tl;dr
Aave is considering withdrawing from Polygon's Proof-of-Stake chain due to potential risks associated with Polygon's stablecoin proposal. The proposal suggests adjusting risk parameters for Aave's V2 and V3 deployments on the Ethereum layer-2 blockchain and eventually exiting the network entirely to...
Aave, a prominent lending protocol, is considering withdrawing from Polygon's Proof-of-Stake (PoS) chain due to potential risks associated with Polygon's stablecoin proposal. The proposal suggests adjusting risk parameters for Aave's V2 and V3 deployments on the Ethereum layer-2 blockchain and eventually exiting the network entirely to protect against vulnerabilities.
Marc Zeller, founder of Aave Chan, highlighted potential risks tied to Polygon’s plans to rehypothecate its stablecoin reserves while suggesting Aave should adjust risk parameters for its V2 and V3 deployments on the Ethereum layer-2 blockchain and eventually exit the network entirely. Zeller argued that this move would protect Aave from vulnerabilities associated with bridged stablecoins and reduce long-term security threats.
This move follows a controversial yield generation proposal on the Polygon network that has sparked security concerns. Earlier this month, Polygon’s community received a proposal to deploy the stablecoin reserves of DAI, USDC, and USDT from the Polygon PoS Portal Bridge into curated liquidity pools. The authors argued that this strategy could yield up to $70 million in returns and fuel new ecosystem incentives to grow Polygon’s DeFi landscape.
However, Zeller has flagged significant risks tied to this approach, drawing parallels to past bridge-related security breaches such as the Ronin and BNB Bridge hacks, which caused massive losses for users. He criticized Polygon’s proposal as riskier than alternatives like Ethereum liquid staking or MakerDAO’s DAI savings module. The ACI founder also questioned the logic of risking billions in potential bad debt for what he considers negligible revenue.
The crypto community has largely supported Aave’s cautious approach to protecting its users’ funds. Crypto investor Adam Cochran pointed out that bridges already pose significant risks, and adding staking mechanisms for chain profits only amplifies the danger. He called Polygon’s move a miscalculation. Meanwhile, legal analyst Gabriel Shapiro highlighted how Aave’s response showcases the influence decentralized apps can have in shaping governance decisions. He predicted that Aave’s firm stance could deter Polygon’s yield proposal and set a precedent for prioritizing responsible practices in DeFi.