cryptojournalist
Proposal to Exit Polygon
The Aave DAO is considering ending its operations on the Polygon network. This comes after concerns about the risks tied to bridged assets, sparked by a proposal to use over $1 billion of Polygon’s stablecoin reserves for yield farming on platforms like Morpho and Yearn.
Proposed Risk Adjustments
Marc Zeller, Aave’s founder, has suggested changes to the risk parameters for Aave v2 and v3 on Polygon, including:
Loan-to-Value (LTV) Ratios Set to 0%: This would prevent users from using bridged assets as collateral, reducing the chance of widespread liquidations if a bridge vulnerability occurs.*
Freezing Certain Assets: Users would no longer be able to interact with tokens like USD Coin Bridged (USDC.e), Wrapped Ether (wETH), Wrapped Bitcoin (WBTC), and others.
Higher Reserve Factors: Increasing reserves to minimize potential losses.
Impact on Users
These changes could significantly affect users holding popular tokens such as Tether (USDT), Dai (DAI), and Chainlink (LINK). Aave, a leading lending protocol on Polygon, currently holds $461 million in total value locked (TVL), according to DeFiLlama, and has generated $122 million in fees on the network.
Mitigating Risks
Zeller’s proposal aims to protect Aave’s ecosystem by reducing its exposure to risky bridged assets. By restricting borrowing and freezing certain tokens, the DAO hopes to avoid cascading liquidations and maintain overall stability.
*Loan-to-Value (LTV): The percentage of an asset’s value that can be borrowed as a loan.
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