Discover how retail investors can protect their savings from inflation and generate passive income with minimal risk on the Polygon blockchain. This article explores the profile of retail investors and their preferences, criteria for blockchain platform selection, stablecoin lending options. Dive into practical insights and comparisons to optimize awareness about modern decentralized finance instruments.
Introduction
This item continues a series of articles “cryptocurrencies for beginners”. Or it’s better to say, “cryptocurrencies for regular people, not crypto geeks”. In particular, this article is a development of the idea of how an ordinary retail investor can solve the problem of protecting savings from inflation with minimal risks(in context of the risks for the crypto industry). The first article covering this issue was published some time ago, and in it we looked at what instruments are available to solve this problem on the Arbitrum platform. You can refresh your memory about this article at the following link:
In this article, we will continue to look at this problem. But this time for a different blockchain. Some of the materials from the first article will be duplicated in this one. This is done in order not to lose the perception of the completeness of the whole picture. First, let’s start from the thesis that not all of the current crypto investors can and want to be active traders or actively manage a portfolio of cryptocurrencies (although I will assume that now the majority are exactly active participants).
And as before, I will try to tell you how a regular person can solve the following trending issues using cryptocurrency financial instruments:
• protect yourself from inflation,
• keep savings and
• make passive income.
But this time we consider Polygon (MATIC) blockchain.
Let’s get started…
The portrait of a retail investor
I’ll start the document the same way as in the previous article with a description of the portrait of a regular retail investor
What unites us all?
1. We don’t want to spend a lot of time on crypto.
Oh, my Lord, this is not a hobby or a job. It’s just savings. He/She deposited and forgot about it. Well, maybe once a month He/She takes a look at how much interest had accrued and switched to another product where more interest accrues at a moment… It’s just that there is no enthusiasm to comprehend in details what Yield farming, Staking, Liquid pools, Liquid staking, Leverage lending, Synthetics, Yield aggregators are … I don’t want to study technical indicators of blockchains, know what consensus mechanisms exist, analyze on-chain metrics and spend a lot of time analyzing literally thousands of DeFi proposals. Why do I need to know all this? I am not going to be an active cryptocurrency portfolio manager.
2. We operate with small amounts.
Firstly, we understand that cryptocurrencies carry a fairly high degree of risk. And these risks are primarily due to unclear counties governments policies towards the crypto industry and the lack of legislative and legal practice in this sector around the world. Therefore, no one will definitely invest their last savings in cryptocurrency.
Secondly, we simply do not possess significant financial resources. Our cryptocurrency investment budget is limited to amounts ranging from several hundred to several thousand US dollars.
3. We want a stable level of passive income that exceeds the inflation rate
My initial issue is that I want to deposit my several hundred to several thousand US dollars in some financial product and then forget about it for a while. The purpose of this step is at least to keep my savings and protect myself from inflation, at most to earn extra money passively. An ordinary person simply needs a stable level of income that exceeds the level of inflation, without significant volatility of the financial instrument used, and so that at any time he can withdraw his funds as if from a bank and convert them back into fiat currency.
These are the simple requirements from us, ordinary retail investors.
Finding appropriate options to meet these requirements on Polygon.
Let’s remember that we need to start the journey by choosing the blockchain that suits us.
Based on the requirement to minimize risk in favor of the respect of the stable though modest growth, we need a stable blockchain platform with a developed ecosystem of decentralized applications. And also, we should consider blockchains with an average transaction fee of no more than $0.1
Currently, 6 blockchain platforms meet our requirements. They are highlighted in green. But this time let’s focus on the Polygon blockchain.
Our requirements regarding the absence of volatility and APR, which is significantly higher than the inflation rate expressed in US dollars, are met by a financial instrument “stablecoin lending”.
Now we need DeFi applications that provide such an instrument.
Leading DeFi applications that provide stablecoin lendings on the Polygon platform can be viewed here:
https://defillama.com/protocols/Lending/Polygon
To avoid unnecessary risks, it is better to focus on large players operating on several blockchains with a significant amount of TVL. These currently on the Polygon platform include:
AAVE (https://app.aave.com)
COMPOUND (https://app.compound.finance)
TimeSwap (https://app.timeswap.io/markets)
The Compound and AAVE protocols are already familiar to us from the previous review of passive income opportunities on the Arbitrum platform. TimeSwap is new. We did not consider TimeSwap last time, although it is also presented on the Arbitrum platform. However, this protocol unfortunately does not provide to clients to place funds in stablecoin pools or stablecoins lending options on Polygon platform. So, in our zone of interest this protocol doesn’t get.
Thus, today a retail investor on the Polygon platform will be able to place his conditional $300 on the following conditions, which meet his base need (these rates were relevant at the time of writing this article and may change significantly at the time of reading):
One glance at this table is enough to understand that the Polygon platform provides much less choice and much less tasty rates than the DeFi ecosystem on the Arbitrum platform. Nevertheless, here we see quite interesting rates as well, that allow us to solve the issue of passive income (albeit, of course, modest), as well as protecting savings from inflation.
I suggest you make your own comparison of the proposed lending options on both platforms, using the links from both of my articles.
Let me also remind you that another cryptocurrency instrument that meets the initial requirements of an ordinary retail investor who is looking for ways to protect their savings from inflation is stablecoins liquidity pools. However, the level of knowledge required to start investing in this product is already significantly higher than the knowledge required to invest in stablecoin lendings. Firstly, you need to understand how liquidity pools work and what conversion range to set for specific cryptocurrencies for a specific period of time. If the settings for the liquidity pool are set incorrectly, you simply will not earn anything, you will only lose on transactions fees. However, in a case of stablecoins liquidity pools, you definitely won’t lose due to significant fluctuations in the cryptocurrency rates.
Again, solely for the purpose of comparing rates with landing rates, let’s see what the leading on the Polygon platform decentralized crypto exchange Quickswap DEX (https://quickswap.exchange) offers in terms of stablecoins liquidity pools to deposit funds. At the time of writing this article, the estimated yield on stablecoins liquidity pools is as follows (these yield rates were relevant at the time of writing this article and may change significantly at the time of reading):
Despite the fact that the number of interesting options for placing free funds in stablecoins liquidity pools here is much less than in the case of Uniswap on the Arbitrum platform, we again see quite attractive conditions that meet our needs as retail investors looking for stable, non-volatile saving instruments.
Conclusion
In conclusion, let’s recap, that in this article was examined:
1. The profile of a retail investor, emphasizing their preference for simplicity, minimal time commitment, and limited investment amounts.
2. The criteria for choosing a blockchain platform, focusing on stability, developed ecosystems, and low transaction fees.
3. The availability of stablecoin lending options on the Polygon blockchain, including protocols like AAVE and Compound.
To summarize, for retail investors seeking to protect their savings from inflation with minimal risk exposure in the crypto industry, the Polygon (MATIC) blockchain offers practival options. Despite a more limited selection compared to Arbitrum, Polygon provides opportunities for passive income and stable savings as well. Stablecoin lending through protocols like AAVE and COMPOUND, along with stablecoin liquidity pools on Quickswap DEX, meet the basic requirements of stability and growth. To determine the most suitable option, investors are encouraged to compare rates between platforms using provided links and consider their risk tolerance and investment goals.
HOWEVER, please keep in mind that the content of this article is meant purely for entertainment and informational purposes only, and should not be relied upon as financial, investment or any other professional or other advice. Please, mind that the content and information herein is given not to induce or to attempt to induce anyone to buy, sell or hold any cryptocurrency or carry out any other transactions with cryptocurrencies.
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