Your Aave collateral can become a liquidity position
Collateral sitting at Aave earns the supply rate and nothing else. Two operations move it into a leveraged Uniswap range without you ever holding it.
In short: Your collateral at Aave earns only the supply rate, and moving it into a Uniswap range by hand does not work: the collateral stays locked until the loan is repaid, and the collateral is the money you would repay it with. Two operations do it in one transaction, into a new range or one you already hold, using a flash loan from Morpho, money borrowed and paid back in the same transaction. The loan moves with it and is now backed by the Uniswap position, rather than being paid down. It works with Aave v3 only, and the pair must be one the system already lists.
Collateral parked at Aave does one thing: it earns the supply rate and backs whatever you have borrowed. That is a reasonable place for it to sit and a dull one.
Moving it into a liquidity position by hand is blocked. To withdraw collateral you must first repay enough of the debt it backs, and the money to repay that debt is the collateral. The same chicken-and-egg problem that stops you refinancing stops you redeploying.
Two ways across
- Into a new range
- Repay Aave with borrowed money so the collateral can be withdrawn, mint a Uniswap range with it, and let the new position carry the borrowing instead. You name the fee tier and both ticks
- Into a range you already hold
- Clear the existing borrow so the position can accept more liquidity, add the Aave collateral to it, then restore the borrow
Both run inside a single transaction funded by a flash loan from Morpho. The debt is repaid, the collateral is released, the position is built, and the borrowing is re-established against the new position, with the flash loan repaid from that borrowing before the transaction ends.
What you are choosing
Moving into a new range means naming the fee tier and the two ticks, and those are the whole strategy. A wide range collects less and needs less attention; a narrow one collects more per dollar and stops collecting the moment price leaves it.
Fee tiers are named in the pool’s own millionths rather than basis points, which trips people
up constantly: a 0.05% pool is 500, not 5.
Adding to a range you already hold takes no ticks at all, because the range already exists. It is the cheaper operation and the less consequential decision.
The way back
The same road runs in the other direction. A liquidity position can be closed directly into an Aave position (as a long, a short, or a single collateral), which is its own article.
Between the two, an asset can go from lending collateral to levered liquidity and back without being sold on either leg, and without you holding it in between.
Where this stops
- Aave v3 only. Both directions read and write v3 positions; there is no v4 version of either, and on Base and Arbitrum v3 is the only Aave available anyway. The pair also has to be one the system already curates.
- A Safe cannot run either one, both being flash-funded and the callback needing a module.
- The unwind minimums are required. A liquidity burn settles at the pool’s price at that instant, and those minimums are the only bound on it, so a zero is refused on the chain rather than treated as “no preference”.