Polygon Squashes $1B Stablecoin Reserve for Yield Plans

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As a seasoned researcher with a keen eye for blockchain developments, I must admit that I found the recent turn of events between Polygon and Aave quite intriguing. Having followed both projects closely, it was fascinating to witness the initial enthusiasm from Aave Chan, only to be met with a cold shoulder by Polygon.

Following some thoughtful deliberation over several days about an initial suggestion regarding their stablecoin reserve, members of the Polygon community have chosen not to proceed with the idea. This decision was reached after taking into account various opinions, particularly those addressing security matters.

Aave’s Reaction to Stablecoin Reserve Proposal

The Decentralized Autonomous Organization (DAO) also emphasized that there was no option for users directly affected to actively opt-in. This raised concerns about the feasibility of the proposal. Just prior to this, Aave Chan – a group contributing to the lending protocol Aave – suggested they would halt their activities on the Polygon Proof-of-Stake (PoS) chain.

Polygon underscored the significance of its governance system to manage the current circumstances and reassure users. It underscored that this system encourages the development and consideration of novel ideas within the community.

However, Polygon still frowned at Aave’s reaction to the proposal, tagging it “disappointing”.

Additionally, Polygon spotlighted Aave Chan’s suggestion to the Polygon community regarding the distribution of funds through Aave’s yield-generating token. This idea entailed swapping some of the bridge stablecoins into wrapped stateUSDC, a variant of the protocol’s aToken that represents USDC (aUSDC).

Although Aave’s leadership initially showed enthusiasm and presented a comparable idea, they later resorted to making threats to halt Aave’s deployment on the Polygon Proof-of-Stake system when their primary rival started gaining momentum as the dominant protocol, according to Polygon.

After Polygon turned down the $1 billion stablecoin reserve and yield generation proposition, it remains unclear what steps Aave might take next.

Polygon and the $1 Billion Stablecoin Reserve Proposal Decision

Recently, Web3 risk provider Allez Labs, along with DeFi platforms Morpho and Yearn, put forth a proposition to the Polygon Decentralized Autonomous Organization (DAO). They proposed allocating over $1 billion in stablecoin reserves from the Proof-of-Stake Chain bridge for yield generation purposes.

Remarkably, the reserve contains DAI ($1.00, 24h volatility: 0.1%, Market cap: $3.46B, Vol. 24h: $77.20M), USDC ($1.00, 24h volatility: 0.1%, Market cap: $42.50B, Vol. 24h: $9.10B), and USDT ($1.00, 24h volatility: 0.1%, Market cap: $140.63B, Vol. 24h: $82.12B).

According to the plan, this action might bring Polygon as much as $70 million annually. This money would then be channeled back into the ecosystem for further development. The ultimate aim is to foster the expansion of the network and its surrounding environment.

The pre-proposal stated:

Right now, the PoS Bridge is keeping approximately $1.3 billion worth of stablecoins, making it one of the significant yet inactive holders of these coins on the blockchain. Given the current interest rate for lending these top three stablecoins, this amounts to a potential loss of around $70 million every year due to this idle holding.

A key aspect of our strategy involves employing Morpho Labs’ secure vaults for the handling of two major stablecoins, USDC and USDT. The objective is to achieve a more cautious 7% yearly return by implementing strategies that rely on top-tier collaterals such as USTB, sUSDS, and stUSD.

In my analysis, prior to the potential refusal of the proposal, Polygon had hinted at a slim likelihood of its progression. Recent updates further emphasize this initial viewpoint regarding the situation. However, it’s essential to note that Polygon remains open to discussing and pursuing groundbreaking or daring concepts in the future.

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2024-12-18 18:37