Ad
News
Aave mulls Polygon exit over risky stablecoin proposal Aave mulls Polygon exit over risky stablecoin proposal

Aave mulls Polygon exit over risky stablecoin proposal

Aave's potential withdrawal from Polygon sparks debate over DeFi risk management and revenue priorities.

Aave mulls Polygon exit over risky stablecoin proposal

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

The Aave community is evaluating a proposal to withdraw the lending protocol from Polygon’s Proof-of-Stake (PoS) chain.

In the Dec. 16 proposal,  Marc Zeller, founder of Aave Chan, highlighted potential risks tied to Polygon’s plans to rehypothecate its stablecoin reserves while suggesting Aave should adjust risk parameters for its V2 and V3 deployments on the Ethereum layer-2 blockchain and eventually exit the network entirely.

Zeller argued that this move would protect Aave from vulnerabilities associated with bridged stablecoins and reduce long-term security threats.

Aave is Polygon’s largest decentralized application (dApp), accounting for $468 million—around 40% of the Ethereum layer-2 network’s $1.3 billion total value locked (TVL). However, the proposed withdrawal would only impact 2% of Aave’s overall TVL and 1.5% of its fee revenue.

Why AAVE is considering Polygon withdrawal

This move follows a controversial yield generation proposal on the Polygon network that has sparked security concerns.

Earlier this month, Polygon’s community received a proposal to deploy the stablecoin reserves of DAI, USDC, and USDT from the Polygon PoS Portal Bridge into curated liquidity pools.

The authors argued that this strategy could yield up to $70 million in returns and fuel new ecosystem incentives to grow Polygon’s DeFi landscape.

However, Zeller has flagged significant risks tied to this approach, drawing parallels to past bridge-related security breaches such as the Ronin and BNB Bridge hacks, which caused massive losses for users.

He criticized Polygon’s proposal as riskier than alternatives like Ethereum liquid staking or MakerDAO’s DAI savings module.

The ACI founder also questioned the logic of risking billions in potential bad debt for what he considers negligible revenue. He stated:

“Polygon is 1.5% of Aave DAO revenue. In what world do we risk a billion of bad debt for this?”

Community reaction

The crypto community has largely supported Aave’s cautious approach to protecting its users’ funds.

Crypto investor Adam Cochran pointed out that bridges already pose significant risks, and adding staking mechanisms for chain profits only amplifies the danger. He called Polygon’s move a miscalculation.

He stated:

“Good discussion from Aave. Bridges are already risky enough. Introducing asset retaking just so a chain can profit isn’t something in the interest of users or projects.”

Meanwhile, legal analyst Gabriel Shapiro highlighted how Aave’s response showcases the influence decentralized apps can have in shaping governance decisions. He predicted that Aave’s firm stance could deter Polygon’s yield proposal and set a precedent for prioritizing responsible practices in DeFi.

Mentioned in this article
People were interested in these podcasts
Play Episode
32min
CryptoSlate SlateCast
Sunny Aggarwal details how Polaris unlocks effortless multi-chain trading Experiences
In a recent episode of the SlateCast, Sunny Aggarwal, Co-founder of Osmosis Labs and Polaris, joined CryptoSlate’s Editor in Chief Liam “Akiba” Wright to discuss the future of cross-chain decentralized finance (DeFi), the rise of multi-chain ecosystems, and his new venture, Polaris. Aggarwal delved into the innovations within Cosmos, the role of Bitcoin in decentralized finance, and Polaris’s goal to unify trading across various blockchain networks.Bitcoin’s Growing Integration with DeFiAggarwal started by discussing the evolving role of Bitcoin within the Cosmos ecosystem. He emphasized that the decentralized finance landscape is increasingly incorporating Bitcoin, which he sees as essential for a comprehensive DeFi ecosystem. “Bitcoin DeFi is continuing to grow and happen,” he said, referring to the expansion of DeFi layers, such as ThorChain, that bring Bitcoin into decentralized applications.Osmosis, Aggarwal’s previous project, has integrated various Bitcoin bridges, including Wrapped Bitcoin (WBTC), NOMIC, and CKBTC. These integrations provide additional trading options for users and help expand Bitcoin’s use case in Cosmos. “Alloyed Bitcoin is live on Osmosis and is one of our most traded assets,” Aggarwal noted, highlighting how these new offerings have significantly increased activity within the platform.Polaris: A Unified Platform for Multi-Chain TradingAggarwal’s latest venture, Polaris, aims to tackle one of DeFi’s greatest challenges: fragmented liquidity across chains. Centralized exchanges allow users to trade across multiple assets, such as Bitcoin, Ethereum, and Solana, on one platform, while decentralized exchanges (DEXs) have traditionally been limited by chain-specific liquidity pools. Polaris seeks to overcome this limitation by creating a platform that aggregates liquidity across ecosystems, allowing users to execute cross-chain trades seamlessly.“On centralized exchanges, you can trade Bitcoin, ETH, and SOL all in one spot, but on DEXs, you ne
CryptoSlate SlateCast
Nikolay Denisenko on merging crypto and banking with Brighty app
In a recent episode of the SlateCast, Nikolay Denisenko, Co-Founder and CTO of Brighty App, joined CryptoSlate's Senior Editor Liam "Akiba" Wright and CEO Nate Whitehill to discuss the evolving landscape of neobanks and their integration with cryptocurrency. Denisenko, a former lead backend engineer at Revolut, shared insights on Brighty App's mission to make crypto assets more accessible and usable in everyday life.Brighty App: A New Approach to Crypto BankingDenisenko explained the motivation behind creating Brighty App, stating:"In Revolut, crypto was just for trading, and I was thinking, okay, let me create something where we can use crypto, not just for trading, but as an asset utility."Brighty App aims to provide a comprehensive solution for crypto users, offering features such as:Sending and receiving cryptoSpending crypto with a cardLinking cards to crypto accountsImplementing DeFi strategies in a user-friendly interfaceThe platform focuses on creating a seamless user experience, drawing inspiration from Revolut's approach to UX design.Regulatory Landscape and Global ExpansionDiscussing the regulatory environment, Denisenko expressed cautious optimism about the EU's Markets in Crypto-Assets (MiCA) regulation:"What I'm feeling from this MiCA stuff is that crypto becomes more understandable by the central financial systems and central banks, and this gives more acceptability of crypto itself."He believes this increased acceptability could lead to better partnerships with traditional banks, potentially expanding the services Brighty can offer its customers.Denisenko also revealed plans for expansion into the UK market, stating:"We might launch Brighty in UK, and I do really want to do that because I have a lot of friends, ex-Revoluters, some friends who moved to UK, and they really would like to use Brighty."Addressing Misconceptions and Use CasesWhen asked about the biggest misconception regarding crypto among traditional banking customers, Denisenko highlight
CryptoSlate SlateCast
Phillip Alexeev on CrossFi: The bridge between crypto and traditional banking
In a recent episode of SlateCast, Phillip Alexeev, Chief Growth Officer at CrossFi, joined CryptoSlate’s Editor-in-Chief Liam “Akiba” Wright and CEO Nate Whitehill to discuss the platform's innovative solutions to integrate crypto with traditional finance. CrossFi’s mission is to provide seamless financial inclusivity through a robust ecosystem that supports non-custodial crypto transactions, partnerships with banks, and scalable blockchain technology.Alexeev described CrossFi as “the Apple Pay for crypto,” emphasizing its role as a bridge between decentralized finance (DeFi) and mainstream banking.“Our focus has always been empowering users by removing gatekeepers while providing access to advanced financial tools,” he said.Non-Custodial Payments RedefinedAt its core, CrossFi offers a unique payment technology enabling users to transact directly from their Web3 wallets at any point-of-sale terminal worldwide. This approach eliminates the need for custodial platforms, maintaining users’ control over their funds. Alexeev highlighted the platform's ability to “connect any Web3 wallet to the CrossFi app,” facilitating crypto-to-fiat transactions seamlessly and securely.Unlike traditional crypto cards, CrossFi partners directly with banks to interact with smart contracts, bypassing third-party intermediaries.“We’ve designed an ecosystem with fewer points of failure while forcing banks to innovate and adopt crypto technology,” Alexeev explained.Why Build a New Layer-1 Blockchain?Addressing the decision to build a proprietary layer-1 blockchain, Alexeev acknowledged the challenges of integrating blockchain with existing banking infrastructure.“No existing blockchain met the security, scalability, and compatibility requirements of traditional banks,” he stated.The customized blockchain allows CrossFi to support seamless interaction between decentralized technologies and institutional frameworks.Flat Fees for TransparencyCrossFi aims to disrupt conventional payment systems
CryptoSlate SlateCast
Matthijs de Vries on the intersection of Al, Blockchain, and Decentralization
CryptoSlate chats with Matthijs de Vries, the CEO of Nuklai Data. AI is a lot of things. Some of these things make sense as decentralized, and some should be distributed with centralized governance for a tiny part.Credits Thanks to Liam 'Akiba' Wright for hosting and producing the episodes.   Connect with CryptoSlate: - X - Substack - Google News - Telegram - Instagram

Hide All Glossary Terms