Key Takeaways
Constant function market makers (CFMMs) such as Uniswap, Balancer, and Curve, among many others, make up some of the largest decentralized exchanges on smart contract platforms like Ethereum.
As the amount of capital deposited in these protocols has grown, one way to improve efficiency is to allow LPs to borrow Ether or USD against their shares in a CFMM protocol.
In this note, we investigate the security and capital efficiency of allowing such lending by providing sufficient conditions for LP borrowing to be at least as secure and capital efficient as direct borrowing in Aave/Compound.
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