The Polygon community has turned down a proposal to deploy over $1 billion in stablecoins from its PoS Chain bridge into yield-generating lending pools. The initiative, introduced as a preliminary proposal (pre-PIP) by Web3 risk provider Allez Labs in collaboration with DeFi protocols Morpho and Yearn, aimed to allocate approximately $1.3 billion in DAI, USDC, and USDT for curated DeFi strategies.
Concerns over security risks and the absence of an opt-in mechanism for impacted users led to significant pushback from community members, effectively stalling the proposal. “Given the community’s reservations about the pre-PIP, it appears unlikely that this proposal will advance,” noted Polygon, while emphasizing its openness to exploring bold and innovative ideas in the future.
Following the rejection of the yield-generation proposal, Marc Zeller, founder of Aave contributor Aave Chan, proposed phasing out Aave’s lending protocols on Polygon’s PoS chain. This was aimed at mitigating potential future security risks.
Polygon developers acknowledged these community concerns yesterday, deciding not to proceed with the proposal. They praised the governance process, which they said fosters meaningful dialogue and the consideration of new ideas.
Polygon also expressed discontent with the actions of Aave leadership, accusing them of reacting negatively to competition from Morpho, a DeFi protocol gaining traction. The dispute escalated when Aave Chan threatened to dismantle Aave’s deployment on Polygon after Morpho’s growing dominance.
Polygon highlighted a previous suggestion by Aave Chan in August, where it proposed allocating bridge stablecoins to Aave’s yield-bearing token by converting funds into stataUSDC, a wrapped version of Aave’s aToken for USDC. Polygon criticized this shift in stance, stating, “Despite their initial excitement and zealous pitch for a similar proposition, they resorted to threats to dismantle Aave’s deployment on the Polygon PoS once their main competitor gained more traction.”
This incident underscores ongoing tensions within the DeFi ecosystem and highlights the complexities of managing decentralized governance and competition in rapidly evolving markets.