Polygon’s Recent Proposal Sparks Debate with Aave

A recent Polygon pre-proposal made waves. While the community voted against it, the real stir came from the disagreement it sparked between the Polygon and Aave teams.

But first things first. 

On December 12, 2024, Polygon community members Allez Labs, Morpho Labs and Yearn Finance submitted a Pre-Polygon Improvement Proposal (Pre-PIP) to move over $1 billion in stablecoin from the bridge to generate yield. 

The goal was to deploy DAI, USDC, and USDT stablecoins from the PoS Chain bridge into lending pools to grow the chain’s DeFi ecosystem. 

However, Polygon community members expressed their concerns about the proposal for security reasons. They also noted issues with opt-in mechanisms, mentioning that users chose to keep their assets in the Polygon chain to minimize risks, while transferring them would add new layers of risk.

On December 18, Polygon summed up community feedback in a post on X, saying that many community members voiced valid concerns. 

Given the community’s concern around the pre-PIP it seems unlikely for this proposal to progress, but it doesn’t mean innovative or even aggressive ideas shouldn’t be explored in the future,

– Polygon wrote.

What Has Aave Leadership to Do With the Proposal?

While Polygon was gathering feedback from the community, lending protocol Aave started its own discussion. Marc Zeller, founder of the Aave Chan Initiative (a service provider for the Aave DAO), proposed withdrawing from the chain.

He pointed to previous bridge vulnerabilities, saying that the Aave community needs to evaluate the risks if Polygon decides to activate the stablecoins.

Currently, Aave is the dominant protocol on Polygon, with a TVL of over $447 million.In response to Aave’s discussions about exiting Polygon, Sandeep Nailwal, the network’s co-founder, said it was “an attack on Polygon.”

According to Sandeep, Aave’s leadership just wanted to make sure their competitor Morpho, who co-authored the proposal, didn’t get the growth boost.

This is extremely monopolistic and anti-competitive behaviour from Aave leadership and not at all aligned with the Ethos of Web3. This is a prominent example of a DAO leadership engaging in anti-competitive tactics and bullying other ecosystems to play to their tune.

– the Polygon co-founder wrote.

Sandeep believes Aave’s proposal would harm users by disrupting their access to a stable and thriving DeFi ecosystem, rather than protecting user funds.

Polygon’s X account, in turn, mentioned that Aave had previously pitched a similar proposition, but their competitor Morpho “gained more traction as the leading protocol.”

Stani Kulechov Joins the Debate: Says Polygon’s Claims Are Inaccurate

Aave CEO and founder Stani Kulechov responded to the Polygon proposal and the ensuing discussions on X. First, he stated that the Polygon team’s proposal and “the partners it selected behind closed doors” didn’t provide sufficient risk protection.

He agreed with users’ concerns and emphasized Aave’s dominant role in Polygon, noting that Aave accounts for 40% of Polygon’s TVL.
Meanwhile, Marc Zeller’s proposal was an open discussion for the Aave community to adjust risk parameters for user funds.

Framing Aave DAO's proposal as anti-competitive behavior is inaccurate and diverts attention from the real issue: user security.

– Kulechov stated.

Will Aave Leave Polygon? 

According to recent updates from the Aave proposal discussions, the protocol will continue to operate on Polygon if the team can provide concrete guarantees that user assets on Polygon are secure from risky initiatives.

Stani Kulechov mentioned that while he supports the proposal to offboard the Polygon market from Aave, he is open to reconsidering his stance.