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 cons

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Author: Oluwapelumi Adejumo