Aave DeFi lending protocol has had an amazing 2021. So far, over $7.4B of liquidity is now locked in Aave.
A new wave of layer 2 protocols however has emerged and is driving the current DeFi wave, most notably Polygon (formerly Matic), which has so far brought over $1 billion into Aave – less than a month since platform implementation.
While Aave was born and raised on Ethereum Layer 1, high transaction fees have made it unsustainable and less inclusive alternative to traditional finance ultimately limiting DeFi to a few high network users.
This is where Layer 2 protocols like Polygon enter the game.
Polygon is a scalable sidechain of Ethereum that allows fast and nearly-free transactions with its own layer 2 decentralized exchange called QuickSwap. The addition of a Polygon Bridge allows for the transfer of assets from Ethereum to Polygon.
MetaMask users will simply add the Polygon network and enjoy the nearly free transaction costs on Polygon, and by extension, Aave among other protocols integrating Polygon.
Below is basic breakdown of the costs on Aave Polygon:
Deposit AAVE : $0.000061
Borrow USDC : $0.000102
Withdraw AAVE : $0.000109
Repay USDC : $0.000072
By comparison, a basic Ethereum transaction will incur a gas fee of about $20.
In addition to low costs, transaction speeds on Polygon are super fast making it quite efficient for quick token swaps.
Being able to interact with Ethereum without worrying about gas fees is a game changer and Layer 2 protocols like Polygon are enabling this as DeFi matures and lives up to its ethos of inclusive finance for everyone.
NB: Look out for a training video coming soon on how to connect Polygon onto your MetaMask and leverage Layer 2 protocols