Polygon has rejected a proposal that would have deployed $1.3 billion worth of stablecoins through its Proof-of-Stake (PoS), a DeFi-based Ethereum platform, into programs that generate yields.
The announcement, made on Dec. 17 through Polygon’s official social media account, highlighted concerns raised by users regarding the lack of a consent mechanism and potential risks to the network.
Polygon stated
“Given the community’s concern around the pre-PIP, it seems unlikely for this proposal to progress. However, it doesn’t mean innovative or even aggressive ideas shouldn’t be explored in the future.”
Risks to ecosystems and security
The proposal, known as a preliminary proposal (pre-PIP), sought to utilize stablecoin reserves currently held in Polygon’s PoS bridge to incentivize liquidity and drive growth in the platform’s DeFi ecosystem.
Backed by Allez Labs, Morpho Association, and Yearn, the proposal claimed these idle funds could generate an estimated $70 million annually by being deployed into Morpho’s liquidity pools.
However, critics of the proposal cited significant risks to the stability of Polygon’s ecosystem. Pranav Maheshwari, a former Polygon employee, expressed concerns over the possible fallout from deploying bridge assets in high-risk protocol.
He noted that vulnerabilities in the underlying systems, such as hacks or financial instability, could jeopardize the value of assets secured by Polygon’s bridge.
Maheshwari posted a message on social media:
“Any attack on the underlying protocol could destabilize the ecosystem, risking user assets and undermining confidence.”
The scenario could cause a liquidity crisis similar to that of a “bank run.”
Disagreements
The proposal also triggered a dispute with DeFi protocol Aave, a key participant in Polygon’s ecosystem.
Marc Zeller of Aave Chan Initiative submitted a contra-proposal, suggesting Aave should exit Polygon over concerns about the security risks associated with the initiative. His response noted that deploying funds into Morpho could benefit Aave’s competitors.
Polygon Labs expressed disappointment and pointed out that Aave previously had proposed a similar method for using stablecoins to generate yields. The Aave was also accused of acting with a “monopolistic” manner.
The decision to reject the proposal reflects the community’s prioritization of security and user trust over aggressive yield-generation strategies. Polygon, while reserving the idea for the future, acknowledged that it needed to come up with creative solutions in order to effectively manage its stablecoins.
The platform’s PoS bridge remains one of the largest holders of on-chain stablecoins, presenting both an opportunity and a challenge for future governance discussions.
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