Aave Community Debates Proposal to Withdraw Lending Protocols from Polygon

Aave Community Debates Proposal: Future Security Risks Lead Aave to Consider Exit from Polygon Lending

The contributor group Aave Chan submitted a proposal to the Aave community to remove its loan services from Polygon’s PoS chain. The Polygon community’s proposal to use more than $1 billion in bridge assets for yield generation prompted this action.

Marc Zeller, the founder of Aave Chan, wrote the proposal, which aims to phase out Aave’s lending protocols in order to protect them from any security threats in the future. In order to lessen any risks related to using bridged stablecoins and to produce a return in the event that Polygon’s proposal is accepted, he requested that risk parameters for versions 2 and 3 of the Aave protocols on the Polygon PoS chain be changed.

Zeller Opposes $1.3 Billion Yield Strategy for Polygon’s Bridged Assets

He recommended strict steps to mitigate such hazards in Polygon‘s PoS chain’s Aave loan markets. In order to effectively discourage additional deposits or stop customers from borrowing against their collateral, these included raising the reserve factor to 85% and imposing a 0% loan-to-value for all assets.

The adjustments are in response to an upcoming proposal that will significantly impact the risk profiles of bridged assets within the Polygon network,

Zeller

Together with the DeFi protocols Morpho and Yearn, Allez Labs created a Pre-Polygon Improvement Proposal last week. In order to implement yield-earning techniques, this proposal asks the Polygon community for input on a strategy to deploy over $1.3 billion in stablecoin reserves (DAI, USDC, and USDT) from the Polygon PoS bridge into other lending protocols. The proposal has not yet been formally approved or put to a vote by the Polygon community.

However, Marc Zeller is against the plan. He emphasized the dangers of using the canonical bridge to rehypothecate customer deposits. When invested in liquidity pools under DeFi or lending protocols, he pointed out that this method might expose the deposits to possible bad debt and present significant security issues for the bridge. Zeller went on to say that because Polygon’s yield-generating strategy is not vulnerable to bad debt, it may be far riskier than other chains’ safer approaches, like investing ETH in liquid staking protocols or DAI in MakerDAO’s savings rate module.

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