necessary here, it is critical to significantly reduce downside risk for Uniswap DAO.
• In bad cases, such as borrowing volume only temporarily hitting $100M (approx. $200M LP TVL), which we do not hope to happen, Uniswap DAO could lose more than $10M based on Aave's request for payment ($3.3 M cash + 2 M UNI) (Calculation shown at “Huge downside risk” section)
• Hence, we propose a reward structure that includes an initial payment of $600K in UNI tokens and a revenue-based user incentive component. This approach provides smoother and more appropriate incentives for sustained growth and mutual success.
• For Aave’s participation in Uniswap DAO governance, we would propose 50k UNI delegation from the treasury to appreciate their presence in the DAO.

Problems in the current proposal

We see three issues that must be addressed for the proposal to be economically sound for the Uniswap DAO:

• Over-optimistic TVL assumption

  The primary use case for LP token collateralization typically involves leveraged farming strategies; therefore, it is instructive to reference current and historical market sizes from comparable leveraged-farming products.

  In the Leveraged Farming category on DeFi Llama, TVL has hovered around $500 million over the past year. Even at its peak, it was only about $3 billion, and that was more than three years ago (September 2021). Similar to that, prime brokerage protocols have similar use cases (although they work differently), such as Gearbox, of which TVL has been between $80M - $400M for the past year. Thus, Leveraged-farming + “prime brokerage” TVL seems to have hovered around $0.5-1 B for the past year. Capturing 20% of that implies ~$200 M TVL and $100M borrow, which is just ≈ $4.5 M annual revenue for Uniswap DAO (if it sustains for a year).

  Once, there was a case where MakerDAO reached $1.2 billion in TVL by allowing users to use G-UNI (a wrapper for Uniswap’s DAI-USDC LP tokens) as collateral to borrow DAI. However, after that, the scale shrank. It’s worth noting that DAI-USDC at the time was a notable trading pair, both of the tokens being the market’s favorite stablecoins. When we compare it to this proposed integration, the two points are clear.

  a) Stablecoin pairs have a better chance of growing. On the other hand, volatile pairs have more difficulty in adoption as LP tokens.

  b) GHO needs to become one of the best stablecoins in the market to achieve a huge growth like Maker’s G-UNI case, or forget GHO and focus on the current best stable pairs to grow this integration.

  

• The past challenge in Aave

  Although Aave has previously allowed Uniswap LP tokens wrapper (G-UNI) to be used as collateral, the program was closed midway due to a lack of liquidity, as it says in the Aave forum, showing that the utilization of LP tokens as collateral is not quite easy.

• Huge downside risk

  If borrowing peaks at $100 M (≈ $200 M supplied LP) for just one 90-day epoch, which we do not hope to happen, Uniswap would earn around $1.1 M (= $4.5M*90/365)in rev-share yet have already spent well over $14 M ($3.3M + 1.7M UNI) (suppose 1 UNI = $6.7)when the UNI outflow is marked to market, causing more than $10M loss to Uniswap DAO.

• Competitive neutrality Revert Lend, Morpho, Euler and others already service LP-CDPs. Uniswap should avoid subsidising one large player at the expense of an open, competitive hook ecosystem.

Revised Proposal

We propose a carefully designed incentive structure aimed at aligning the economic interests of both Uniswap DAO and Aave DAO:

• Initial Costs To minimize Uniswap DAO's theoretical maximum loss, an upfront payment of $600,000 in UNI tokens will be allocated. Supposedly, this initial funding covers essential development and early-stage incentives, providing adequate resources for the bootstrap phase.

• Revenue-Sharing Model To ensure mutual success and balanced incentives, revenue sharing will be based on a fixed 50:50 split of revenue generated from the borrowing activities. This evenly split structure avoids scenarios where increased TVL growth could disproportionately disadvantage either party. Importantly, this is not limited to the GHO borrow profit, but includes all other assets borrowed by collateralizing Uniswap v4 LP tokens with this module. This is also the change that we believe to be made after the original proposal.

  Quoted from  AaveLabs

  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.

  back to top ↑

• Additional User Incentives Beyond the primary revenue split, Uniswap DAO commits to allocating an additional 10% of its received revenue as further user incentives. These additional incentives, however, will only trigger once Uniswap DAO surpasses its breakeven threshold, safeguarding the DAO from early losses.

  Furthermore, incentive payments from this additional allocation are structured to occur only once per $50M increment in borrow volume. For example, achieving a borrow volume of $100M will trigger an incentive payout, but no further payments will occur until the next increment of $150M borrow volume is reached.

  Detailed financial projections are outlined explicitly in the spreadsheet for reference.

• Aave’s participation in Uniswap DAO governance While participation by teams like Aave in Uniswap DAO governance is desirable, this integration does not justify granting as much as 550,000 UNI. As a compromise, we propose delegating 50,000 UNI tokens to the Aave DAO for a period of 2 years.

Although Aave DAO is projected to receive higher revenue in the provided financial model, the disparity is justified considering Aave's responsibilities, including R&D expenses, collateral management, and operational costs. However, ideally, as indicated by @0xuniact, additional incentives from Aave DAO would further strengthen this integration's appeal and economic viability.

Why This Works Better

This revised structure significantly improves upon the initial proposal by clearly limiting potential losses and ensuring incentives are explicitly tied to proven success metrics. Previously, the model risked significant upfront exposure for Uniswap DAO without sufficient alignment of long-term incentives.

With this new framework:

• The maximum potential loss for Uniswap DAO is explicitly capped at $600,000, reducing exposure substantially compared to previous proposals.
• Additional incentives are explicitly linked to actual revenue, avoiding scenarios where Uniswap DAO might face significant losses due to volatile borrow rates or insufficient growth.
• The fixed 50:50 revenue split ensures fairness and prevents situations where increasing TVL growth might negatively impact Uniswap DAO’s share of revenue.
• Structuring additional incentives around discrete borrow volume increments provides clear milestones and encourages consistent, sustainable growth.

We also considered milestone-based payments, but identified a potential issue; each DAO's revenue would shift dramatically at the exact moment certain thresholds were reached, creating an unintended incentive to manipulate TVL (although we assume such manipulation would not realistically occur). Instead, to encourage steady, continuous growth and adoption of this integration, we concluded that a linear, or near-linear, incentive structure is preferable.

Thus, we opted for a revenue-sharing model as the basis for DAO rewards, with additional user incentives tied directly to the amount of revenue generated.

Adjustments to this proposal remain possible pending further clarity from Aave DAO regarding their contributions, audits, and detailed development costs. Nonetheless, based on current information, we view this incentive structure as optimal for Uniswap DAO, presenting a clear improvement over the original approach.

Firstly, thank you to @aavelabs for bringing this proposal to governance. It’s clear that a lot of careful planning and effort went into it. GFX is still weighing the pros and cons, since this is a complex proposal with a lot of implications for strategic direction for both Uniswap and Aave.

This proposal raises an important strategic question for delegates: If Aave were to build this infrastructure to support LP positions on a competing DEX, how would Uniswap governance feel?

This leads to a natural follow-up question, which is the actual proposal at hand: What is the value to Uniswap governance of Aave integrating LP positions as collateral? That value is nonzero given the potential boost to LP capital efficiency and closer partnership between two of the premier brands in DeFi.

It would be useful to know if Aave Labs and Aave governance are willing to pursue a very close collaboration, or if the only thing on the table is a collateral integration that may or may not be a unique differentiator for Uniswap if other DEXes are also being approached.

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.

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.

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.

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.

Even after our initial questions and @AaveLabs ‘s response, our position did not change significantly.

https://gov.uniswap.org/t/rfc-aave-s-cdp-for-uniswap-v4-positions/25568/24

We generally agree with the sentiment @0xuniact provided above, and would love to share a different version of the modification, which we believe is slightly better for the Uniswap DAO.

https://gov.uniswap.org/t/rfc-aave-s-cdp-for-uniswap-v4-positions/25568/34

TL;DR

• A success-based reward structure is preferable over fixed payments.
• Considering current market benchmarks, the target of $500M in borrow appears overly optimistic.
• While detailed debate about projections isn't necessary here, it is critical to significantly reduce downside risk for Uniswap DAO.
• In bad cases, such as borrowing volume only temporarily hitting $100M (approx. $200M LP TVL), which we do not hope to happen, Uniswap DAO could lose more than $10M based on Aave's request for payment ($3.3 M cash + 2 M UNI) (Calculation shown at “Huge downside risk” section)
• Hence, we propose a reward structure that includes an initial payment of $600K in UNI tokens and a revenue-based user incentive component. This approach provides smoother and more appropriate incentives for sustained growth and mutual success.
• For Aave’s participation in Uniswap DAO governance, we would propose 50k UNI delegation from the treasury to appreciate their presence in the DAO.

Problems in the current proposal

We see three issues that must be addressed for the proposal to be economically sound for the Uniswap DAO:

• Over-optimistic TVL assumption

  The primary use case for LP token collateralization typically involves leveraged farming strategies; therefore, it is instructive to reference current and historical market sizes from comparable leveraged-farming products.

  In the Leveraged Farming category on DeFi Llama, TVL has hovered around $500 million over the past year. Even at its peak, it was only about $3 billion, and that was more than three years ago (September 2021). Similar to that, prime brokerage protocols have similar use cases (although they work differently), such as Gearbox, of which TVL has been between $80M - $400M for the past year. Thus, Leveraged-farming + “prime brokerage” TVL seems to have hovered around $0.5-1 B for the past year. Capturing 20% of that implies ~$200 M TVL and $100M borrow, which is just ≈ $4.5 M annual revenue for Uniswap DAO (if it sustains for a year).

  Once, there was a case where MakerDAO reached $1.2 billion in TVL by allowing users to use G-UNI (a wrapper for Uniswap’s DAI-USDC LP tokens) as collateral to borrow DAI. However, after that, the scale shrank. It’s worth noting that DAI-USDC at the time was a notable trading pair, both of the tokens being the market’s favorite stablecoins. When we compare it to this proposed integration, the two points are clear.

  a) Stablecoin pairs have a better chance of growing. On the other hand, volatile pairs have more difficulty in adoption as LP tokens.

  b) GHO needs to become one of the best stablecoins in the market to achieve a huge growth like Maker’s G-UNI case, or forget GHO and focus on the current best stable pairs to grow this integration.

  

• The past challenge in Aave

  Although Aave has previously allowed Uniswap LP tokens wrapper (G-UNI) to be used as collateral, the program was closed midway due to a lack of liquidity, as it says in the Aave forum, showing that the utilization of LP tokens as collateral is not quite easy.

• Huge downside risk

  If borrowing peaks at $100 M (≈ $200 M supplied LP) for just one 90-day epoch, which we do not hope to happen, Uniswap would earn around $1.1 M (= $4.5M*90/365)in rev-share yet have already spent well over $14 M ($3.3M + 1.7M UNI) (suppose 1 UNI = $6.7)when the UNI outflow is marked to market, causing more than $10M loss to Uniswap DAO.

• Competitive neutrality Revert Lend, Morpho, Euler and others already service LP-CDPs. Uniswap should avoid subsidising one large player at the expense of an open, competitive hook ecosystem.

Revised Proposal

We propose a carefully designed incentive structure aimed at aligning the economic interests of both Uniswap DAO and Aave DAO:

• Initial Costs To minimize Uniswap DAO's theoretical maximum loss, an upfront payment of $600,000 in UNI tokens will be allocated. Supposedly, this initial funding covers essential development and early-stage incentives, providing adequate resources for the bootstrap phase.

• Revenue-Sharing Model To ensure mutual success and balanced incentives, revenue sharing will be based on a fixed 50:50 split of revenue generated from the borrowing activities. This evenly split structure avoids scenarios where increased TVL growth could disproportionately disadvantage either party. Importantly, this is not limited to the GHO borrow profit, but includes all other assets borrowed by collateralizing Uniswap v4 LP tokens with this module. This is also the change that we believe to be made after the original proposal.

  Quoted from  AaveLabs

  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.

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• Additional User Incentives Beyond the primary revenue split, Uniswap DAO commits to allocating an additional 10% of its received revenue as further user incentives. These additional incentives, however, will only trigger once Uniswap DAO surpasses its breakeven threshold, safeguarding the DAO from early losses.

  Furthermore, incentive payments from this additional allocation are structured to occur only once per $50M increment in borrow volume. For example, achieving a borrow volume of $100M will trigger an incentive payout, but no further payments will occur until the next increment of $150M borrow volume is reached.

  Detailed financial projections are outlined explicitly in the spreadsheet for reference.

• Aave’s participation in Uniswap DAO governance While participation by teams like Aave in Uniswap DAO governance is desirable, this integration does not justify granting as much as 550,000 UNI. As a compromise, we propose delegating 50,000 UNI tokens to the Aave DAO for a period of 2 years.

Although Aave DAO is projected to receive higher revenue in the provided financial model, the disparity is justified considering Aave's responsibilities, including R&D expenses, collateral management, and operational costs. However, ideally, as indicated by @0xuniact, additional incentives from Aave DAO would further strengthen this integration's appeal and economic viability.

Why This Works Better

This revised structure significantly improves upon the initial proposal by clearly limiting potential losses and ensuring incentives are explicitly tied to proven success metrics. Previously, the model risked significant upfront exposure for Uniswap DAO without sufficient alignment of long-term incentives.

With this new framework:

• The maximum potential loss for Uniswap DAO is explicitly capped at $600,000, reducing exposure substantially compared to previous proposals.
• Additional incentives are explicitly linked to actual revenue, avoiding scenarios where Uniswap DAO might face significant losses due to volatile borrow rates or insufficient growth.
• The fixed 50:50 revenue split ensures fairness and prevents situations where increasing TVL growth might negatively impact Uniswap DAO’s share of revenue.
• Structuring additional incentives around discrete borrow volume increments provides clear milestones and encourages consistent, sustainable growth.

We also considered milestone-based payments, but identified a potential issue; each DAO's revenue would shift dramatically at the exact moment certain thresholds were reached, creating an unintended incentive to manipulate TVL (although we assume such manipulation would not realistically occur). Instead, to encourage steady, continuous growth and adoption of this integration, we concluded that a linear, or near-linear, incentive structure is preferable.

Thus, we opted for a revenue-sharing model as the basis for DAO rewards, with additional user incentives tied directly to the amount of revenue generated.

Adjustments to this proposal remain possible pending further clarity from Aave DAO regarding their contributions, audits, and detailed development costs. Nonetheless, based on current information, we view this incentive structure as optimal for Uniswap DAO, presenting a clear improvement over the original approach.

Firstly, thank you to @aavelabs for bringing this proposal to governance. It’s clear that a lot of careful planning and effort went into it. GFX is still weighing the pros and cons, since this is a complex proposal with a lot of implications for strategic direction for both Uniswap and Aave.

This proposal raises an important strategic question for delegates: If Aave were to build this infrastructure to support LP positions on a competing DEX, how would Uniswap governance feel?

This leads to a natural follow-up question, which is the actual proposal at hand: What is the value to Uniswap governance of Aave integrating LP positions as collateral? That value is nonzero given the potential boost to LP capital efficiency and closer partnership between two of the premier brands in DeFi.

It would be useful to know if Aave Labs and Aave governance are willing to pursue a very close collaboration, or if the only thing on the table is a collateral integration that may or may not be a unique differentiator for Uniswap if other DEXes are also being approached.