Currently there is approximately $43 billion locked in DeFi lending protocols. AAVE is the third largest in this DeFi sector, with both retail and institutional customers, and has a market size of approximately $5.41 billion. Being built on ETHEREUM, AAVE users are faced with the high congestion present in the ETHEREUM blockchain, as well as the exorbitant gas transaction fees associated with operating therein. Stani Kulechov, the founder of AAVE is quoted as saying: "...DeFi was always intended to create a sustainable and more inclusive alternative to traditional finance. If DeFi is great but only limited to portfolios of five figures and up, DeFi will be falling short of its mission to be finance for everyone.”
To address this situation, AAVE is collaborating with Ethereum Layer 2 provider POLYGON (formerly MATIC) to ease system congestion and escape the transaction fees present on the ETHEREUM blockchain. In conjunction with POLYGON, AAVE will be exploring the utilization of scalable sidechains to address these issues. A sidechain on the ETHEREUM blockchain is a vehicle whereby assets from the Layer 1 mainchain may be securely and independently utilized in a completely separate blockchain but if necessary said assets may be moved back to the mainchain. The scalable sidechains will be made possible through utilization of a smart contract bridge that will seamlessly move assets from one network to the other, and back if required.
The POLYGON network utilizes CHAINLINK'S data oracle service providing AAVE the ability to maintain high standards of safety for its system price feeds. In addition to providing the sidechain allowing fast and almost free transactions, POLYGON'S systems of applications include the decentralized exchange QUICKSWAP, as well as the DeFi enabled crypto-collectibles game AAVEGOTCHI.
Upon the launch of this joint endeavor, the AAVE market created on the POLYGON network will add the native MATIC token, USDC, USDT, DAI, WETH, AAVE and WBTC as collateral for operations.
In conclusion, as the DeFi space continues expanding, the need for fast and cost efficient financing alternatives grows as well. The AAVE POLYGON collaboration as set forth above addresses the shortcomings present in the current ETHEREUM system and provides AAVE a competitive edge in the DeFi lending space moving forward.
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