Aave's proposal was made after Polygon considered using bridged liquidity for the purpose of generating profits, which has sparked much controversy.
Aave is considering withdrawing from Polygon. Image: CryptoRank
The Controversial Proposal
Aave, the leading decentralized lending protocol on Ethereum, is considering withdrawing from Polygon after a proposal related to the network's stablecoin raised security concerns.
Screenshot of a part of the proposal
The proposal was made on December 16 by Marc Zeller, the founder of Aave Chan. He warned about the risks associated with Polygon's plan to deploy over $1 billion in idle stablecoin (DAI, USDC, USDT) reserves through the Polygon PoS Portal bridge into liquidity pools on other protocols like Morpho and Yearn.
Previously, Allez Labs had collaborated with Morpho and Yearn to draft a proposal, "inviting" the Polygon community to deploy stablecoin reserves into various lending protocols.
The authors claimed this initiative could generate up to $70 million in profits and drive and improve the overall DeFi landscape on Polygon.
However, Zeller sees this as a risky move, and the re-hypothecation of stablecoins could create security vulnerabilities similar to past hacks, such as the Ronin and BNB Bridge attacks. He criticized Polygon's actions as riskier than alternatives like liquid staking on Ethereum or the DAI Saving Rate (DSR) product from MakerDAO.
Zeller believes that if Aave withdraws from Polygon, the platform will be protected from security vulnerabilities related to bridged stablecoins and mitigate long-term security threats.
Although Aave is currently the largest decentralized application on Polygon, accounting for around 468 million USD or 40% of the network's Total Value Locked (TVL) of 1.3 billion USD, withdrawing from Polygon would only impact 2% of Aave's total TVL and 1.5% of its fee revenue.
Top 10 protocols on Polygon by TVL. Source: DefiLIama (17/12/2024)
How Did the Community Respond?
The crypto community largely supports Aave's cautious approach to protecting user assets. Crypto investor Adam Cochran pointed out that bridges already pose significant risks, and adding a staking mechanism to generate profits would only increase the danger. He called Polygon's move a miscalculation:
"Bridges are already risky enough. Introducing asset re-hypothecation just so a chain can profit isn't something in the interest of users or projects."
Good discussion from Aave.
— Adam Cochran (adamscochran.eth) (@adamscochran) December 16, 2024
Bridges are already risky enough. Introducing asset retaking just so a chain can profit isn't something in the interest of users or projects.
Think the overall move is a huge mistake for Polygon. https://t.co/TlPve7JSnw
Meanwhile, legal expert Gabriel Shapiro emphasized that Aave's response demonstrates the influence of decentralized applications (dApps) in shaping governance decisions. He stated that Aave's firm stance could weaken Polygon's profit proposal and set a precedent for prioritizing responsible practices in DeFi.
Aave response is appropriate tbh. Let's not play SBF games with other people's money.
— _gabrielShapir0 (@lex_node) December 16, 2024
No, Blast doesn't count--when people deposited into that they knew they were writing a blank check for the devs to put the assets into yield strategies and voluntarily decided to do so. https://t.co/MQ2eS4awm1
Although Aave's consideration to withdraw from Polygon would have a relatively small impact on its overall TVL and fee revenue, this move could have a significant influence on governance within the DeFi community and set a precedent for other projects.
Compiled by Coin68
