Aave mulls Polygon exit over risky stablecoin proposal
The Aave community is evaluating a proposal to withdraw the lending protocol from Polygons Proof-of-Stake (PoS) chain.
In the Dec. 16 proposal, Marc Zeller, founder of Aave Chan, highlighted potential risks tied to Polygons 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.
Aave is Polygons largest decentralized application (dApp), accounting for $468 millionaround 40% of the Ethereum layer-2 networks $1.3 billion total value locked (TVL). However, the proposed withdrawal would only impact 2% of Aaves overall TVL and 1.5% of its fee revenue.
Why AAVE is considering Polygon withdrawal
This move follows a controversial yield generation proposal on the Polygon network that has sparked security concerns.
Earlier this month, Polygons 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 Polygons 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 Polygons proposal as riskier than alternatives like Ethereum liquid staking or MakerDAOs DAI savings module.
The ACI founder also questioned the logic of risking billions in potential bad debt for what he considers negligible revenue. He stated:
Polygon is 1.5% of Aave DAO revenue. In what world do we risk a billion of bad debt for this?
Community reaction
The crypto community has largely supported Aaves 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 Polygons move a miscalculation.
He stated:
Good discussion from Aave. Bridges are already risky enough. Introducing asset retaking just so a chain can profit isnt something in the interest of users or projects.
Meanwhile, legal analyst Gabriel Shapiro highlighted how Aaves response showcases the influence decentralized apps can have in shaping governance decisions. He predicted that Aaves firm stance could deter Polygons yield proposal and set a precedent for prioritizing responsible practices in DeFi.
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