The Polygon community has decided against a proposal to deploy $1.3 billion in stablecoins from the Proof of Stake (PoS) bridge for yield-generating programs on Morpho, an Ethereum-based DeFi platform.
The announcement, made on December 17 via Polygon’s official social media account, highlighted users’ concerns about the lack of a consent mechanism and potential risks to the network.
Polygon stated:
“Given community concerns surrounding pre-PIP, it appears unlikely that this proposal will progress. However, this does not mean that innovative or even aggressive ideas should not be explored in the future.”
Security and ecosystem risks
The proposal, known as a Preliminary Proposal (pre-PIP), aimed to use the stablecoin reserves currently held in Polygon’s PoS Bridge to boost liquidity and drive growth in the company’s DeFi ecosystem platform.
Backed by Allez Labs, Morpho Association and Yearn, the proposal claimed that these inactive funds could generate an estimated $70 million per year by being deployed into Morpho’s liquidity pools.
However, critics of the proposal cited significant risks to the stability of Polygon’s ecosystem. Former Polygon employee Pranav Maheshwari expressed concerns about the potential consequences of deploying bridging resources in high-risk protocols.
He noted that vulnerabilities in the underlying systems, such as hacks or financial instability, could jeopardize the value of the assets secured by Polygon’s bridge.
Maheshwari wrote in a social media post:
“Any attack on the underlying protocol could destabilize the ecosystem, putting user assets at risk and undermining trust.”
He warned that such scenarios could lead to liquidity crises akin to a ‘bank run’.
Disagreements
The proposal also sparked a dispute with DeFi protocol Aave, a major participant in Polygon’s ecosystem.
Marc Zeller, founder of the Aave-Chan Initiative, submitted a counter-proposal suggesting that Aave leave Polygon due to concerns about the security risks associated with the initiative. His response noted that putting money into Morpho could benefit Aave’s competitors.
Polygon Labs responded with disappointment, pointing out that Aave had previously proposed a similar approach for deploying stablecoin reserves into yield-generating mechanisms. It also accused Aave of acting in a “monopolistic” manner.
The decision to reject the proposal reflects the community’s prioritization of security and user trust over aggressive monetization strategies. While the idea is shelved, Polygon recognized the need for creative approaches to effectively manage its substantial stablecoin reserves.
The platform’s PoS bridge remains one of the largest holders of on-chain stablecoins, presenting both an opportunity and a challenge for future governance discussions.
