Among the emerging Layer 2 protocols on Ethereum, Polygon gained huge momentum in April and May 2021. Recently, Polygon has been a friendly environment for retail investors, featuring miniscule gas fees and fast transaction times. It brought over $1 billion in liquidity to Aave in less than a month. The tidal wave of users came not only for the low gas fees, but also for the $40 million liquidity mining program in Aave's Polygon markets.
The initial distribution was as follows:
Phase 1: 0.5% total supply (20M$ in rewards) — Apr 14th 2021 (12:00 UTC) to June 14th, 2021 (12:00 UTC)
Phase 2: 0.5% total supply (20M$ in rewards) — June 14th 2021(12:00 UTC) to Apr 13th, 2022 (12:00 UTC)
The massive Phase 1 rewards yielded an exciting opportunity for users: they can get paid to borrow money. Most of the time, the MATIC rewards distributed to users for using their assets as collateral to borrow other assets often exceeded the interest rate they paid for borrowing these assets. Thus, users were essentially paid to borrow assets which can then be used for other yield farming activities. Recently, we entered Phase 2 and received an update on the new emission schedule of the Phase 2 rewards.
On June 17, the schedule was adjusted to:
Phase 2: 238,000 MATIC/day (~85M$ in rewards) — June 17th 2021(12:00 UTC) to Jan 17th, 2022 (12:00 UTC)
A quick calculation shows that the daily MATIC rewards have effectively dropped from 793,651 MATIC/day to 238,000 MATIC/day as we entered Phase 2 of the program. The interest rates are no longer as attractive as before, and many users are wondering about where to move their assets. Nevertheless, Aave remains a strong platform and the rates to borrow are still low. Sure, users are no longer being paid to borrow, but the rates still make sense for a variety of uses and strategies.
