Aave governance delegate Marc Zeller has aired considerations over the way forward for the decentralized finance (DeFi) lending platform on Polygon within the wake of a controversial proposal to make use of funds locked within the community’s bridge to earn yield elsewhere.
Aave is the biggest protocol on Polygon, accounting for over a 3rd of the chain’s whole worth locked (TVL) at $467 million, in accordance with information from DeFiLlama.
The proposal to create a “Polygon PoS Bridge Liquidity Program” is at present in pre-PIP standing and, within the 4 days since publication, has generated dialogue between involved and yield-hungry customers alike.
Whereas some level to the potential boon to the ecosystem of this system’s income being “strategically deployed… to incentivize liquidity and stimulate project growth,” others raised safety worries.
Many customers identified that stablecoin holders are particularly risk-averse and including layers of danger onto a “stable” product is exactly the other of why customers maintain these property.
The $1.3 billion value of idle stablecoins could be bridged to be used on Ethereum through Aave competitor Morpho, with vaults being “curated” by the proposal authors AllezLabs. A “conservative” yield of seven% could be focused, probably incomes over $90 million per yr.
The ensuing lending curiosity would then be funneled again to Yearn on Polygon, the place it could be distributed amongst yield farming vaults to incentivize exercise on the chain.
In Zeller’s personal dialogue thread on Aave’s governance discussion board, he cites examples of bridge hacks reminiscent of Ronin, BNB Bridge, Wormhole, and Multichain as making up lots of the largest losses in DeFi over latest years. He proposes to “set loan-to-value (LTV) for all assets on Aave V2 and V3 Polygon to 0%,” primarily disabling new borrowing, in addition to incentivizing the migration of already-deposited property to different networks.
Nonetheless, the truth that the proposal would see funds funneled to Morpho doubtless additionally doesn’t sit properly. Aave and Morpho haven’t been on the perfect of phrases since danger supervisor Gauntlet jumped ship from the previous to the latter.
Tensions flared once more when Zeller accused Gauntlet and Morpho of not doing sufficient to guard customers within the wake of a depeg of restaking token ezETH in April.
In the meantime, Aave has been driving the wave of the latest DeFi renaissance, breaking its all-time excessive of $38 billion value of web deposits. Even a President-elect Donald Trump-linked tackle has been shopping for the AAVE governance token forward of the deliberate launch of World Liberty Monetary (additionally Trump-linked, regardless of a prolonged disclaimer) as an Aave occasion on Ethereum.
Maybe Polygon wants Aave greater than Aave wants Polygon.