Aave set to leave Polygon blockchain after billion-dollar proposal sparks conflict – DL News

Aave, the largest lending protocol in decentralized finance, is set to leave the Polygon blockchain after leaders of the two organizations exchanged words over a proposal to invest $1 billion in dormant crypto on the Polygon-Ethereum bridge.

Two major delegates from Aave DAO, the digital cooperative that manages the Aave protocol, said DL News they will vote to leave Polygon when the issue comes before the Aave DAO members.

One of those delegates, longtime Aave contributor Marc Zeller, was the first to propose the split. A preliminary vote is expected to take place online next month, he said.

The other, who goes by the pseudonym EzR3aL, said he would also support the measure.

Dramatic blow

Together, they have enough votes to decide the outcome of any proposal submitted to Aave DAO, if recent voting trends continue into the new year.

Representatives of other main Aave delegates did not return DL News’ requested comment or declined to comment.

Aave represents around 40% of the cryptocurrencies locked in Polygon’s myriad DeFi protocols, and its departure would be a major blow to the popular blockchain.

The specter of Aave’s departure has led to accusations that its leaders resorted to monopolistic tactics to weaken a rival.

The investment proposal was in an early stage and several months away from becoming a reality, said Marc Boiron, CEO of Polygon Labs. DL News. Additionally, despite Aave’s outsized share of the Polygon ecosystem, Polygon only represents 1.5% of Aave’s revenue.

“’We have the power to harm them’ — that’s what this statement says. “We have all the power here, as the big dog,” Boiron said.

“To me, that’s pure anti-competitive behavior, when you combine those two things.”

Aave executives, in turn, said they were simply taking a hard line on an unpopular, high-risk proposal and its architects.

A polygon?

Moving crypto from one blockchain to another typically requires software called a bridge, which holds the crypto from the original chain and creates new tokens on the destination chain.

New tokens are always tradable to those sitting on deck and, as such, trade at par on the destination chain.

Nearly $4 billion in crypto is in the Polygon’s integrated bridge, according to L2BEAT.

Two weeks ago, risk management firm Allez Labs, along with DeFi projects Morpho and Yearn, proposed transferring around $1.3 billion of this crypto – all dollar-pegged stablecoins – to Morpho , where it could be borrowed with interest.

Rather than sitting idly on the Polygon Bridge, stablecoins are expected to generate a revenue stream estimated at $70 million per year, according to Allez Labs and its partners.

Polygon could, in turn, use this money to attract new developers to its ecosystem.

It was controversial from the start.

But the proposal went viral after Zeller’s Aave Chan Initiative, a service provider that helps develop and manage Aave, suggested that the lending protocol depart from Polygon “to mitigate risks.”

Zeller shared his counterproposal on X with a brief comment: “Operation Polygon(e).”

The Allez’ proposal and Zeller’s reaction sparked an outcry on social networks. Some saw Zeller’s response as an attempt to discredit Morpho, a growing competitor he has relentlessly criticized over the past year.

But others see it as a reasonable response to a risky proposition.

Bridges are already some of the most vulnerable software in cryptography. Adding risk to that – with profits going to Polygon rather than depositors – was unacceptable, critics said.

Executives of stablecoin issuers Tether and Circle have expressed opposition to the proposal.

Andre Cronje, a DeFi developer behind many protocols, compared it to fractional reserve banking. He called it “the antithesis of why the original DeFi ecosystem was created.”

‘Shitshow’

Last week, Polygon executives declared the proposal as all but dead and celebrated the episode as a victory for the blockchain’s new governance system, which gives investors a say in its development.

“It was a SHITSHOW and I absolutely loved every second!” Polygon co-founder Mihailo Bjelic wrote about

“The community considered this proposal unacceptable and voiced this opinion loudly, attracting a lot of attention in the ecosystem and beyond. This is intentional.

But the Aave Chan Initiative’s counterproposal sparked an outcry from Polygon Labs executives, who accused Aave executives of abusing their power to bring a competitor, Morpho, to its knees.

“This is a striking example of DAO leadership engaging in anti-competitive tactics and intimidating other ecosystems into playing on their terms,” wrote Polygon co-founder Sandeep Nailwal .

Aave leaders rejected the accusation.

“Presenting the Aave DAO proposal as anti-competitive behavior is inaccurate and distracts from the real issue: user security,” Stani Kulechov, founder and CEO of Aave, wrote on December 18.

“Inheriting the risk of a third-party protocol without the consent of the DAO is not something that the Aave DAO is interested in and ACI has taken the necessary steps to define the future of the Polygon market.”

“A world where Aave leaves is not the one I want.”

— Marc Boiron, Polygon

Not all Aave DAO members believe leaving Polygon is necessary, and Boiron called on his members to reject Zeller’s counterproposal.

But Zeller’s Aave Chan initiative garnered more than 377,000 votes in recent Aave DAO proposals. EzR3aL launched another 155,000.

Together, they account for more than half of the votes cast in the most recent proposals, for which totals have rarely eclipsed 870,000.

Public outcry

EzR3aL said DL News they opposed the Allez Labs proposal and assumed it would be withdrawn or modified to appease public outcry.

“They did nothing but instead attempted to attack several individuals within the (Aave) DAO,” they said.

“This reaction simply proved to me that it was never about (the proposal) and his safety,” they continued.

As for Boiron, he regrets having come to this.

“A world where Aave goes is not the one I want,” Boiron said.

“Honestly, I think the Aave community is awesome. Very different from Aave’s leadership. But would it be harmful? I think it depends on the teams who decide to come and fill the void.

Aleks Gilbert is DL News‘ DeFi correspondent based in New York. You can contact him at aleks@dlnews.com.