Jul 10, 2021
20 mins read
Digging Into DeFi #3
Hey friends 👋
If you read my first Crypto Misadventures post: "A Wallet By Any Other Name" then you're aware that like most crypto noobs, I have not have not been having a very good experience with gas fees on the Ethereum network 😪
Now I've been getting smarter and gas prices have come way down over the past few months, and with EIP-1559 launching on mainnet August 4th, price stability and transparency is coming 🙏 In an upcoming post, I'll explain more about the planned upgrades to the Ethereum Network with EIP-1559, Proof of Stake, and Sharding (as well as the rollout of rollups) and what they mean for end users of the platform.
Spoiler alert: things are going to get a whole lot better.
But what do us small fries 🍟 (those of us investing tens or hundreds, rather than thousands or millions) do in the meantime?
Well, I've got a new favourite DeFi playground that I'm ready to tell you all about: Polygon Network.
By the way, this is a combo post. Watch the video, read the article, or both!
What is Polygon?
The self-described Internet of Blockchains, Polygon is a scaling solution built on the Ethereum Network that aims to tackle the limitations of Ethereum's throughput. Like Ethereum, it is a solution that comes in multiple phases, evolving over time. In this initial phase, which began in 2021 when Matic Network changed name to Polygon, the core functionality is that of a sidechain ⛓ Technically speaking though, Polygon is not a true sidechain, but rather a commit chain that inherits security from the Ethereum base layer. For more on that, check out this fantastic post from Finematics.
Now, I'll save you from a long description of the technology behind Polygon or how it compares to other scaling solutions like Optimism and Arbitrum. In the long run, all of these solutions, I believe, will combine to make Ethereum the most capable and secure blockchain in existence. But that's my bullish reading of things and like everything I'll write in this post, this is not financial advice. Besides this article is going to focus on getting you bridged onto the Polygon sidechain (I'll call it that for now, accurate or not) 🤷♂️
Getting Started on Polygon
In this post I'm going to explain exactly how to get your Ether or ERC-20 tokens from the Ethereum Network onto Polygon and what you can do once you're there. We're going to focus on one particular project for the moment, but I can assure you this won't be the last article about DeFi on Polygon 🙅♂️
If you'd like to help fund this kind of content so I can do more experiments in less time, consider becoming a Crypto Club Member. By doing so, you'll be contributing directly to my research and writing and you'll get access to exclusive blog content and newsletters. This post was actually funded through a fan-support goal. So, assuming you enjoy this content you're witnessing exactly the kind of return on investment supporters get.
Ok, what was I saying? 🤔 Oh yes, we are going to focus on one specific project: Pool Together
What is Pool Together?
One of my absolute favourite projects in the world of DeFi is Pool Together 🏊♂️ I discovered it right when I got started and have been dying to give it a try since then. If you don't know already, Pool Together is a "no-loss lottery" or prize-linked savings account built on Ethereum
The way it works is users deposit their money into what is effectively a savings account 💰 You get all the stability of knowing you can withdraw and even get a set interest rate as a return on your deposit. But what sets apart prize-linked savings accounts is this element of lottery 🎰
Gambling is increasingly popular as people go in search of better returns that traditional banks can offer, and yet this introduces tremendous risk. Indeed with a traditional lottery the users pay money for entries into the lottery and when they lose, their hard-earned money is gone, and majority of that money goes to the profits of the lottery companies, with only a small amount going towards the prize pool 😖
No-loss lotteries take the structure of a traditional lottery and reimagine it through a more ethical lens 🧐 What if the profits weren't stolen by greedy middlemen and no-one had to lose their deposit? Is that even possible?
Well in fact, it's not as challenging as it might seem. Just by dissecting the role of the traditional bank and open sourcing it, the result becomes more equitable 🤝 You see, when you deposit money into the bank, that money doesn't just sit there. No, the bank takes your money and puts it to use through investments at varying levels of risk 🎰 Let's say that they expect to get 4-5% on average. Well guess how much they'll return to you... Typically well well under 1% and even less when you factor in the fees you pay 😒
No-loss lotteries take the deposits, put them to work earning interest, and then on top of your guaranteed interest rate, they return the remainder (minus their cut) to the winner(s) of the draw 🎟 Draws can be monthly, weekly, or even daily depending on the lottery (more on that later).
So that brings us back to Pool Together. Imagine what I just explained, but built around the DeFi ecosystem. In my post Stake of the Cake, I explained that by removing middlemen, DeFi platforms are able to offer far higher returns than TradFi platforms 🏦 So when these protocols like Compound and Aave are used as the backend of a no-loss lottery, the returns are impressive.
Popular pools on the Ethereum Network like USDC and DAI can pay out weekly prizes in the tens of thousands. And to top it off they still pay better interest than a bank! 🔥
But transaction fees on Ethereum can be expensive, ranging from $5-50+ if you don't time them right ⏱ For this reason smaller depositors may want to avoid the Ethereum DeFi in favour of similar options on Polygon. And fortunately Pool Together has one pool already active on Polygon network: their USDT pool with its daily prize in the hundreds of dollars and a very nice return paid in WMatic tokens 💰
I myself have deposited into the USDT pool, and if you keep on reading, I'm going to explain how you can go from absolutely zero crypto, to being a depositor in this pool 🙌 You can do this with any amount of money over $20, but I'd strongly recommend a budget of $100-500.
Step 1: You Need a Wallet
To access the wonderful world of decentralized apps (or dApps) you will need an Ethereum wallet. There are multiple options out there, and you may want to do your own research before deciding which one. What matters most here is that your wallet supports WalletConnect and can connect to Polygon Network.For the purpose of this guide and the accompanying video, we will be using MetaMask.
Now rather than writing the same technical info that can be found anywhere, I am going to direct you to two very trustworthy guides that you can follow to get this set up. Sound good? 🤝
We're going to do this in two parts.
1️⃣ Setting up MetaMask is fairly simple, but if you want a little bit of a walkthrough, here's a video I found that I feel comfortable recommending.
Sidenote: Don't buy your Ether through Metamask itself, unless you absolutely want to. It is unlikely to be the best price.
2️⃣ To set up Polygon on MetaMask, follow these steps.
Once you've got that done, we're ready to move on to the next step ✨
Step 2: You'll need some Ether
Ok, so if you already have a wallet and you already have some Ether and other cryptocurrency, then you can skip this step. But in step three, we'll be bridging onto the polygon network, so you'll need at least need ETH to pay gas fees.
You can bridge ETH or something else like a stablecoin depending on your preference. I'll propose two options ✌️
🅰️ If you want to keep things simple, and especially if you're starting from zero, I'd recommend that you buy Ether. As much as you want to use on DeFi applications plus some more to pay for gas.
In the accompanying video, this is the approach I chose, so if you want to follow along step by step, I recommend buying Ether
By the way, if you're in Canada you can use my referral for Newton Crypto 🇨🇦 There if you buy $100 or more of cryptocurrencies you'll get a $25 bonus which you can use to buy additional Ether for gas 😉 And if you're in the US, check out Gemini for $10 of free Bitcoin when you trade $100 or more 🇺🇸
🅱️ If you want to avoid dealing with the fluctuations of your Ether and minimize swaps, buy stablecoins. Now this approach will assume that you either already have Ether in your wallet or that you intend to buy some as well.
Once again you've got a few options ⚖️
If you buy USDT, you will not need to do any swaps in order to deposit into Pool Together. You will simply bridge the USDT and then skip to the step where we deposit 👌
Alternatively if you're interested to try something a little different and potentially save the most on fees, you'll want to try buying USDC or Dai and bridging through my alternative method explained below 👀
Step 2.5: Checking Gas Fees
Ok so before you go transferring your crypto to your wallet and definitely before you bridge to Polygon, you'll need to be aware of the current gas market prices ⛽️ Remember the reason we're using Polygon is because of the high (and volatile) transaction fees on Ethereum. So to maximize our return on this investment, we're going to time the market for the best time to transfer 👍
This is especially important if the exchange you use to purchase your crypto doesn't pay for withdrawals. Newton for example pays $5 Canadian per withdrawal, so I try to time my withdrawals for when the prices are low enough that I don't have to pay anything 💸
Similarly when we bridge we will be paying gas fees, so we want to be sure they are at their lowest. My favourite site to check gas fees, is Ethereum's own block explorer, Etherscan. How much you're willing to pay is going to be a matter of preference. I recommend being realistic though. You can expect to pay at least $5 to bridge onto Polygon. So plan accordingly.
Step 3: Bridging
So by now, you might be asking yourself "what is a bridge?" 🤔
In the context of Blockchains, a bridge is not a bridge at all. In fact no cryptocurrency is transferred from one blockchain to another, as that is not possible. What is possible, and what underlies all cross chain interactions from bridging to atomic swaps, is the Lock and Mint process 🤝
Basically what the bridge is doing is communicating a set of instructions between two blockchains. It says, lock this Ether up in a smart contract on the Ethereum blockchain, and mint an equivalent amount over here on Polygon. And the process of unlocking requires a contract that burns the coins on Polygon in exchange for the unlocking of the tokens on Ethereum 🔥
If that sounds complicated, then forget about it. All you need to know is that you put in a set amount on one side of the bridge and you unlock the (roughly) the same amount on the other side. The benefit of doing this is relevant to the benefit of the specific chain your bridging to ⚖️
Polygon's main benefit is throughput 🏎. It can handle so many transactions per second (or TPS) that the fees are very low, and the speed is very fast. I like to use the example of two streets running parallel. One is a trustworthy main street that runs through the heart of the city. It's established, well connected, and features many prominent landmarks and businesses.
This is Ethereum 🛣
Parallel to that but seperated by a river, let's say, is a superhighway. 8 lines in each direction, speed limits that are far above that on the main street. It doesn't go to every place the main street goes, but it goes to many places and you get there fast and efficiently.
This is Polygon 🛣🛣🛣🛣🛣🛣🛣🛣
In this metaphor our bridge becomes a literal bridge 🌉 We only need to pay the toll and cross from one to the other and we're good to go. The issues people have with literal bridges and blockchain bridges are very similar in fact. Congestion, cost, and a centralized point of failure. Long term I do suspect that atomic swaps will replace bridges all together, but that's a story for another day.
Let's get to bridging!
Now I'm sorry to do this to you, but once again I'm going to present you with two options for bridging 😅
If in Step 2, you acquired exclusively Ether, or you are choosing to bridge USDT or any other cryptocurrency you can use Zapper to bridge to Polygon. Also, if you watch the accompanying video, and want me to walk you through this exact process, you'll want to head over to Zapper.fi
Steps to bridge using Zapper
On Zapper, click "Bridge" in the sidebar menu.
Choose your token on Ethereum and the token you want to get out on the other side. For the lowest cost, choose the same token on both sides.
If it's your first time on Zapper, you'll need to sign a transaction allowing Zapper to interact with your funds. Doing so will cost a small gas fee, once again, it's a good idea to time this for when gas is cheaper.
After you've signed that approval, you'll be able to confirm your transaction. MetaMask will pop up a confirmation, and if you're comfortable with the gas fee, you'll approve and that's it.
A pop up will tell you that you have deposited onto Polygon, and let you know that the process of Bridging will take 5 to 8 minutes. Go make a cup of tea or something, and come back when that's done 🫖
Ok so for an option that's likely to be cheaper and guaranteed to be cuter, you'll need USDC or DAI.
Assuming you have your USDC or Dai and enough Ether to pay gas fees, head over to the Aavegotchi Bridge. Aavegotchi is a unique site that combines staking Aave and GHST tokens with various retro-themed games and rewards systems 👾 It's really special and may be worth an article all its own, but none of that matters in this moment. We're here to bridge!
I have bridged to Polygon quite a few times now, and in my limited comparisons, I have found that the Aavegotchi Bridge is generally a few dollars less expensive than Zapper. And let's be real, for me it's just about the retro sounds and graphics 🤓 The limitation of course is that you'll need to be using USDC or Dai. That does however open up another opportunity for us in the next step—I know, I know... too many options! 😅.
Steps to Bridge using Aavegotchi
Once at the Aavegotchi Bridge make sure you're connected to Ethereum on your MetaMask wallet. On the left side of the screen, click the GHST token to choose a different token.
Select either USDC or Dai and input the amount you'd like to send or click max
Click transfer to Matic. MetaMask will pop up. Review the gas and if you are comfortable with the fee, click approve. A pop up will inform you that your deposit has been made and that it will take around 7-10 minutes for your transaction to show up on Polygon.
Go smoke a joint or something, and come back when that's done 😶🌫️
Step 4: Swaps
Ok so as I mentioned before, if you bridged USDT you don't necessarily need to do this step. Though it's probably still a good idea to at least swap for some MATIC. Afterall MATIC is gas on the Polygon network, and you don't want to run out of gas 😰 So if you trust my advice, head over to QuickSwap to do some swaps.
If you watch the accompanying video, you'll be able to see me do this whole process, but effectively it's quite simple. When you bridged over, you were given enough MATIC to do a few transactions. But we're already planning to one transaction to deposit into Pool Together, plus if we didn't bridge USDT, we may need to swap for some, which is another transaction. And then of course if you ever intend to use Polygon for other things, you'll need more MATIC ⛽️
If you don't want to do this step, there is still an option, but I would personally try not to rely on it too much. And that is the Polygon Faucet 🚰 There you can get just enough MATIC to do a transaction or two, and you can actually do this a up to three times a day 🙏 I've used this myself, but it creates an element of friction and dependency that I think you should save for an emergency situation.
Now if you do want to check it out, just go here, and follow the instructions.
Now back to the matter at hand.
QuickSwap is a DEX (or Decentralized Exchange), where you can swap two tokens with minimal fees due to liquidity provided by other users. If you want to learn more about how providing liquidity works, and the returns you can get from doing so, check out my post Stake of the Cake 🍰
Our first swap is going to be whatever we bridged over for some MATIC. Now as I've said, transactions on Polygon are very low cost. Often as little as a few ten-thousandths of a penny, so we don't need much. I'll recommend that you get between $0.50-1.00 worth. That should be enough to last you through any experimentation you should find yourself involved in.
This process is super simple. Input the amount you are swapping from or to. Click confirm. Approve the transaction in Metamask and you're done.
You've got MATIC to pay for gas and now you're ready for the next steps. But... we have once again arrived at a choose your own adventure moment 🗺
If you bridged USDT
Skip to the next step.
If you bridged ETH
Repeat the process you used to acquire MATIC, but swap for USDT. You can swap for as much as you want, but if you watch the video, you'll see that I went ahead and swapped the entire amount I bridged (as I intended to deposit it all into Pool Together).
If you bridged USDC or Dai
Head over to Curve ⬇️
Curve x Polygon
If you want to swap stablecoins, and more specifically USDC, Dai, or USDT for one another, then you should definitely check out Curve. Curve maintains some of the lowest slippage rates on stablecoin swaps meaning that you're getting as close to 1:1 rates as possible 🙌
If you combine bridging USDC or Dai on Aavegotchi with swapping for USDT on Curve, you will have made very efficient choices 👏 Maybe it's not worth it for the little extra work, but what can I say, I'm cheap.
I don't think I need to go into too much detail here for how to do this as it's pretty straightforward. Select your input, select your output, choose the amounts and click "sell." Approve the transaction on MetaMask and wait.
Now we're ready for the grande finale 🎆
Step 5: Depositing into Pool Together
So now we've done the hardest parts. We've set up a wallet, connected it to Polygon Network, bought some cryptocurrency, bridged it from Ethereum to Polygon, potentially made some swaps, and we're finally ready to deposit into Pool Together ✨
Sorry to be overly dramatic, but the build up is key because the last few steps are quite simple and they're actually going to go by quickly ⏳
So let's talk for a moment about what exactly we're about to do.
On Pool Together there is only one pool currently on the Polygon Network and that is the USDT pool. Have a look at the screenshot below and you'll see that this is a really unique pool for a few reasons 🔍
First off, this is a daily prize pool. So every day someone wins a whatever the prize is for that day. Today the prize is $525 🤑
Second, if you look to the right, you'll see that it on top of the prize, all deposits earn an APR of rewards paid in WMATIC. Currently it looks like the rewards are 8.08% APR 😲
If you want to see behind the scenes a bit, you can actually click on this and it will show you more info like the total deposits including the sponsorship, which is basically a deposit that was not issued any tickets and is just there to help the pool gain interest for the prize 💰
We can also see the source of their yield, in this case Aave. And we can see the current APR that I mentioned before. Below that you'll be able to see history including previous prizes and active and past depositors. It's all very transparent which is another thing I love about Pool Together.
Now you can either click Deposit at the top right corner of the details page, or you can go back to the previous page with all of the pools and click Deposit USDT. In either case you will be taken to the same place: the deposit page.
On the deposit page you can type in the amount you want to deposit, or you can click the little balance at the top right to add the max amount. As you did with each other platform, you'll have to sign a small transaction to approve Pool Together to interact with your funds.
Then you can click review deposit and approve the transaction in MetaMask. If you want to see this whole process, check out the accompanying video. The confirmation screen is really nice. Sadly, screenshots just don't do it justice. Really 🎊
So there you have it. If you have completed all these steps you are officially doing DeFi. Like for real. In fact, you may not even realize it, but this whole exercise was my way of getting you to try out some of the key processes behind DeFi on Polygon 😏
Did you have fun? What do you think of Pool Together. Comment below and let me know if you're going to try this out. Oh and if you win, you know whom to buy a coffee right? 😉
The rewards for the USDT pool have ended and transitioned to a new two-tier system. Depositors into the sponsorship pool will now earn very high returns but not be eligible to win. And those who enter the prize pool can win (and will not lose any money) but will not earn rewards APY. This is designed for two purposes. Firstly, to avoid depleting rewards reserves too quickly and to prevent whales from winning too often. This way, whales will be motivated more by the APY than the prize and will likely choose accordingly 🐳
In this new system, I strongly recommend a hybrid approach where you deposit 50% or more in the sponsor pool to help grow the prize and earn interest, and 50% or less in the lottery for a chance to win daily prizes 🏆
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