How to Yield Farm with Aave on Polygon

In this blog post, we will walk through yield farming with Aave on the Polygon network. Aave is a decentralized lending and borrowing protocol and has currently more than US$1.6B in its Polygon market. Polygon is home to one of the largest communities and is aimed at making blockchain technology accessible to the world.

Step 1: Head over to https://app.aave.com

Step 2: To start yield farming, connect to its Polygon market.

Step 3: Connect your wallet by clicking on the connect button and make sure you’re on the Polygon Mainnet.

Step 4: Choose your deposit asset from the available list.

Step 5: Click on the preferred asset to bring up the market information — total borrowed and total supply, alongside key stats like utilisation ratio. You can also find the maximum LTV (loan-to-value) which represent the maximum borrowing power for that collateral asset.

Step 6: To deposit, click on the “deposit” functionality on the right and you are done.

Borrow against your assets as a collateral

Step 7(Optional): Head over to the “Borrow” tab on Aave and select the asset you wish to borrow for.

Step 8(Optional): Use the maximum LTV (loan-to-value) as a guide, you can borrow against your deposited assets from the Aave protocol and pay low interest on the loan.

There are few terms that we need to understand before making the deposit.

Health Factor: The health factor represents the safety of your loan derived from the proportion of collateral versus the amount borrowed. Keep it above 1 to avoid liquidation. An Ideal and safe health factor would be 1.5.

Max LTV: The Maximum Loan-to-Value ratio represents the maximum borrowing power of specific collateral.

Liquidation Threshold: This represents the threshold at which a borrow position will be considered undercollateralized and subject to liquidation for each collateral. For example, if the collateral has a liquidation threshold of 80%, it means that the loan will be liquidated when the debt value is worth 80% of the collateral value.

An example of how liquidation works has been provided for your reference: Bob has 500 DAI and uses this to borrow 375 USDT at a max LTV of 80%. This is essentially a safe loan but in the event that the value of DAI falls 6.67% vs value of the collateral it could result in liquidation as described below:

DAI as Collateral- $500
Borrowed USDT @ 75% LTV- $375
Liquidation Threshold- 80%
Minimum Collateral Value- $400
DAI % Drop for Liquidation- 6.67%

Liquidation Penalty: When a liquidation occurs, liquidators repay part or all of the outstanding borrowed amount on behalf of the borrower. In return, they can buy the collateral at a discount and keep the difference as a bonus!

APR & APY: APR represents the annual rate charged for earning or borrowing money. For starters, APY, or annual percentage yield, takes into account compound interest, but APR, which stands for annual percentage rate, does not.

Subscribe to our medium — https://polygontech.medium.com/subscribe

About Polygon

Polygon is the first well-structured, easy-to-use platform for Ethereum scaling and infrastructure development. Its core component is Polygon SDK, a modular, flexible framework that supports building and connecting Secured Chains like Plasma, Optimistic Rollups, zkRollups, Validium, etc, and Standalone Chains like Polygon POS, designed for flexibility and independence. Polygon’s scaling solutions have seen widespread adoption with 500+ Dapps, ~567M+ txns, and ~6M+ daily txns.

If you’re an Ethereum Developer, you’re already a Polygon developer! Leverage Polygon’s fast and secure txns for your Dapp, get started here.

Website | Twitter | Ecosystem Twitter Studios Twitter | Reddit | Discord | Telegram | Instagram

More from the Polygon Blog
The Business Case for Blockchains Going Green

Nothing says “you have arrived” like people caring about your carbon footprint. Polygon has recently marked that milestone with a commitment to becoming carbon negative by the end of the year. Below is the case for why other projects should follow our lead and how to go about doing it. Ethereum’s smart contract blockchain has […]

Read More
Announcing Polygon Pod, a Podcast From the Epicenter of Web3

What’s the future of DeFi? How can blockchain projects shake the reputation for being bad for the environment? What in the world are zero knowledge proofs? How can Web3 attract and accommodate the next billion users? When Flippening? You want to know the answers and so do we. That’s why Polygon is launching Polygon Pod […]

Read More
Introducing Polygon Nightfall Mainnet: Decentralized Private Transactions for Enterprise

We’re in the early innings when it comes to enterprise needs for blockchains. Whether it’s supply chain management or marketplaces, the potential for secure business transactions on a public ledger has enormous implications. That’s why we’re pleased to announce Polygon Nightfall, a blockchain solution that leverages cutting edge Optimistic-Zero Knowledge technology to give businesses an […]

Read More
Introducing Polygon ID, Zero-Knowledge Identity for Web3

At Polygon, we believe that putting people firmly in control of their digital identities is at the core of Web3’s promise to empower users over networks. We have been working behind the scenes to fulfill this promise and today are proud to introduce Polygon ID, the self-sovereign, decentralized and private identity for the next iteration […]

Read More
Polygon Is Going Carbon Negative in 2022 With a $20 Million Pledge

Today marks the start of a new, sustainable era for the Polygon ecosystem -- the core team has committed to eliminating all of the network’s carbon debt going back to inception and making the chain climate positive into the future. Polygon’s Green Manifesto announced today is part of a broader vision for sustainable development that […]

Read More
Getting Started With MetaMask on Polygon

MetaMask is the most popular cryptocurrency wallet app and browser extension used to access the Web3 universe. In just a few simple steps, you can unlock this powerful tool and begin exploring the Polygon ecosystem.  There are more than 19,000 decentralized applications (dApps) running on Polygon. That list includes DeFi protocols like Aave and Uniswap […]

Read More
crossmenuchevron-down-circle