Key Notes
- The Polygon DAO has rejected the proposal to set up a $1 billion stablecoin reserve on Aave.
- The reserve would have included tokens like USDT, USDC, and DAI.
- Despite squashing this plan, the protocol said it is open to other ideas in the future.
After a few days of considering a preliminary proposal related to its stablecoin reserve, Polygon community members have rejected the idea. The protocol made this decision after considering feedback, including certain security concerns.
Aave’s Reaction to Stablecoin Reserve Proposal
The Decentralized Autonomous Organization (DAO) also highlighted the absence of an opt-in mechanism for affected users. This further cast doubt on the proposal’s viability. Not long before Aave Chan, a contributor group from the lending protocol Aave, hinted at ceasing its operations on the Polygon PoS chain.
Polygon emphasized the value of the governance process to curtail the situation and allay users’ fears. It highlighted that it facilitates the exploration of new ideas within the community.
However, Polygon still frowned at Aave’s reaction to the proposal, tagging it “disappointing”.
Furthermore, Polygon highlighted Aave Chan’s proposed to the Polygon community that the bridge funds be allocated to Aave’s yield-bearing token. This proposal involved converting some of the bridge stablecoins into stataUSDC, a wrapped version of the protocol’s aToken for USDC (aUSDC).
“Despite their initial excitement and zealous pitch for a similar proposition, they [Aave leadership] resorted to threats to dismantle Aave’s deployment on the Polygon PoS once their main competitor gained more traction as the leading protocol,” Polygon said.
Since Polygon has rejected the $1 billion stablecoin reserve and yield generation proposal, it is not certain what Aave’s next course of action would be.
Polygon and the $1 Billion Stablecoin Reserve Proposal Decision
For background, Web3 risk provider Allez Labs, in collaboration with DeFi protocols Morpho and Yearn, presented a proposal to Polygon DAO less than a week ago. They suggested deploying more than $1 billion in stablecoin reserves from the PoS Chain bridge for yield generation.
Noteworthy, the stablecoin reserve includes DAI
DAI
$1.00
24h volatility:
0.1%
Market cap:
$3.46 B
Vol. 24h:
$84.07 M
, USDC
USDC
$1.00
24h volatility:
0.1%
Market cap:
$42.56 B
Vol. 24h:
$7.15 B
, and USDT
USDT
$1.00
24h volatility:
0.0%
Market cap:
$140.66 B
Vol. 24h:
$102.48 B
.
Based on the proposal, this step could earn Polygon up to $70 million every year, which would later be reinvested in the ecosystem. Ultimately, the goal is to support the growth of the network and its ecosystem.
The pre-proposal stated:
“The PoS Bridge currently holds around $1.3B of stablecoins, which makes it one of the largest, but also idle, holders of stablecoins onchain. At the current benchmark lending rate for the 3 major stables this is an opportunity cost of around $70M annually.”
Part of the plan was to use Morpho Labs’ vaults to manage two of the largest USD-pegged stablecoins, USDC and USDT. It targets a conservative 7% annual return through strategies involving high-quality collaterals like USTB, sUSDS, and stUSD.
Before the eventual rejection of the proposal, Polygon has teased the low chance it will advance. The latest development underscores this previously held stance on the matter. Still, Polygon is open to exploring innovative or even bold ideas in the future.
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Benjamin Godfrey is a blockchain enthusiast and journalist who relishes writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain media and sites.
