Polygon Faces Backlash Over $1.3 Billion Reserve Investment Proposal

The Polygon community has rejected a preliminary proposal to utilise over $1.3 billion in reserves held in DAI, USDC, and USDT for profit generation.

RE: Stake the Bridge proposal and Aave’s “Operation Polygon(e)”

Recently, a pre-PIP went live from @AllezLabs and @Yearnfi regarding the staking of Polygon PoS bridge funds.

A pre-PIP is exactly what it sounds like: an early proposal to get feedback and gauge sentiment from the…

— Polygon (※,※) (@0xPolygon) December 17, 2024

“Given the community’s doubts regarding the preliminary proposal, it is unlikely to be implemented. However, this does not preclude the exploration of innovative and bold ideas in the future,” stated Polygon.

The proposal’s authors, teams from Allez Labs, Morpho, and Yearn, emphasised that idle reserves incur costs of $70 million annually. They argue these funds could be better used to stimulate activity in curated liquidity protocols.

Community members highlighted several issues, including security risks and the lack of a consent mechanism for users who would be affected by the changes.

In response to this idea, Aave Chan founder Marc Zeller proposed closing Aave lending protocols on Polygon to avoid future risks.

According to the Polygon team, Aave Chan’s management response is “disappointing,” and the real reason for such a reaction is dissatisfaction with the successes of their main competitor, Morpho.

“Regardless of whether you support the proposal, no one should fear retribution for ideas or participation in formal governance processes. Progress is achieved through constructive debates, not closed doors to those who bring fresh perspectives,” the developers emphasised.

Aave founder Stani Kulechov suggested that the Polygon team intended to extract users’ funds from the PoS Chain bridge and invest them in DeFi without adequate risk protection.

My thoughts on the Polygon bridge funds investment proposal:

1. The Polygon team (with the help of their friends) created a proposal to take users’ funds from the Polygon bridge and invest them into DeFi without sufficient risk protection. Behind closed doors, they selected the…

— Stani (@StaniKulechov) December 18, 2024

“Behind closed doors, they chose partners and, according to some, struck a deal for a large amount of tokens,” stated Kulechov.

This proposal is of significant importance to Aave, whose main governance mechanism is built on Polygon, he noted.

“The Polygon team has deviated from its mission, spread rumours about not supporting the proposal, and blamed Aave’s management for its failure,” the entrepreneur added.

Earlier, on December 16, the liquid staking protocol Lido Finance ceased operations on the Polygon blockchain.