This is a proposal to authorize Aera to whitelist Aerodrome for deposit from the liquidity vault on Base. The Aerodrome MORPHO/WETH pool is currently supporting more volume than the Base Uniswap v3 pool (see image below) despite substantially smaller TVL, and additionally receives AERO incentives, which could be used to further enhance the onchain liquidity of the MORPHO token. Given the efficiency of the existing pool, this could be a valuable addition to the protocol’s onchain liquidity toolkit.
This proposal does not specify an amount of liquidity to allocate to Aerodrome, as this will be based on Aera’s analysis and rebalanced as needed within the amount of capital allocated to the vault on Base.
Thank you for bringing this proposal. We appreciate the effort. Based on the proposal, we have the following question:
When whitelisting Aerodrome, is the intention to migrate liquidity provision from the Uniswap v3 pool on Base to Aerodrome, or will the liquidity provision on Uni v3 pool remain active alongside that on Aerodrome?
This proposal appears to be an extension of the POL Strategy proposal. Please collect us if that’s wrong.
We believe that having one large pool capable of handling significant trades would result in deeper liquidity and reduced slippage compared to multiple smaller pools, and thus it would be more effective.
Considering Aerodrome’s current higher trading volume, there seem to be two possible approaches:
Strengthening Uni v3 liquidity to encourage a shift in MORPHO trading volume back to Uni v3.
Deepening liquidity on Aerodrome to further support its trading activity.
In this case, supporting liquidity on Aerodrome seems to better align with market demand compared to promoting the growth of Uni v3. Therefore, if the focus is on providing liquidity through Aerodrome, we agree with this direction.*
*This does not necessarily mean that Uni v3 on Base should be removed from the whitelist. It is possible that liquidity provision may need to be reallocated based on market conditions, and we should not lose the flexibility to adapt to such changes.
We would appreciate it if you could provide additional context or clarify these points. Thank you again for your efforts in proposing this.
Thank you for your feedback. This proposal does not specify a certain amount of liquidity for Aerodrome since the Aera vault managers are responsible for optimizing the allocation of liquidity between the whitelisted venues, so they may allocate all to Uniswap, all to Aerodrome, or a mix according to what the data indicates is the best approach, and vary these allocations over time.
One thing to consider is that many larger swaps proceed using aggregators, so it may not be a problem to have liquidity in multiple pools, whereas smaller swaps are more likely to proceed directly from a DEX UI, in which case they may benefit from having liquidity in more than one popular venue.
Additionally, the AERO rewards on Aerodrome offset the LVR cost for liquidity provision, so the Aera vault may be able to provide deeper liquidity around the current price there without incurring excess LVR.
I’ve learned that the Aera vault will also support locking + voting with AERO rewards received on the liquidity position, so this can also be considered within the scope of this proposal.
