Polygon Defi Ecology: Which protocols are worth trying?
What are the most interesting protocols to play on Polygon? Get started in 20 minutes!
By Ryan Sean Adams, co-founder of Bankless
Translation: screen
With the sharp increase in the price of Matic, Polygon became a hot topic of discussion in the currency circle.
Polygon's growth has been absolutely explosive in recent weeks, with more than $8.9 billion in value locked up, and new and old protocols being deployed every day. Polygon is certainly living up to the hype, trading at lightning speed and low prices. As more applications of the Ethereum L1 we know and love are deployed on it, users are starting to reap the rewards of composability.
If you want to know what you can do with the burgeoning Defi ecosystem, check out this guide and get your first app up and running in 20 minutes. In addition to seeing all the things you can only do on Polygon, you can also see how much gas you can save on Polygon.
Security tips before using Polygon
Before you use Polygon or any other network, it's important to understand its architecture and the security assumptions you need to make. After all, this is new technology, so use it at your own risk!
Polygon provides a generic framework that allows developers to create custom, application-specific chains and provides an interoperable network that combines various scaling solutions such as zk-rollups, optimistically rollups, and side chains. The Polygon POS chain was Polygon's first product and gained a lot of traction. This chain is halfway between a side chain and a pure two-layer scaling solution such as Rollup, fully inheriting the security of the main chain.
Polygon is secured by a POS mechanism, where validators invest their Matic tokens into smart contracts, which are hosted on the Ethereum mainchain. More than $2.6 billion of Matic is currently pledged in these contracts.
To get money from Ethereum to Polygon, you have to go through what's called a "bridge." In short, bridging works through the use of lockcoins and coinage. When you deposit funds into the bridge, they are actually saved (locked) in a contract on Ethereum, which is then recreated (minted) on Polygon. If you want to withdraw funds, you have to go back across the bridge. When doing so, the tokens you send over the bridge will burn on Polygon and funds in the Ethereum contract will be unlocked.
In Polygon, you can choose between two types of Bridges: Plasma and PoS.
The Plasma bridge inherits the security of Ethereum's main chain; however, it takes seven days to complete the withdrawal process. The POS bridge is secured by the same group of verifiers and the pledged MATIC to ensure the safety of the chain itself, and the withdrawal time is about three hours.
Tying it all together, holding Mortgage Matic's contract is responsible for the chain's security and locking up the funds at the POS Bridge. This is important to keep in mind because both pledge and bridge contracts can be changed using a proxy controlled by a multi-signature wallet.
This wallet was originally a 2/3 multi-signature, but has now been upgraded to a 5/8 scheme. Recently, the team confirmed that four of these signers are co-founders of Polygon, and four are notable members from other Polygon Defi projects.
This is a centralized vehicle, and certainly a risk factor to consider when deciding to use Polygon. If this wallet is compromised, the security of the network, and the ability to move money back to Ethereum, will be seriously threatened.
In addition to multiple signatures, about 31 percent of the Pledged Matic is delegated to a node run by Binance. The centralization of this pledge is another factor to keep in mind when deciding whether to move to Polygon.
How to use Polygon
Before using Polygon, you need to take a few steps. First, configure the network in the wallet, and then as described above, you have to use one of two Bridges to transfer funds from Ethereum L1. Here are some guidelines:
Add the Matic mainnet to MetaMask
Use the MATIC POS bridge to migrate capital
Where does Polygon go first
Trading and providing liquidity on QuickSwap
Decentralized Exchanges (DEXs) are at the heart of any blockchain-based financial system. Dex QuickSwap on Polygon is no exception. As a fork of Uniswap V2, QuickSwap has exploded in popularity in recent days. The name Quick certainly lives up to the name: Since Polygon's average block time is 2.1 seconds, transactions on QuickSwap are confirmed in the blink of an eye.
In recent weeks, the agreement has attracted more than $650 million in liquidity, while handling between $150 million and $250 million in trading volume per day. As a result, QuickSwap earns hundreds of thousands of dollars a day in fees for its liquidity providers.
There are now more than 100 incentive pools for LPs wishing to earn income in addition to transaction fees, and the LPs in these pools can earn Quick rewards, native governance tokens of QuickSwaps, as well as a 0.25% transaction fee.
In addition, similar to Sushibar on Sushiswap, Quick holders can pledge their Quick tokens for a transaction fee of 0.04% generated by the agreement in the form of Quick tokens.
Savings on gas bills
Although DEX is one of the cheapest DEFI protocols to use, they are still not suitable for small transactions. At current gas prices, the transaction cost on Uniswap is about $30- $80, while the cost of providing liquidity for the agreement is usually more than $100.
These costs are significantly reduced on QuickSwap. The cost of trading and providing liquidity is both $0.0002, which means trading on Polygon is 435,000 times cheaper than trading on the Ethereum layer, and starting an LP position is 785,000 times cheaper!
That means users can trade or LP regardless of their balance without worrying about gas fees taking a big chunk out of their profits!
Make a loan at AVE
AVE was one of the first major DEFI projects to announce deployment to Polygon. Since the announcement, AAVE has attracted more than $5.1 billion in liquidity on Polygon.
Just like AAVE did with Ethereum L1, users can deposit assets into the agreement and use them as collateral to borrow.
AAVE's Polygon Marketplace currently supports deposits in seven assets: USDT, USDC, DAI, WBTC, WETH, Matic, and AAVE, as well as all loans except for the latter. Although staking is limited compared to the Ethereum market, and currently does not support staking or collateral swap, users can still borrow on some of the most liquid assets in DEFI in order to make farm yield and leverage long or short assets.
You can also earn Matic by using the agreement, and 1% of Matic's total supply will be allocated to AAVE users, with annual interest rates typically ranging from 5 to 15%.
Savings on gas bills
The gas savings from using AVE on Polygon are even more noticeable than QuickSwap. At current gas prices, it costs about $95 to deposit money into AVE on Ethereum L1, while borrowing gas costs more than $125, meaning that both the deposit and loan operations are done and the cost is more than $200.
On Polygon, these combined costs are reduced 235,000 times, as the cost of saving and borrowing is just $0.001.
Trading and providing liquidity on Curve
Curve is the other major DEFI project, recently deployed on Polygon. While it doesn't offer the full, crazy pool that we have on Ethereum L1, Curve currently offers a single Polygon pool called "AVE," Users can save the aTokens they receive from the Polygon version of the AVE.
With a single click, users can deposit and pledge ADAI, AUSDC, or AUSDT (or directly deposit non-AToken versions of these assets) to earn a 0.02% fee on each transaction, as well as Matic rewards. The pool has attracted more than $464 million in liquidity and facilitated $50 million in transactions per day. In addition, the combined APY earned by LPS has always been in the 35-45% range.
This integration is the best example of Defi's combinatorial nature, where users can benefit from adopting a strategy:
Assets are deposited into AVE and receive interest and Matic rewards
Lend stablecoins with more Matic incentive subsidies
Put these stables in the Curve pool to earn transaction fees and more Matic rewards.
Savings on gas bills
Surprise! The savings in GAS are huge. At current prices, the transaction fee on the Curve would be about $70, while the LP deposit and mortgage would cost another $110. On Polygon, those costs drop to a paltry 0.0002 dollars. The cost is reduced by 355,000 and 570,000 times, respectively!
Trade, provide liquidity, lend on Sushiswap
Sushiswap is another popular protocol deployed on Polygon. Within two weeks of its launch, the project has secured $620 million in liquidity and is handling tens of millions of units a day.
Just like on Ethereum, users can use Sushiswap to trade tokens and provide liquidity. The agreement also provides incentives for nine popular trading pairs, where liquidity providers can pledge their SLP tokens to earn Sushi and Matic rewards, as well as a regular 0.25% transaction fee. Although yields have fallen in recent days, mortgagers can now earn an annual interest rate of 30-110%, depending on the pair they trade.
In addition to transactions, users can also use the latest item on the Sushi menu. Kashi is the first app built on top of the Bentobox vault, allowing anyone to create their own lending pairs.
To create a pair, all you have to do is.
Choose an asset to borrow against
Pick an asset to pledge as collateral
Click "Create" to start it!
While there are more services available on Ethereum, Polygon's Kashi currently supports creating matchmaking using any combination of ETH, DAI, AAVE, Matic, USDC, USDT, and WBTC.
Savings on gas bills
Words have run out about saving on gas bills. But again. At current gas prices, it costs about $57 to do a trade, $95 to provide liquidity, and $98 to create a Kashi pair. On Polygon, those costs drop to $0.0002, $0.00004, and $0.0004, respectively. This equates to a savings of 285,000 times, 237,500 times, and 245,000 times!
Enter the raffle at Pooltogether
Did you win the recent Bankless badge raffle?
Don't despair, now you can play Pooltogether on Polygon again! This lossless sweepstakes agreement currently provides a USDT pool , with daily payouts. The prize pool currently has more than $8.2 million in deposits, and the daily jackpot usually ranges from $1,000 to $2,000. Like Curve, the agreement also channels the power of the DEFI portfolio by capturing the proceeds of the prize pool from the AVE Polygon market.
In addition to the chance to take home the jackpot, lottery participants can earn a yield, as savers in the jackpot receive Matic rewards with an annual interest rate of around 20-25%.
Savings on gas bills
The cost of joining the Pooltogether draw on Ethereum L1 is $183, while it's only $0.0006 on Polygon, a 305,000-fold reduction!
Collect NFTs at OpenSea
The top NFT market now has a beta deployment on Polygon as well! Although it doesn't offer a wide range of tokens like L1, collectors can still purchase a variety of different NFTs. Interestingly, game tokens seem to be the most popular collectibles on the market. NFTs related to Zed (a digital racing and ownership game) and Neon District (a cyberpunk-themed RPG) account for more than 60% of the total listed collectibles.
Savings on gas bills
The cost of collecting NFT on Polygon is zero. This is because OpenSea L2 fully subsidises the gas cost of buying NFT. Things that cost $72 on Ethereum L1 are now free. That's the power of Polygon.
conclusion
Ethereum's expansion is already underway, and it's living up to expectations. On Polygon, you can move money between apps at the speed of light and at almost no cost. While it doesn't inherit all the security of Ethereum, it's a step toward realizing our vision of a money Internet.
You can do a lot of things on Polygon, and there are more apps being deployed every day. As mentioned earlier, although there are some safety trade-offs, early adopters are already being subsidized with high benefits and usage costs, not to mention gas savings! .
The prohibitive nightmare of expensive gas is finally over. The Ethereum economy is now available to anyone. Become a Polygod and experience the future of finance!
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