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Four-Way Earning From a Single Investment With Aave on Polygon

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Avatar for drubid
Written by   40
1 year ago

This is the defi experience you’re looking for

Remember, like, a year ago, when it was common financial advice to stuff your liquid savings into a “high-yield” savings account so it could earn something like 1% APR? The world of cryptocurrency says, No more!

The rise of Ethereum, with its smart contracts, has ushered us into a new era of decentralized finance. The community governs the rules. The people provide the liquidity and collect the fees, and eligibility for borrowing is obtained by providing collateral rather than private evaluations based on income and credit scores.

It’s not a perfect system, though. Fees and scalability problems have plagued Ethereum. Executing a smart contract could easily cost $50 or more, making it inaccessible and impractical for transacting with smaller amounts.

That’s where projects like Polygon come into the picture. Polygon is developing several solutions to alleviate Ethereum’s scalability issues, one of which is their Matic proof-of-stake (PoS) blockchain.

Aave is one of the more established players in the Ethereum defi ecosystem, and they recently launched on Polygon’s Matic network. In this story, we’ll take a look at the steps needed to move assets onto the Matic chain and explore some of the benefits and capabilities that exist today with QuickSwap and Aave.


The Matic Bridge

Matic is a layer-2 solution, but what does that mean? Think of Disney World. It’s a single place to visit, but it’s broken into separate parks like the Magic Kingdom and Hollywood Studios. There are common features shared across the parks, but they are standalone worlds for all intents & purposes.

Now imagine that each of these parks had its own currency. When you enter the park, you need to convert the money you wish to spend into the “native” currency, and you can convert it back when you exit.

That’s kind of how these layer-2 chains work. To transact with Aave on Polygon, you must first convert your funds through the Matic Bridge. This is both a blessing and a curse. It may seem like an inconvenient process, but it’s what allows you to escape the fees and slow transaction speeds of Ethereum. Sticking with our amusement park analogy, you pay an Ethereum “admission fee.” Then you’re able to move freely and transact much more quickly and cheaply using MATIC instead of ether.

Recent upgrades have improved Ethereum’s fees slightly, and I moved $100 through the Matic Bridge for about $10.


First stop: QuickSwap

Once I was through the bridge, I had about $90 of WETH (wrapped ether), and I was also gifted 0.001 MATIC, which is roughly equivalent to $0.0004 but more than enough to pay for a good number of transactions.

I immediately hopped over to QuickSwap to split my ether into several other coins. This is where you really start to feel the magic. I swapped about $20 into QuickSwap’s native token, QUICK, to stake in their Dragon’s Lair, where it will continually gain a small percentage of all fees collected from all transactions on QuickSwap. The transaction was super fast and cost just a fraction of my 0.001 MATIC. Awesome.

Next, I wanted to provide funds to the MATIC-QUICK liquidity pool to earn additional QUICK from the incentivized rewards pool. This was a four-step process:

  1. Swap about $10 of WETH to MATIC

  2. Swap about $10 of WETH to QUICK

  3. Deposit liquidity to the MATIC-QUICK pool

  4. Stake the resulting LP token in the rewards pool

Again, those transactions were all speedy and cost virtually nothing — a far better experience than doing the same operations on the main Ethereum network!


Onward to Aave

I was having a grand ol’ time on QuickSwap, but Aave was my final destination, where I planned to invest small amounts of USDT and MATIC. So, I did two more QuickSwap quick swaps: $30 to USDT & the rest of my WETH to MATIC.

The Aave experience was really great, too. I deposited USDT to earn a 6% APR and a bonus APR of 16% paid in MATIC. (USDT is a stablecoin, which means no volatility, and it’s earning greater than 20% — how’s that for high yield?)

I also deposited $20 of MATIC to earn 2% APR plus an additional bonus APR of 8%. These rates are somewhat less impressive since I can earn 14% APR by stashing my MATIC in Celsius. 10% is still pretty good, though, and the assets are much more accessible than they would be in Celsius — so there’s something to be said for that.

These were my first experiences with Aave, and they were great. Everything “just worked” and felt polished and good, and I’m looking forward to what comes next.


What comes next?

QuickSwap was good. Aave was good. Put them together, though, and things start to get even more interesting. You see, when you deposit assets on Aave, you receive an interest-bearing token. In my example, I deposited USDT and received amUSDT in return. Later, when it’s time to cash out, I’ll exchange my amUSDT to receive my original USDT plus the interest it’s earned.

QuickSwap has announced that they’ll be introducing “vam” tokens to add another layer of value (the “v” is for “value”) to those “am” tokens from Aave. You’ll be able to stake your “am” tokens to earn QUICK from QuickSwap!

So, let’s look at the cascading-rewards picture that comes together with all this:

  • Initial investment; earn ARP from Aave

  • Earn bonus MATIC from Aave

  • Earn bonus QUICK by staking your “am” coins with QuickSwap

  • Earn more QUICK by staking rewards in QuickSwap’s Dragon’s Lair

And, all this earning can happen from stablecoins! That’s a pretty impressive setup!


Given Ethereum’s fees woes at the beginning of the year, I was immediately drawn to Polygon. However, as the weeks passed, I began to wonder if these layer-2 solutions would become obsolete with the eventual introduction of Ethereum 2.0. Brief research, which included commentary from Vitalik himself, reassured me that layer-2 solutions aren’t going anywhere and will continue to be a key component of the future.

With that in mind, I’ve been able to embrace the Polygon experience fully. The ecosystem is growing rapidly, and the emergence of QuickSwap and Aave helps to solidify the sub-chain’s position as a premier destination.

As we move into Ethereum 2.0 and fees become less of an issue on the layer-1 mainnet, these subnets won’t go away. Instead, we’ll be able to move between them freely and seamlessly — like an all-access pass to Ethereum World.


This story was originally published on This Crypto Life on April 27, 2021.

Lead image by Clint Adair on Unsplash

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1 year ago
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Comments

"...commentary from Vitalik himself" Please do you have a link to Buterin's comment on the potential relevance or irrelevance of Layer solutions after Ethereum 2.0.

I am avoiding investing in any Layer2 solution because I'm of the opinion that they will become obsolete or at best, less relevant when Eth2 launches.

So a word from Buterin on that topic will be something I would like to read.

$ 0.00
1 year ago

Here's an article from Decrypt where he discusses it: https://decrypt.co/60878/vitalik-buterin-touts-100x-scaling-solution-for-ethereum

There are some good reddit posts about the longevity of layer-2 solutions, but the tldr is that they amplify scalability. It's not one solution vs another; they work together to make everything even better.

$ 0.00
1 year ago

Thanks.

I read it and it's clear that he repeatedly said that these solutions will help Ethereum to scale until Sharding is introduced in ETH2.0.

  1. “very soon” and that in the mid-term, while sharding is being prepared for implementation, it will help the Ethereum blockchain to scale by a factor of 100. ~Vitalik. Meaning, in the long-term, when sharding is implemented, Ethereum will need to help to scale.

  2. "If you have rollups, but you do not have sharding, you still have 100X factor scaling," ~Vitalik. Meaning with sharding I don't need rollups anymore.

  3. "Sharding is touted to be the most promising solution to Ethereum’s scalability problems, but it’s not coming any time soon. ...That means another solution has to be found before the transition from the current proof-of-work chain is complete." ~Decrypt. Meaning, after the transition to ETH 2.0 is complete that another solution will no longer be needed.

You can see why I'm still not satisfied that Layer solutions will be relevant after ETH2.0.

However, I am looking to learn more about the multiple earning potentials that you mentioned in your post. That seems to be the only positive light I am seeing with L2 solutions right now.

$ 0.00
1 year ago

Looks promising and enticing.

$ 0.00
1 year ago