Polygon Rejects $1 Billion Stablecoin Reserve Proposal for Yield Generation
Polygon community members rejected a preliminary proposal regarding its stablecoin reserve after reviewing feedback, including security concerns.
Aave’s Reaction to Stablecoin Reserve Proposal
The Decentralized Autonomous Organization (DAO) noted the lack of an opt-in mechanism for affected users, questioning the proposal's viability. Aave Chan, a contributor group from Aave, suggested ceasing operations on the Polygon PoS chain. Polygon emphasized the importance of governance in addressing user concerns and exploring new ideas but expressed disappointment with Aave's response.
Additionally, Aave Chan proposed allocating bridge funds to Aave’s yield-bearing token by converting some bridge stablecoins into stataUSDC, a wrapped version of aUSDC. Polygon stated, “Despite their initial excitement... they resorted to threats to dismantle Aave’s deployment on the Polygon PoS once their main competitor gained more traction,” referring to Aave's leadership.
Following the rejection of the $1 billion stablecoin reserve and yield generation proposal, Aave's next steps remain uncertain.
Polygon and the $1 Billion Stablecoin Reserve Proposal Decision
Allez Labs, alongside DeFi protocols Morpho and Yearn, recently proposed deploying over $1 billion in stablecoin reserves from the PoS Chain bridge for yield generation. The reserve consists of DAI, USDC, and USDT.
This initiative could generate up to $70 million annually for Polygon, which would be reinvested in its ecosystem to foster growth. The pre-proposal indicated that the PoS Bridge holds around $1.3 billion in stablecoins, representing a significant opportunity cost at current lending rates.
“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.”
The plan included using Morpho Labs’ vaults to manage USDC and USDT, targeting a conservative 7% annual return through strategies involving high-quality collateral. Prior to the rejection, Polygon indicated low chances for advancement on the proposal but remains open to innovative ideas in the future.