Not normally one to engage on governance, however this one is unique, and this has quite a few overlapping touch points; 1. I was originally involved in the architecture of Multichain, while I stand by the Threshold ECDSA technology developed, it shows how easy the entire system could collapse because the original threshold key generation which was suppose to be distributed with shards destroyed, was in fact not, and ended up having probably the biggest backdoor imaginable. 2. The proposal on Polygon was co-authored by Yearn, a protocol I originally founded, and one that’s north star was always low risk sustainable yield (predominantly why the first $1bn in TVL yearn had, was also the first $1bn in TVL for Aave).
So that being said, there has been a long drive for “yield”, often bridges (and even some high profile L2s) have suggested using “yield assets” for their bridge. yUSDC (Yearn USDC) instead of USDC for example. Now in non technical terms, this makes sense, since why wouldn’t everyone want additional yield, in practice, this is really just leveraged yield (akin to fractional banking which was the antithesis of why the original defi ecosystem was created).
Now first a disclaimer, anyone can create a governance proposal on Polygon forum, this does not mean it would pass, and I do believe it is very unlikely to pass, if I am being honest, I am surprised it actually made it as far as it did, but probably the end of the road for that proposal, because it send 2 incredibly bad signals; 1. Not your keys not your assets (if the bridge can simply change where those assets are, they aren’t your assets, you have an IOU, and 2. risking your assets for their yield, no amount of yield should ever be worth double dipping user assets, (apologies for the shameless plug) one of the core tenets when we built the new Sonic bridge was specifically that we should never be able to do anything with the underlying assets (lessons learned from Multichain).
If the proposal would pass, it destroys all trust, so completely unlikely to pass, but it is concerning that it is even possible, which means one day, it could pass, or ultimately an attacker could make it pass. The best way to avoid an “unlikely event” is to turn it into an “impossible event”.
But the real reason I wanted to post here, is to illustrate the problem to people, and that problem starts with fractional reserve banking, very simply, T1 banks only need to keep 5% of deposits in physical cash, so you go to your bank, and deposit $10,000, that bank can then loan out 95% of those assets, so they loan $9,500 to your friend, who deposits it at the same bank (now the bank has on its balance sheet $19,500, even though it actually only has $500. Now it can lend out $9,025 to the next user and repeat ad infinitum. This wrapped leverage is essentially the problem with today’s banking system (and a core reason for a lot of financial collapses).
So tracking it back to defi, you deposit USD$1,000 into Stablecoin provider A, they issue you USDA$1,000. You deposit that USDA$1,000 into a bridge, the bridge issues you bUSDA$1,000, you deposit that into Aave to earn yield abUSDA$1,000. This is a 1:1 representation of the asset from start to finish. But not lets say A wants to make some yield with your cash deposits, so they buy some securities with your USD$1,000, now the bridge wants to make some money, so they deposit your USDA$1,000 into another money market on that blockchain. Now there exists $3,000 IOU from the original $1,000, anyone can see when those get called, you have a problem. This risk leveraging is essentially the problem that led to a majority of asset collapses, and in the long term, overly complex high yield, just means everything goes to 0.
Marc’s proposal shows the commitment to user asset safety and is a great signal, originally when Fantom got Aave governance to deploy on Fantom, Marc was the one that called out Multichain and pulled Aave (a move that protected all their users), because the risk spidey sense were correct, the fact that all the key holders weren’t disclosed is something I wish I challenged myself.
Overly long story, but no bridge should ever be able to even propose something like this, and just being able to do this, should be enough of a red flag.