In a recent development, Stani Kulechov, founder and CEO of Avara – the parent entity for the suite of Aave companies – has backed a proposal to drop support for Polygon markets from the Aave platform. This move follows an early-stage Polygon Improvement Proposal (PIP) from Allez Labs and Morpho to use stablecoins in Polygon’s proof-of-stake Portal bridge to generate yield.
The Proposed PIP: A Risky Move?
According to Kulechov, the suggested PIP posed an unacceptable safety risk to Aave. As he noted, bridge exploits have led to some of the most catastrophic financial losses in decentralized finance (DeFi). The effects of the $100-million Harmony Horizon bridge hack in June 2022 serve as a stark reminder of the dangers posed by bridge exploits.
A Risky Proposal?
Kulechov’s post echoed a Dec. 13 proposal from Aave chain founder Marc Zeller to discourage Polygon users from using Aave and eventually end support altogether. Zeller suggested adjusting the risk parameters of loans on Aave v2 and Aave v3 on the Polygon network to make it unattractive for Polygon users to deposit funds into the lending protocol.
The Other Side of the Story
Polygon founder Sandeep Nailwal responded to Aave’s leadership on social media by characterizing the proposal to sever ties as "monopolistic." According to Nailwal, Aave’s leadership submitted a similar pre-PIP to use stablecoins in the Polygon proof-of-stake bridge to generate yield. Initially, Aave was very excited about providing yield-bearing opportunities for the $1.3 billion in stablecoins held in the Polygon Bridge.
A Decentralized Proposal?
Nailwal argued that the Morpho proposal, which was still generally rejected by the Polygon community, was more decentralized and featured incentives that would encourage project development in the Polygon ecosystem. These attractive selling points caused the proposal from Morpho and Allez Labs to gain traction and generate more buzz among the Polygon community than the competing proposal from the Aave leadership.
The Backstory
In an attempt to provide yield-bearing opportunities for the $1.3 billion in stablecoins held in the Polygon Bridge, Allez Labs and Morpho proposed using stablecoins in the Polygon proof-of-stake bridge to generate yield. This proposal was met with some resistance from the Aave community, who were concerned about the potential risks associated with using stablecoins in a proof-of-stake bridge.
A Conflict of Interests?
The Aave-Polygon dispute highlights a conflict of interests between two major players in the DeFi space. While Aave’s leadership may be motivated by concerns over safety and security, Polygon’s founders seem to be driven by a desire to maintain decentralization and encourage project development within their ecosystem.
What’s Next?
As the debate surrounding the proposed PIP continues, it remains to be seen whether support for Polygon markets will eventually be dropped from the Aave platform. The decision to sever ties between Aave and Polygon has far-reaching implications for the DeFi space, and it will be interesting to see how this controversy plays out.
The Broader Implications
The Aave-Polygon dispute highlights the complexities and challenges associated with building a decentralized financial system. As more projects emerge in the DeFi space, we can expect to see more conflicts of interest and competing proposals for the future of these platforms.
Conclusion
In conclusion, the proposed PIP from Allez Labs and Morpho has sparked a heated debate within the Aave community, with some members advocating for the drop support for Polygon markets. While concerns over safety and security are valid, the dispute also raises important questions about decentralization and project development within the Polygon ecosystem.
Recommendations
- Improve Communication: Better communication between Aave’s leadership and the Polygon community is essential to resolving this dispute.
- Address Concerns: Aave’s leadership should address the concerns of the Polygon community regarding the proposed PIP and provide a clear explanation for their decision-making process.
- Foster Collaboration: The DeFi space benefits from collaboration between projects, and it’s essential that both parties work together to find a mutually beneficial solution.
The Future of DeFi
As the Aave-Polygon dispute continues to unfold, one thing is clear: the future of decentralized finance will be shaped by the decisions made by its leading players. It remains to be seen how this controversy will play out, but one thing is certain – the DeFi space will continue to evolve and adapt in response to these challenges.
