Introduction
This guide will walk you through leveraging AAVE and Curve on the Polygon network—a strategy that combines lending, borrowing, and yield farming to optimize returns while minimizing tax implications. Whether you're a DeFi beginner or an advanced user, this method offers a secure way to grow your crypto holdings.
What Is AAVE?
AAVE is a decentralized lending protocol where users can:
- Deposit assets to earn interest (lending).
- Borrow assets against collateral (borrowing).
Key Features:
- Overcollateralized loans: Borrowers must deposit more value than they borrow.
- aTokens: Depositors receive interest via "aTokens," which accrue value block-by-block.
- Governance: AAVE token holders vote on protocol upgrades.
👉 Explore AAVE’s official documentation
What Is Curve?
Curve Finance is a DeFi DEX specializing in stablecoin and similar-asset swaps. Its low-slippage pools make it ideal for:
- Stablecoin trading (e.g., USDT/USDC).
- Yield farming: Provide liquidity to earn CRV tokens and other rewards.
Step-by-Step Strategy
1. Deposit Collateral on AAVE
- Asset Choice: MATIC, ETH, or stablecoins.
- Earn Interest: Example: Deposit MATIC to earn 0.29% APY + 3.47% MATIC rewards.
2. Borrow Against Collateral
- Optimal Loans: Borrow USDT (3.93% interest) while earning 4.20% MATIC rewards (net positive).
- Safety Tip: Borrow ≤40% of collateral value to avoid liquidation.
3. Farm Yield on Curve
- Pool Selection: Deposit borrowed USDT into Curve’s AAVE pool.
- Total APY: ~15.39% (Base + CRV + MATIC rewards).
Example Calculation:
- $1,000 ETH deposited → $16.30/year (lending rewards).
- Borrow $400 USDT → $1.08/year (net rewards).
- Curve farming → $61.56/year.
- Total ROI: ~7.89%.
Risk Management
Smart Contract Risks
- AAVE & Curve: Audited protocols with billions in TVL.
- Polygon: Less decentralized than Ethereum but battle-tested.
Liquidation Risks
- Threshold: Loans liquidate if collateral value drops below 80%.
Mitigation: Maintain a Health Factor >2.0 by:
- Adding collateral.
- Repaying loans during market downturns.
Execution Guide
Step 1: Switch to Polygon Network
- In MetaMask, select Matic Mainnet.
Step 2: Deposit on AAVE
- Navigate to AAVE Polygon Market.
- Click Deposit → Select asset (e.g., MATIC).
- Confirm transaction.
Step 3: Borrow on AAVE
- Click Borrow → Choose USDT (lowest rate).
- Enter amount (≤40% collateral value).
- Confirm loan.
Step 4: Provide Liquidity on Curve
- Visit polygon.curve.fi → Select AAVE pool.
- Click Deposit & Stake → Confirm transactions.
- Earn CRV + MATIC rewards.
FAQs
Q1: Is this strategy safe for beginners?
Yes, but start small. Stick to blue-chip assets (ETH, MATIC, USDT) and avoid overborrowing.
Q2: How do I monitor my Health Factor?
AAVE’s dashboard shows real-time updates. Aim to keep it above 2.0.
Q3: Can I use other DEXs besides Curve?
Yes! Try QuickSwap or SushiSwap, but expect higher impermanent loss with volatile pairs.
👉 Learn advanced DeFi strategies
Conclusion
By combining AAVE’s lending/borrowing with Curve’s yield farming, you unlock capital efficiency without selling assets (avoiding taxes). This strategy balances safety and returns, making it ideal for long-term DeFi investors.
Pro Tip: Reinvest rewards to compound your earnings!