Aave could leave Polygon over plan to use bridge funds for yield farming

The proposal to create a “Polygon PoS Bridge Liquidity Program” is currently in pre-PIP status and, in the four days since publication, has generated discussion between concerned and yield-hungry users alike.

While some point to the potential boon to the ecosystem of the program’s profits being “strategically deployed… to incentivize liquidity and stimulate project growth,” others raised security worries.

Many users pointed out that stablecoin holders are especially risk-averse and adding layers of risk onto a “stable” product is precisely the opposite of why users hold these assets.

The $1.3 billion worth of idle stablecoins would be bridged for use on Ethereum via Aave competitor Morpho, with vaults being “curated” by the proposal authors AllezLabs. A “conservative” yield of 7% would be targeted, potentially earning over $90 million per year.

The resulting lending interest would then be funneled back to Yearn on Polygon, where it would be distributed among yield farming vaults to incentivize activity on the chain.

In Zeller’s own discussion thread on Aave’s governance forum, he cites examples of bridge hacks such as Ronin, BNB Bridge, Wormhole, and Multichain as making up many of the largest losses in DeFi over recent years. He proposes to “set loan-to-value (LTV) for all assets on Aave V2 and V3 Polygon to 0%,” essentially disabling new borrowing, as well as incentivizing the migration of already-deposited assets to other networks.