The Aave neighborhood is evaluating a proposal to withdraw the lending protocol from Polygon’s Proof-of-Stake (PoS) chain.
Within the Dec. 16 proposal, Marc Zeller, founding father of Aave Chan, highlighted potential dangers tied to Polygon’s plans to rehypothecate its stablecoin reserves whereas suggesting Aave ought to alter danger parameters for its V2 and V3 deployments on the Ethereum layer-2 blockchain and finally exit the community solely.
Zeller argued that this transfer would defend Aave from vulnerabilities related to bridged stablecoins and scale back long-term safety threats.
Aave is Polygon’s largest decentralized software (dApp), accounting for $468 million—round 40% of the Ethereum layer-2 community’s $1.3 billion whole worth locked (TVL). Nevertheless, the proposed withdrawal would solely affect 2% of Aave’s total TVL and 1.5% of its price income.
Why AAVE is contemplating Polygon withdrawal
This transfer follows a controversial yield era proposal on the Polygon community that has sparked safety issues.
Earlier this month, Polygon’s neighborhood obtained a proposal to deploy the stablecoin reserves of DAI, USDC, and USDT from the Polygon PoS Portal Bridge into curated liquidity swimming pools.
The authors argued that this technique might yield as much as $70 million in returns and gas new ecosystem incentives to develop Polygon’s DeFi panorama.
Nevertheless, Zeller has flagged important dangers tied to this method, drawing parallels to previous bridge-related safety breaches such because the Ronin and BNB Bridge hacks, which brought about large losses for customers.
He criticized Polygon’s proposal as riskier than options like Ethereum liquid staking or MakerDAO’s DAI financial savings module.
The ACI founder additionally questioned the logic of risking billions in potential unhealthy debt for what he considers negligible income. He said:
“Polygon is 1.5% of Aave DAO income. In what world will we danger a billion of unhealthy debt for this?”
Neighborhood response
The crypto neighborhood has largely supported Aave’s cautious method to defending its customers’ funds.
Crypto investor Adam Cochran identified that bridges already pose important dangers, and including staking mechanisms for chain income solely amplifies the hazard. He known as Polygon’s transfer a miscalculation.
He said:
“Good dialogue from Aave. Bridges are already dangerous sufficient. Introducing asset retaking simply so a series can revenue isn’t one thing within the curiosity of customers or tasks.”
In the meantime, authorized analyst Gabriel Shapiro highlighted how Aave’s response showcases the affect decentralized apps can have in shaping governance choices. He predicted that Aave’s agency stance might deter Polygon’s yield proposal and set a precedent for prioritizing accountable practices in DeFi.