The Polygon community has decided to oppose a proposal to deploy a $1.3 billion stablecoin from a Proof of Stake (PoS) bridge to a yield-generating program on Morpho, an Ethereum-based DeFi platform.
The announcement, made on December 17 via Polygon's official social media accounts, highlighted concerns raised by users regarding the lack of consent mechanisms and potential risks to the network.
Polygon says:
“Given the community's concerns regarding pre-PIP, we believe this proposal is unlikely to move forward. However, this does not mean that innovative or aggressive ideas should not be considered in the future.”
Security and ecosystem risks
The proposal, known as the Preliminary Proposal (Pre-PIP), will utilize the stablecoin reserves currently held on Polygon’s PoS Bridge to facilitate liquidity and foster the growth of the platform’s DeFi ecosystem. It was intended for that purpose.
The proposal, backed by Allez Labs, Morpho Association, and Yearn, claims that these idle funds could generate an estimated $70 million annually by being introduced into Morpho's liquidity pool.
However, critics of the proposal pointed to significant risks to the stability of Polygon's ecosystem. Pranav Maheshwari, a former Polygon employee, outlined concerns about the potential impact of introducing bridge assets into high-risk protocols.
He noted that vulnerabilities in the underlying systems, such as hacking or financial instability, could jeopardize the value of assets protected by Polygon's bridges.
Maheshwari wrote in a social media post:
“Attack on the underlying protocols can destabilize the ecosystem, compromise user assets, and undermine trust.”
He warned that such a scenario could lead to a liquidity crisis akin to a “run on bank”.
disagreement
The proposal also sparked controversy with DeFi protocol Aave, a major participant in Polygon's ecosystem.
Marc Zeller, founder of the Aave-Chan Initiative, filed a counterproposal suggesting that Aave withdraw from Polygon, citing concerns about the security risks associated with the initiative. In his response, he noted that investing in Morpho could benefit Aave's competitors.
Polygon Labs responded with disappointment, pointing out that Aave had previously proposed a similar approach to deploying stablecoin reserves into a yield-generating mechanism. He also accused Aave of acting in a “monopolistic” manner.
The decision to reject this proposal reflects the community's prioritization of security and user trust over aggressive revenue generation strategies. Although the idea was shelved, Polygon recognized the need for a creative approach to effectively manage large stablecoin reserves.
The platform's PoS bridge remains one of the largest holders of on-chain stablecoins, posing both opportunities and challenges for future governance discussions.
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