Aave Proposes Exit Strategy from Polygon Amid Security Concerns
Aave intends to sever ties with Polygon, which Lido has already done.
A governance proposal was introduced four days ago, suggesting the movement of $1.3 billion in idle stablecoins from the Polygon PoS bridge to Aave’s competitor Morpho. These stablecoins would then be rehypothecated across protocols like Sky, Angle, and Robert Leshner’s Superstate.
This strategy aims to unlock an estimated $70 million in annual yield for “ecosystem incentives” that Polygon is currently neglecting.
The term "Blast-like" refers to the need for users to trust a bridge without earning direct yield rewards.
In response, Aave-chan Initiative (ACI) founder Marc Zeller proposed adjustments to risk parameters on Aave Polygon, aiming to set the loan-to-value (LTV) ratio for all assets to 0%.
Zeller cites risks associated with “bridge vulnerabilities,” referencing past bridge hacks such as Ronin, BNB bridge, and Wormhole.
The proposal also seeks to adjust the reserve factor for all Aave assets to 85%, cancel the upcoming Umbrella safety module deployment, migrate Aave’s v3 governance to another L2 chain, and freeze reserves on Polygon.
Additionally, it proposes a co-incentive program with other L2 chains to encourage Aave users on Polygon to move liquidity elsewhere, potentially to the Avalanche C-Chain.
Implementing this proposal would effectively eliminate Aave’s presence on Polygon, where it currently leads with a total value locked (TVL) of $662 million.
From Aave's perspective, revenues from Polygon are minimal, accounting for only 3.8% ($305k) of total revenues month-to-date.
A key question remains: How might Aave have reacted if Polygon had chosen to deploy its bridged stablecoins to aUSDC on Aave?
A spokesperson from Polygon stated, “The Polygon community has only put forth a pre-PIP (preliminary proposal) at this stage, and the topic is still in the very early phases of discussion. Getting feedback from all stakeholders is essential, and we encourage continued conversation to ensure these proposals are fully discussed and evaluated.”
Updated Dec. 16, 2024 at 3:10 pm ET: Added statement from Polygon.