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Aave Crosses into DeFi Layer-2 with Matic Bridge

2 mins
Updated by Kyle Baird
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In Brief

  • Aave aTokens can now be traded on L2 with Matic.
  • Motivation came from reducing transaction costs for Aavegotchi game.
  • AAVE token retreats 6% in marketwide pullback.
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The demand for scaling on Ethereum is increasing. More decentralized finance (DeFi) protocols like Aave have been experimenting with implementing Layer-2 (L2) solutions.

DeFi flash loan lending platform Aave has launched its own L2 scaling solution by allowing its aTokens to be ported to the Plasma powered Matic Network.

Similar to liquidity pool tokens, the Aave aTokens are minted when users deposit crypto-assets into the lending protocol to earn interest. Now they can use and trade maTokens on the high-speed, low-cost Matic Network with the interest of the original aToken remaining intact on Layer 1.

Aave founder and CEO, Stani Kulechov, tweeted about move;

Plasma Powered Token Exchange

Matic is powered by the Ethereum L2 scaling Plasma framework which uses a combination of smart contracts and cryptographic verification to enable fast and cheap transactions. This is obtained by offloading the transactions from the main Ethereum chain into side chains or plasma chains.

The Matic Network has a key functionality called Quickswap, a Uniswap clone that isn’t present on Ethereum Layer-1. The new maTokens can be staked on Quickswap to earn liquidity provider rewards.

Speaking to The Defiant, the creator of the Aave-Matic bridge, Nick Mudge, said;

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

Mudge is also the lead developer of the non-fungible token (NFT) staking game, Aavegotchi. He wanted to reduce the cost of game-based transactions which can now be done with cheaper maTokens transactions on Matic.

When asked about accruing interest on the Matic Network, Mudge explained;

“It’s not updated on Matic network. When maTokens are sent to Ethereum they are converted to their aToken amount PLUS interest.”

AAVE Token Price Update

Aave is currently the second largest DeFi protocol by total value locked according to DeFi Pulse which reports it at just over $3 billion.

Its native AAVE token, which has been on fire recently, has retreated a bit alongside the general crypto market slump today. It has fallen back to $176 as of press time.

AAVE was the best-performing DeFi asset in 2020 by a clear margin and has made over 20% in the past seven days to hit an all-time high of just over $200 on Jan. 19.

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...