Beginner’s Guide: How to Setup Simple Yield Farming Strategies on Polygon/MATIC
Learn to earn some extra yield on the ETH you’re hodling + estimate your net expected return on the strategy.
1. Download Metamask in Your Browser
Install the Browser extension to setup your crypto wallet: https://metamask.io/
2. Add the Matic Mainnet to Metamask
The easiest way to do this is from Quickswap, which can fill in the network details for you: https://quickswap.exchange/. This allows you to access the Matic Mainnet where fees are way cheaper than Ethereum Mainnet.
3. Get ETH into your Metamask Wallet from your Coinbase Pro account
Option 1: Add your Metamask wallet address as a whitelisted address on the Coinbase Pro web platform to make sure you don’t make errors when sending, and then transfer.
Option 2 (my preferred method to reduce fees):
(a) Setup a Coinbase Wallet on your smartphone (download the app).
(b) You can use the generated secret phrase in Metamask to access the same wallet. (Matic Network not currently supported by Coinbase Wallet)
(c) Link your Coinbase Wallet to your Coinbase account.
(d) Transfer your ETH from Coinbase Pro to Coinbase (free & instant).
(e) Using the Coinbase Wallet app, transfer ETH from Coinbase to your wallet address (the gas costs are subsidized by Coinbase).
(f) Wait for the transfer to be confirmed (usually ~10 minutes).
4. Get your ETH across the L1-L2 Bridge
To get your ETH from the Ethereum Mainnet onto the Matic Mainnet, use the Polygon Bridge that they provide: https://wallet.matic.network/bridge/ (it will cost some ETH)
You might find it simpler to use the Zapper interface instead, which is useful for tracking your assets across both networks anyway: https://zapper.fi/
Start Yield Farming!
5. Deposit your ETH onto AAVE
Go to the AAVE platform https://app.aave.com/ (a bluechip market maker), make sure you’re on the Matic Mainnet in Metamask, and then connect to the Polygon AAVE Market.
Then in Markets, click Wrapped Ether WETH (wrapped because we’re on Layer 2 now), decide how much you want to deposit, and confirm the transaction. Now you’re earning interest on your ETH plus some farmed coins!
Note: You’ll need a little bit of Matic coin for the transaction fee (use Quickswap to get some, or follow the same steps above with Matic you bought on the Coinbase exchange)
6. Borrow Against Deposited Assets
To take it further, you can use the Borrow tab on AAVE to take out a loan. This will use your deposited assets as collateral, so if the price of your deposited ETH drops a lot it might be liquidated to cover the amount you’re borrowing.
Currently borrowing on AAVE also provides your with farmed Matic coins, making the interest rates on the loan more attractive.
7. Invest the Loaned Coins to Earn More Interest
After the loan transaction goes through, the borrowed coins will be in your wallet. You can use these borrowed assets on other platforms to earn more yield.
For example, if you borrow a stablecoin like USDC on AAVE, you can then take the USDC to Curve (https://curve.fi/), change the network to Polygon, and select one of the pools to deposit your USDC into. You’ll earn some more interest on that USDC you’re borrowing and might also be able to farm some more coins.
8. Estimate Your Expected Net Return
You want your net return on your deposited ETH to be positive for this yield farming approach to make financial sense. How to estimate it?
Total Return on your ETH =
(a) + from deposited ETH: base return on AAVE
(b) + from deposited ETH: bonus farm return on AAVE as APR
(c) + from borrowed USDC: bonus farm return on AAVE as APR
(d) + from deposited USDC: base return on Curve
(e) + from deposited USDC: bonus farm return on Curve as APR
(f) + from borrowed USDC: subtract interest you need to pay on AAVE
[multiply c-f by amount borrowed/deposited ratio]
(g)+ subtract the total transaction costs incurred as a % (total transaction costs / total investment). Multiply by 2 to estimate fees in getting it back to Coinbase.
You can switch this method out with different coins and platforms too. Now you’re ready to go yield farming yourself！
Keep in mind that there are significant risks involved in yield farming. Have fun and stay safe out there!
