Aave’s aTokens are Latest DeFi Lego Heading to Layer 2

Screen Shot 2021-01-21 at 3.48.48 PM

Hot on the heels of Synthetix’s launch of staking services on Layer 2 provider Optimism, Aave has shipped its own iteration of a scaling solution.

With the launch, Aave’s aTokens, minted when users deposit digital assets into the lending protocol, can now be ported to the Matic Network, a version of the Layer 2 solution, Plasma. Layer 2 is cheap, meaning users will be able to acquire and trade interest-generating maTokens (aTokens which have moved to Matic), without the gas guzzling fees. 

New Behavior

The Aave-Matic bridge’s creator, Nick Mudge, told the Defiant “Once aTokens are transferred to Matic Network they can be transferred to any person on Matic Network and any systems on Matic Network.”

Matic enables new functionality not present on Ethereum’s Layer 1. For example, a key app on Matic Network is Quickswap, a Uniswap clone. As maTokens generate interest from their use, just like aTokens, they can also be staked into Quickswap, generating returns as a liquidity provider as well. This can’t be done on Ethereum’s Layer 1.

“Aave’s aTokens are not traded on some exchanges like Uniswap because liquidity providers would lose the interest that aTokens generate,” Mudge said. “But that is not the case with maTokens on Matic Network, which derive all their value from aTokens.”

Game Drives Move

Mudge, the Lead Solidity developer for Aavegotchi, the non-fungible token (NFT) staking game, mentioned another reason for creating the bridge to Matic: he needs transactions to become cheaper for the game.

In a well-received announcement on Twitter, Aavegotchi had already committed to Matic Network. The Discord screenshot stating “You shouldn’t have to pay $2 to pet your Aavegotchi!” serving as a reason for the change. In order to create an Aavegotchi, a user needs aTokens, hence the demand for cheaper maToken transactions by way of Matic.

Gaming has always had major potential for Ethereum, but transaction fees have thus far been prohibitive. Aavegotchi’s use of Layer 2 likely foreshadows more moves to scaling solutions. Lower gas fees may then enable new functionality.

Calling Mark Cuban

“With the launch, it may be time for the Aavegotchi and Matic teams to get Mark Cuban’s attention again, as the business mogul recently delighted DeFi with his knowledge of the sector, but also lamented that “the gas is always the issue. Just the cost of moving crypto to AAVE is crazy expensive.

With a new Layer 2 in place for Aave’s aTokens, that may no longer be the case.

Leave a Comment

Your email address will not be published. Required fields are marked *