Meet
Avana

The idea of using LP positions as borrowable collateral is not new. Previous attempts proved demand but failed to fully solve valuation, liquidation, and risk isolation. Avana exists because those three constraints can now be addressed directly.

In 2021, Aave launched its Avana, allowing Uniswap v2 and Balancer LP tokens to be used as collateral. The model arrived before the surrounding infrastructure was ready. DEX liquidity was thinner, pool design was less mature, and risk frameworks were still too blunt to capture what LP positions actually were.

Additionally, Gelato's G-UNI wrapped Uniswap v3 NFT positions into fungible ERC-20 tokens, restoring composability across DeFi. Later, MakerDAO's DAI pool reached over $1B in TVL but ultimately declined, citing oracle fragility, liquidation complexity, and insufficient risk isolation.

Years later, in 2026, Aave returned with a new proposal to Uniswap: CDPs for Uniswap v4 Positions. The proposal ended up stalling, and adoption remained constrained by the same unresolved challenges.

The conditions that made LP collateral difficult a few years ago are not the same conditions that exist now. AMMs are more mature, liquidity is deeper, and the market has accumulated years of data on how LP positions behave across stable, correlated, and volatile pairs. Oracle infrastructure has improved, liquidation systems are more sophisticated, and market participants are far more familiar with structured DeFi collateral than they were during earlier experiments.

Just as important, Aave v4 creates the right architectural environment for this model. Its hub-and-spoke design allows LP-specific valuation, risk controls, and liquidation logic to live inside dedicated spoke markets without forcing all collateral types into a single shared implementation. That makes it possible to support LP collateral in a way that is modular, isolated, and scalable.

Avana is a lending protocol built specifically for LP collateral. It allows AMM liquidity providers from Uniswap, Balancer, Curve, or Aerodrome to deposit supported LP positions, have those positions evaluated inside market-specific risk frameworks, and borrow against them while the positions remain active in the underlying pools.

The closest comparable system is Fluid by Instadapp. Fluid's innovation is a unified liquidity layer where debt and collateral themselves become DEX liquidity inside a vertically integrated system. Avana's innovation is different: it makes third-party AMM LP positions from across venues into borrowable collateral inside a horizontally aggregative system. Fluid owns the liquidity rails. Avana works with the rails that already exist across the ecosystem. The distinction becomes clear when you ask where the liquidity lives, who controls the infrastructure, and what exactly is being collateralized.

At a high level, Avana operates through three steps.

First, a user deposits an LP position into Avana. This can be any pool position from supported AMMs such as Uniswap, Balancer, Curve Finance, or Aerodrome Finance, depending on the phase and supported markets.

Second, Avana evaluates the LP position to determine its risk-adjusted collateral value. The protocol checks the value of the underlying pool assets, the structure of the liquidity pool, asset volatility, correlation between the assets in the pair, and overall liquidation risk. Avana relies on LP valuation models, conservative borrowing limits, oracle-based pricing, and automated liquidation mechanisms to ensure that LP positions can function safely as collateral.

Third, once the position has been evaluated, the user can borrow assets against it. The liquidity remains active inside the AMM and continues earning trading fees and incentives while also serving as collateral. This allows LPs to access liquidity without withdrawing liquidity from the AMM; the LP position itself becomes the collateral inside Avana.

Avana is designed as a multi-phase protocol that evolves over time to progressively expand what LP collateral markets can do. Phase 1 introduces Token Markets. Phase 2 expands into Leverage / Perps Markets. Phase 3 unlocks Pool Markets.

The first phase introduces Token Markets. In this phase, users deposit LP positions as collateral and borrow single assets such as stablecoins or other supported tokens.

The second phase introduces Leverage / Perps Markets. In this phase, a user deposits an LP position, borrows against it, and opens managed leverage or perps exposure within defined risk limits while the protocol coordinates execution and risk management.

The third phase introduces Pool Markets. Instead of borrowing only single assets, users can borrow liquidity pool pair positions that are themselves productive capital. Borrowed funds can therefore be deployed directly into liquidity strategies, making the borrowed capital more useful within decentralized finance.

Avana is built on Aave v4's hub-and-spoke architecture because LP collateral needs both shared liquidity and isolated logic. The hub handles the common monetary layer: reserves, accounting, interest rate models, and global credit coordination. The spokes handle everything LP-specific: AMM pool collateral registration, LP position valuation, pool risk enforcement, and AMM pool liquidation execution.

A conceptual credit line from different Aave Hubs might look like this.

This separation is essential because LP positions vary significantly across venues and pool types. A concentrated Uniswap position does not behave like a Balancer weighted pool. A Curve stable position does not behave like a basic stable Aerodrome pool. Each supported LP market can therefore define its own valuation logic, collateral parameters, oracle inputs, and liquidation rules. Avana isolates risk, tailors valuation models, and evolves support pool by pool without forcing the entire protocol to inherit the same assumptions.

Avana Phase 1 will begin with a narrow set of highly legible AMM LP markets, while future versions add broader AMM support, more complex borrowing formats, and eventually loop-based leverage. In practical terms, the user experience remains simple. A user deposits a supported LP position, the protocol evaluates it using the market-specific logic assigned to that pool type, and borrowing capacity is made available based on the resulting risk-adjusted value.

For Borrowers

Avana Borrow Spokes are organized into specialized LP collateral markets, with each spoke aligned to a specific liquidity primitive or market structure. This allows the protocol to isolate collateral valuation, liquidation logic, and parameter design across different forms of AMM liquidity while still drawing borrowable capital from a shared liquidity layer.

That structure matters because not all LP positions behave the same way. Stable pools, correlated asset pools, weighted index pools, and concentrated liquidity positions each introduce different forms of pricing behavior, liquidity depth, liquidation complexity, and downside risk. By separating these markets into dedicated spokes, Avana can support a wide range of LP collateral types without flattening them into a single generic framework.

This is how Avana balances breadth with discipline. It can expand support across venues and pool designs while preserving market specific controls over collateral admission, borrowing power, risk limits, and liquidation execution. Borrowers benefit from broader LP support. The protocol benefits from cleaner isolation and more precise risk management.

TVL snapshots below are included as quick opportunity markers so investors can see why these LP venues matter for launch sequencing.

Together, these 15 borrow spokes enable Avana to support the full spectrum of modern AMM liquidity, from stablecoin pools and liquid staking markets to concentrated liquidity and governance-token ecosystems, positioning Avana as a dedicated lending protocol for AMM liquidity.

For Lenders

Avana Invest Spoke is the single spoke that functions as the capital entry point of the protocol, allowing users to supply crypto assets that power borrowing across all LP-collateral markets. Investors deposit assets such as ETH, BTC, and major stablecoins into the Invest Spoke, which routes liquidity to the Avana Hub. From there, the Hub allocates credit across the various LP-collateral spokes, enabling borrowers to draw liquidity against their active liquidity positions on decentralized exchanges. This design separates capital supply from collateral management, allowing investors to participate in the lending market without needing to manage LP positions, impermanent loss, or liquidity ranges.

During the early stages of Avana, the Avana Hub may be supported by credit lines from the Aave Hubs, including the Core, Prime, and Plus hubs, to bootstrap liquidity and ensure deep borrow markets from day one. As borrowing activity grows and the protocol matures, the Invest Spoke is expected to become the primary liquidity source, with investor deposits increasingly supplying the capital used by LP borrowers. Over time, this structure creates a scalable capital market where lending liquidity flows efficiently through the Hub while remaining isolated from the risk dynamics of individual LP-collateral markets.

Liquidity provider (LP) collateral behaves fundamentally differently from traditional lending collateral. Its value is not static. Instead, it evolves continuously with pool composition, price divergence between paired assets, and impermanent loss dynamics that can accelerate faster than conventional volatility models anticipate. Any lending framework that treats an LP position as a simple token balance is structurally incomplete.

Avana addresses this by assigning risk at the market level rather than the asset level. Each supported LP type is configured with collateral parameters derived from the structure of the pool and the historical behavior of its underlying assets. Pools composed of stable or highly correlated assets may support higher borrowing capacity, while volatile or thinly traded pairs require stricter limits. Concentrated liquidity positions are generally treated more conservatively than fungible or wide-range liquidity exposure because of the additional directional risk introduced by narrow tick ranges.

When a user deposits an LP position, the corresponding Borrow Spoke determines borrowing capacity by valuing the position in USD using a dual-oracle pricing framework. Chainlink price feeds provide the primary price reference for the underlying assets, while AMM-derived time-weighted average prices (TWAPs) act as an independent verification layer sourced directly from on-chain liquidity.

Borrowing power is granted only when both pricing sources remain within a defined tolerance band. Requiring agreement between external oracle data and AMM-derived pricing significantly reduces exposure to flash-loan manipulation, transient price distortions, or delayed oracle updates that could otherwise lead to incorrect collateral valuation.

Avana's oracle architecture spans multiple layers to ensure redundancy, price integrity, and resilience under market stress.

Beyond price verification, Borrow Spokes continuously monitor pool composition, volatility, liquidity depth, and oracle reliability. These inputs inform dynamic adjustments to loan-to-value (LTV) ratios and liquidation thresholds on a per-position basis. This adaptive framework balances capital efficiency with systemic safety while acknowledging that pools, oracle systems, and even protocols themselves can fail.

The system is designed with failure assumptions in mind. Dual-oracle verification prevents toxic pricing events, adaptive liquidation mechanisms minimize capital loss without abruptly removing liquidity from pools, and continuous monitoring allows the protocol to respond to evolving market conditions.

Avana earns from two sources.

The first is a share of liquidation penalties on the LP positions it enables. Unwinding these positions properly with oracle validation, controlled execution, and slippage management requires purpose-built infrastructure, and the protocol is compensated for providing it. This also means Avana's economic incentives are aligned with conservative risk management: the better it protects positions, the fewer liquidations occur, and the more borrowers trust the system over time.

The second source is optional frontend fees through Avana's official interfaces, structured identically to Uniswap's frontend fee model. These fees are entirely separate from Aave's lending economics, have no effect on borrow or supply rates, and can be bypassed entirely by anyone building or using a self-hosted interface. The protocol is open and permissionless.

In every scenario, Aave Hub captures all borrow interest while Avana earns a usage-driven revenue stream tied to the LP collateral layer it enables. As adoption grows, GHO demand grows alongside LP-backed borrowing, reinforcing the credit flywheel and making LP collateral a meaningful new surface area for DeFi lending.

Avana directly executes on the strategic vision outlined by Aave Labs' "CDP for AMM Positions" proposal, extending it beyond a single DEX or pool design to encompass the entire multi-billion-dollar AMM ecosystem.

By connecting DEXs and lending markets, Avana transforms the deepest liquidity pools in DeFi into collateralized debt positions, turning AMMs from passive trading venues into active credit engines. The infrastructure is now mature enough. The demand has been validated across multiple cycles. The risk models exist to do this safely at scale.

Avana's vision expands over time through pool borrowing and structured leverage, but it begins with a simpler and more important first step. Phase 1 proves that LP positions can be valued, risk-managed, and liquidated safely enough to serve as real collateral. Once that foundation is established, AMM-backed credit will become a meaningful new layer of DeFi lending.

This section contains governance discussions, historical implementations, research links, prior LP collateral proposals, and extended market context referenced throughout the paper.

Governance Discussions

Old Implementation