- Aave proposes freezing bridged assets on Polygon to mitigate risks.
- Polygon’s governance opposes Aave’s proposal, citing anti-competitive concerns.
The Aave community is debating whether to cease its operations on Polygon, following concerns about the risk profile of bridged assets. This stems from a Dec. 13 proposal by Aave Chain founder Marc Zeller to revise risk parameters for Aave v2 and v3 on Polygon.
Zeller’s proposal was prompted by Polygon’s governance discussing a plan to stake over $1 billion in stablecoin reserves on protocols like Morpho and Yearn to generate yields. The proposed adjustments include setting loan-to-value (LTV) ratios to 0%, freezing certain reserves, and increasing reserve factors. Setting LTV to 0% would prevent users from borrowing against bridged assets, mitigating risks tied to potential bridge vulnerabilities, such as those seen in the Harmony and Multichain bridge exploits.
Under Zeller’s plan, interactions with several bridged tokens—including USD Coin Bridged (USDC.e), Wrapped Ether (wETH), and Wrapped Bitcoin (WBTC)—would be frozen, reducing exposure to these assets. While Aave’s Polygon deployment currently holds $461 million in total value locked (TVL), its cumulative fee generation has reached $122 million, according to DefiLlama.
“Aave’s Leadership Not under Web3 Ethos”
In a statement, Polygon Labs said the proposal is open for feedback, emphasizing their support for ecosystem security. “The Polygon community values open dialogue and collaboration. We encourage discussions to evaluate these proposals fully,” a spokesperson said. Community members strongly opposed Polygon’s original proposal, citing heightened risks for stablecoin holders.
Meanwhile, Sandeep Nailwal, Polygon’s co-founder, echoed these concerns. He described the Pre-PIP’s lack of an opt-in mechanism as problematic and confirmed the proposal’s likely rejection due to widespread community disapproval. Despite this, Nailwal lauded the governance process for its active debate and collaboration.
However, Aave’s response attracted criticism. Zeller’s “Operation Polygon(e)” proposal, perceived as a retaliatory move against Morpho’s competing initiative, was labeled monopolistic. Nailwal accused Aave leadership of engaging in “anti-competitive behaviour” to stifle innovation.
“The Polygon community will not be intimidated and remains committed to fostering a decentralized, competitive DeFi ecosystem,” said Nailwal. Both sides continue to advocate for collaborative solutions as discussions evolve.
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