Polygon Community to Reject Proposal for Yield on Bridged Assets, but Beef With Aave Escalates

Polygon’s proposal to try to earn yield on bridged assets is unlikely to progress after community feedback, as Polygon Labs and cofounder Sandeep Nailwal called out Aave’s leadership for what they claimed was an attempt to manipulate the Polygon ecosystem through competitive threats.

Last week, Polygon community members submitted an initial governance proposal that entailed using Aave competitor Morpho to enable bridged assets to earn a yield.

Tuesday evening, in posts on X that updated people on the reaction to the proposition, Polygon Labs and Nailwal shared how community members loudly opposed the proposal with many concerned about the lack of a mechanism that enables users to opt into their bridged assets earning a yield. 

However, Polygon Labs and Nailwal also expressed disappointment in the leadership of Aave, namely Marc Zeller, the co-founder of Aave Chan Initiative (ACI), who, on Monday, had published to Aave’s governance forum a proposal to activate multiple incentives encouraging users to migrate away from Polygon entirely. 

Read More: Aave DAO Mulls Migration Away From Polygon. Is a Morpho Rivalry to Blame?

Nailwal described Zeller and ACI’s suggestion that users leave Polygon entirely  as a “vicious threat” and “hypocritical to claim concern for user security while simultaneously attempting to destabilize an ecosystem.”  Zeller and ACI’s suggestion to exit from Polygon “is extremely monopolistic and anti-competitive behaviour from Aave leadership and not at all aligned with the Ethos of Web3. This is a prominent example of a DAO leadership engaging in anti-competitive tactics and bullying other ecosystems to play to their tune,” Nailwal argued.

Stani Kulechov, the founder of Aave, pushed back and defended ACI’s actions. “The fact that Aave opened the discussion and took action to protect users is exactly what DAOs should do,” wrote Kulechov on X late Tuesday. “Framing Aave DAO’s proposal as anti-competitive behavior is inaccurate and diverts attention from the real issue: user security. Inheriting the risk of a third party protocol without the consent of the DAO is not something the Aave DAO is interested in and ACI took the steps required to define what’s next for the Polygon market.”

Aave Initially Pitched a Similar Proposal

In Aug. 2024, ACI proposed to Polygon’s forum to enable a portion of assets on Polygon’s bridge to earn a yield. Notably, Morpho was absent in the governance portal when community members were making suggestions for the bridged assets sitting in Polygon’s bridging smart contract. 

“Despite [Aave leadership’s] initial excitement and zealous pitch for a similar proposition, they resorted to threats to dismantle Aave’s deployment on Polygon PoS once their main competitor gained more traction as the leading protocol,” wrote Polygon Labs. “The Polygon community should refuse to be intimidated by monopolistic tactics or attempts to stifle innovation.”

According to Nailwal, Aave campaigned hard for a similar proposition. During the public request-for-proposal process on Polygon’s governance portal, Aave leadership not only had multiple meetings but also invited Polygon Labs to dinner meetings to attract support for Aave’s proposal in earning yield from bridged assets, Nailwal stated. Despite Aave’s wooing, Morpho was included in the pre-proposal for Polygon’s attempt to earn yield from bridged assets. 

Part of ACI’s motivation to suggest offboarding from Polygon stems from how ACI perceived the inclusion of Morpho over Aave as a done deal, with Zeller saying Polygon’s proposal with Morpho already “had internal support.” However, Polygon Labs insisted the proposal was still in its early stages and open to feedback.

Nailwal indicated that Morpho’s “huge grants” and “superior decentralisation” helped Morpho gain a head start in attaining support from Polygon community members, juxtaposed to Aave’s proposal which generated “little conversation.” 

Aave’s total value locked has increased more than 100% from 2.9 million ETH at the start of the year to 5.9 million ETH worth about $22.9 million as of Tuesday, pre DefiLlama. 

During that time, while Aave’s net deposits have grown substantially, Morpho’s climb has outpaced the leading lending protocol. Morpho’s total value locked started at 262,180 ETH in Jan. 2024 and has since risen about 215% to nearly 825,000 ETH, representing more than $3 billion. A representative of Morpho Labs did not immediately respond to Unchained’s request for comments.