The Aave community is evaluating a proposal to withdraw the lending protocol from Polygon’s Proof-of-Stake (PoS) chain.
In the Dec. 16 proposal, 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 claimed that the move would reduce security risks and protect Aave against vulnerabilities caused by bridged stablecoins.
Aave is Polygon’s largest decentralized application (dApp), accounting for $468 million—around 40% of the Ethereum layer-2 network’s $1.3 billion total value locked (TVL). However, the proposed withdrawal would only impact 2% of Aave’s overall TVL and 1.5% of its fee revenue.
AAVE considers Polygon withdrawal
The move comes after a controversial proposal for yield generation on the Polygon Network that sparked concerns about security.
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.
Zeller warns that this method is not without risk. It draws parallels with past security breaches involving bridges such as Ronin Bridge or BNB Bridge, both of which have caused users to suffer massive losses.
He criticized Polygon’s proposal as riskier than alternatives like Ethereum liquid staking or MakerDAO’s DAI savings module.
ACI’s founder also challenged the logic behind risking potentially billions of dollars in bad debts for revenue he believes to be negligible. He said:
“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 Aave’s cautious approach to protecting its users’ funds.
Adam Cochran, a crypto investor, pointed out that bridges are already a significant risk. Adding staking for chain profit only increases the danger. He called Polygon’s move a miscalculation.
“He said:
“Good discussion from Aave. Bridges are already risky enough. Introducing asset retaking just so a chain can profit isn’t something in the interest of users or projects.”
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.
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