How to Stake & Earn AAVE on Bancor v2.1

This article was first published on Bancor - Medium

This guide shows you how to stake and earn AAVE in the single-sided AAVE liquidity pool on Bancor v2.1.

Bancor v2.1 is a dramatic improvement over the existing AMM model, as LPs can now stay long on their tokens and earn swap fees without having to worry about price movements reducing the value of their stake.

Single-sided liquidity

Bancor v2.1 allows liquidity providers to stake in the AAVE liquidity pool on and maintain 100% exposure to AAVE, instead of taking on exposure to a separate paired asset like ETH.

This allows LPs to stay long on their tokens while earning:

  • AAVE swap fees
  • liquidity mining rewards*
  • impermanent loss insurance

*The AAVE pool was recently selected for BNT liquidity mining. Once the pool receives $400K USD in liquidity, it starts receiving 10K–20K BNT per week as well as up to 1M+ BNT in impermanent loss insurance. If the pool’s insurance limits are reached, adding single-sided AAVE requires more BNT being provided by users, or the insurance limits to be increased by governance

Impermanent Loss Insurance

Impermanent loss insurance accrues for LPs over time, increasing 1% per day until 100% insurance (full protection against IL) is achieved after 100 days in the pool.

Meaning, if you stake 100 AAVE in the pool for 100 days, even if AAVE moons, you’ll still get the equivalent value of 100 AAVE back — plus swap fees & rewards. Learn more about impermanent loss insurance.

The chart below shows the impact of impermanent loss on LP returns in the AAVE/ETH pool on Uniswap, November 5-December 23, 2020. All else held equal, Bancor’s impermanent loss insurance protects against periods of negative returns and improves profits for LPs nearly 3X.

LP returns in the AAVE/ETH pool on Uniswap, November 5-December 23, 2020. Bancor’s ...

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