[ARFC] Adjust Risk Parameters for Aave V2 and V3 on Polygon

Subject: Finding a Path Forward

Recently, both Aave and Morpho submitted pre-PIPs to the Polygon community proposing the staking of Polygon PoS bridge assets. These kinds of proposals are exactly what governance is about—open conversations, healthy debate, and pushing the ecosystem forward. While neither pre-PIP gained community consensus, the healthy debate and innovation put forward foretell a bright future for the Polygon ecosystem and Polygon governance.

What’s particularly troubling, however, is one particular individual’s threatening response to the pre-PIP: Marc Zeller proposes on this forum to dismantle Aave’s deployment on Polygon PoS—framing it as an effort to “protect users.” In reality, this move feels more like an attack on Polygon for not supporting the pre-PIP that Marc’s company submitted on the same topic than a genuine concern for user safety. A concern for user safety would have been reflected in a post voicing concern over user safety on the Polygon forum, and if the pre-PIP had become a PIP, then strong opposition to the PIP with a warning of the action that may need to be taken on its end and preparation to take that action. I recently very openly tweeted about the inappropriateness of this behavior exercised on multiple occasions: x.com.

The proposed solution to disrupt Aave’s deployment, which has no potential risk in any way to Aave users on Polygon PoS for months (and likely forever given the community feedback), was not an action to protect the very users claimed to be protected. Instead, it threatens to destabilize a thriving DeFi ecosystem and undermines Aave’s reputation as a protocol that champions its community.

When one protocol thrives, the entire ecosystem benefits. But dismantling Aave’s presence on Polygon PoS doesn’t just hurt Polygon—it hurts Aave itself, its users, and DeFi as a whole. This feels like a reactionary move that sacrifices collaboration for control, which is disappointing from a protocol as respected and influential as Aave. Aave has always set the standard for leadership and innovation, and I know that the Aave DAO doesn’t want to be remembered for stifling competition or creating division. The backbone of Aave, as with all protocols, is its community, including users. It is what has made Aave strong for a long time along with its continued product development. There are things that need to be improved on the product side and Aave v4 seems like it’ll bring them to life. The focus should be there while retaining and growing the strong user base it currently has across DeFi.

We respect the Aave DAO and deeply appreciate the collaboration we’ve had over the years. We remain committed to supporting Aave and ensuring DeFi remains open, decentralized, and competitive—because that’s what benefits everyone. But we also need to stand strong in the face of attacks on our community. I’d suggest we find common ground next time so that a collaborative discussion can start.

We urge the Aave DAO to reject this proposal and instead continue to foster constructive collaboration that strengthens DeFi for all.

Let’s work toward a solution that upholds values of decentralization, innovation, and putting users first, showing the community the voice it deserves to have in this collaboration.

Sincerely, Marc Boiron, Polygon Labs CEO

P.S. On a personal note, as a long time decently large AAVE holder, I want to see Aave execute in an open, transparent and competitive way without relying on tactics like those exhibited in the last day by some representatives. There are a lot of smart people at Avara and elsewhere in the Aave ecosystem who can still drive massive success with just strong products and GTM.

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Thanks for responding here Marc. As a user, it’s appreciated even if we have fundamental disagreements and views on the situation.

Respect and credit where its due. Thanks for taking the time. Its ok to disagree and battle it out.

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As an Aave user, I understand this debate but I’m very concerned regarding users who have opened positions on the Polygon market. People suggesting to just “repay your debt and move on” probably dont understand that it’s not that easy.
If that proposal would eventually pass, I would suggest to find a smooth way for people using POL as a collateral to handle this transition AND to explain things in very clear terms for all of the users who are not “experts” in that domain but remain active users of Aave.

After following the discussions in both the Aave Governance Forum and the Polygon Forum, it is evident that the majority of both communities are unwilling to risk users’ funds by investing them without proper consent or by creating a fractional banking system without adequate risk protection. Despite initially driving this proposal, even the Polygon team itself has abandoned it.

The core issue here is not related to the circumstances or actions taken by certain service providers to protect Aave, its users, and the broader community from additional risks. This is especially important given past incidents, such as the Harmony Bridge exploit, which demonstrated how bridge vulnerabilities can significantly impact a protocol like Aave.

It is important to note that Aave has never taken a stance against the Polygon team. On the contrary, the Aave community has collaborated with Polygon for years, helping establish Aave as a key DeFi protocol on the Polygon network. Aave captures nearly half of the total value locked (TVL) on Polygon and remains the primary lending protocol operating there. Additionally, the Aave community has deployed its governance framework on Polygon and actively encouraged users to vote on the platform to reduce voting costs. This longstanding partnership underscores Aave’s vital role in supporting Polygon’s DeFi ecosystem.

However, the recent actions of the Polygon team (not its community) are concerning. Yesterday, the Polygon team launched a baseless attack on Aave, making false claims about Aave’s infrastructure and unfairly portraying the protocol in a negative light. These claims stemmed from the proactive measures taken by Aave’s service providers to ensure the protocol’s safety—a safety record that has been upheld for the past five years, making Aave one of the most secure protocols in DeFi.

While I have always been open-minded about supporting and building ecosystems where the Aave Protocol operates, the ongoing campaign led by Polygon’s CEO and team—marked by false claims and frivolous tactics—raises significant concerns. Furthermore, given the risks associated with Polygon’s proposals and the lack of guarantees to address these risks, I support the proposal to offboard the Polygon market from Aave. This transition, even if months away, will provide the community with sufficient time to prepare for the offboarding process.

That said, I remain open to reconsidering my stance if the Polygon team can provide concrete guarantees that users’ assets on Polygon will be secure from similar risky initiatives. This includes addressing the pushback from the Aave community and Polygon users while demonstrating the respect that the Aave community deserves as a long-standing partner.

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Other than the post from ACI itself for bridge assets to be staked, there was one proposal–not many proposals. That one proposal was loudly rejected by the Polygon community and governance. Good governance in action. Thus, there is no risk.

If anything, the risk is lower knowing that Polygon governance is willing to step up and reject proposals that it views as too risky. This has yet to be tested on other L2s and sidechains that have been deployed, keeping in mind that some of them have governance participants who have actively been suggesting similar proposals.

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Given the extensive discussion already present, we’ll be brief in our assessment as an independent risk service provider.

  1. We commend the swift initiation of public discourse, allowing stakeholders to voice their perspectives. The high level of forum participation represents a net positive for the overall ecosystem.
  2. We are of the opinion that rehypothecating bridge assets presents unacceptable risks. The proposed structure introduces multiple dependencies, counterparties, and attack vectors that could compromise fundamental network security.
  3. Considering the current sentiment indicating the Polygon pre-PIP proposal is unlikely to proceed, we recommend no immediate changes to Aave Polygon market parameters are necessary as the risk profile remains unchanged.
  4. Should Aave DAO opt to reduce network exposure, we recommend a measured and gradual approach to protect both users and dependent protocols (e.g., some Curve pools use A-tokens on Polygon).
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Now that AAVE leadership team already made their decision to abandon Polygon and offboard it from AAVE, is it possible to migrate my funds to another chain without closing my loans ?

To be honest, Polygon has been going downhill ever since the migration from Matic to Pol. Very sad situation.

The proposal has been updated to migrate co-incentives from the Sonic team and incorporate risk parameters provided by @ChaosLabs.

The proposal will likely continue to evolve based on feedback and discussions within the community.

Risk parameter change proposals, according to our framework, begin their governance process at the ARFC stage. However, given the impactful nature of this proposal, it seems necessary that the community uses more than the minimal 5-day delay before escalation to Snapshot to refine the proposal and allow for thorough community and third-party feedback.

I agree with the future vision of a 3.3 “umbrella” Safety Module that directly covers user positions “locally” via aTokens staking.

But with the current Safety Module, as a large Staker, I am willing to support endogenous risk within Aave. I’ve put a significant part of my net worth on the line as the counterparty to DAO service provider proposals and governance decisions.

However, the Pre-PIP introduces exogenous risk through re-hypothecation, where AAVE stakers effectively underwrite risks tied to Aave V3 Polygon collaterals and whatever the Polygon asset allocation team deems “safe” for their own benefit.

As a staker, I have a say in what risks Aave takes through governance and AIP votes, and I make informed decisions based on these. With the Pre-PIP, I cannot quantify the full spectrum of risks, nor do I have a say in collateral risk parameter decisions that my stake is now exposed to.

This goes beyond my risk comfort zone, as it should for anyone. Aave stakers should never become the counterparty to another lending protocol’s risk management, especially when they have no say in it.

We welcome the CEO of Polygon Labs for his first-ever participation in the governance discussions of their largest dApp.

The Pre-PIP has set a precedent. Despite what PR agencies are trying to sell, it’s clear to all that a backroom deal was struck with another protocol to push the Pre-PIP through.

At this point, it’s unclear if the backlash from both communities will permanently stop the proposal or if Polygon leadership will attempt to retry their luck in a few weeks.

This is what happens when the trust built over years of collaboration and synergies is broken by short-term and profit-driven “deals.”

The ancient Japanese art of Kintsugi teaches us to elevate broken things through delicate craftsmanship and dedication.

However, the first rule of this art is to accept entropy as not even the most skilled master can restore something to its original state.

Trust and bridges can always be rebuilt, but a “new path forward” is only trustworthy if the elements that led to the current situation are irrevocably left in the past.

Only Polygon Labs can demonstrate a true commitment by cutting ties with the actual architects of the Pre-PIP within their team. This seems the only way for both the Polygon and Aave communities to rebuild trust and find a new, sustainable equilibrium.

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yes it has been going down, it’s time to move on.

It’s been interesting following the discourse over the last few days in this forum and on the timeline. A lot of the major points have been covered. Here at Avalanche, we’re unequivocally against rehypothecating bridge assets. Not only does it pose grave danger to users should anything go wrong with the underlying bridge but also sets a bad precedent for the industry at large.

It’s disheartening to see Polygon and Aave communities at odds. We have always viewed Aave as a staple within the Polygon DeFi ecosystem. We have nothing but respect for both teams paving the way for DeFi all these years and hope there is an amicable resolution.

Should the Aave DAO proceed with the recommendations outlined in this proposal re: migration of some or all markets, Avalanche will contribute Merit co-incentives to ensure a smooth transition. We look forward to continuing our strong existing relationship with the Aave DAO and its affiliates and ensuring Aave users always have a safe DeFi ecosystem on Avalanche.

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Hi,

Could anyone explain if the USDC is concerned by this proposal?
As I see USDT/DAI/USDC.e, but not the native USDC.

As this would change a lot of things for me to have these stablecoins set with a 0% LTV but if the native USDC remains at 75% LTV, then I will adjust my strategy consenquently.

Also, to have people who are not experts like me more involved, I would strongly suggest to make this kind of information more easily accessible and understandable. After all, democratizing DeFi requires everyone to have an easy access to information.

Thanks.

I hope this topic is resolved soon without drama. I hold AAVE but also use Polygon and would like to continue to use AAVE on Polygon.
Hope everybody can be reasonable and look forward to a long term collaboration of AAVE and Polygon.

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Polygons proposal will no longer be pursued. Pre-PIP: Polygon PoS Bridge Liquidity Program - #40 by AllezLabs - Proposal Ideas - Polygon Community Forum. Time to stop wasting enegery on personal beef and instead focus on stuff beneficial for Aave @MarcZeller.

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makes no sense to continue fighting Polygon here and meanwhile deploying Aave on a bunch of other debatable chains with same or even higher risk profile.

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Long time Aave hodler since the ICO Ethlend days. Impassioned plea for our community to not rush this decision. I am strongly in favor of staying with Polygon.

I may not have a lot of votes but am a heavy Aave user across many chains. Given that the polygon community seems to be dropping the issue of using the bridge assets, I don’t think Aave should withdraw from Polygon.

Back in the day, Polygon was one of our only choices for a lower fee experience on Aave. I still use it very heavily until today. The experience I have there is not always replicated on the other chains.

Given the success of Polymarket, it is important to have a trusted lending market on the same chain in order to park funds.

If I need to roll out from Polygon, unwinding looped positions will be a big hassle and likely very costly. There may also be huge gyrations on rates as whales exit positions which would negatively impact other Aave users.

I also think it would be negative reputation hit on the Aave community to pull out from a major chain in such a rushed fashion.

I think it’s better to work together with our crypto brethren if we can.

I believe Polygon is doing the right thing by reversing from the suggested fractionalizing of bridge assets so let’s work together with them instead of moving against them.

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Polygon Update

As mentioned above, the Pre-PIP that initiated this discussion has been dropped by the authors: Pre-PIP: Polygon PoS Bridge Liquidity Program - #40 by AllezLabs - Proposal Ideas - Polygon Community Forum.

This leaves the Polygon and Aave communities in the same spot as prior to the Pre-PIP and this discussion being posted, with a few exceptions:

  1. The Polygon community has shown its willingness to reject ideas that it does not think serve the community and dApps on Polygon PoS well, including when they create risk. The risk in this case has been eliminated based on the proposal being dropped and nobody in the community, including Polygon Labs, seeming to have any desire to revive it.
  2. Aave leadership has decided that it is willing to nuke some portion of the Aave DAO’s revenue at a time when the only logical reason for doing so has been removed. Per some of the comments directly above, Aave leadership should think about growing rather than using incentives to remove liquidity from its own protocol into another instance of its protocol elsewhere without a reason for it.
  3. The Aave DAO should question why Aave leadership did not raise any of the concerns it has for users during the many discussions I and other on my team had with them on the proposal that they were concerned with in the end.
  4. The Aave DAO should be asking itself what is happening right now that is driving this behavior from the Aave leadership. Specifically, is there an economic benefit to the Aave DAO to following through on this proposal? You can take even the worst case scenario, an inaccurate one, that Polygon PoS is not growing. The obvious answer is that the Aave DAO benefits from the existing revenue without changing anything on Polygon PoS related to Aave.

Everyone knows that there are power centers in every DAO. Even when those power centers are incredibly strong, there are times when every DAO needs to step up and reject something that is not in their interest, even when those in power suggest otherwise. All it takes it a critical look at the information you all have in front of you.

Happy holidays to the Aave community!

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Since December 18th, following feedback from Risk service providers paid by this DAO to provide input on proposals, a total exit of Aave from the Polygon ecosystem has been deemed out of scope for the current proposal.

To address this, I updated the first post in this discussion to align with the refined consensus. The proposal will continue evolving as we work toward something robust enough to progress to a Snapshot vote and, if approved, to an AIP implementation.

If you had actually taken the time to read this forum, or paid a $2k/month intern to do it for you, you would already know this.

Your repeated use of strawman arguments, attempting to frame this as “David vs. Goliath” (where you pretend to be David while, in reality, you’re the millionaire CEO of a billion-dollar protocol, and ACI is an 8-person team bootstrapped from scratch just two years ago), or as “Marc vs. Marc” (despite Lido, Tether, Circle, Aave, and your own Polygon community all expressing legitimate concerns), is nothing more than noise.

You took a significant gamble on behalf of one of your portfolio companies at Variant, and now you’re facing the consequences as that gamble has failed. Everything else is gaslighting, and PR firms are scrambling to salvage your reputation and your protocol.

This DAO will remain focused on what truly matters: evaluating the intrinsic merits of proposals and ensuring decisions are made in the best interest of the Aave protocol and its users.

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Given that the Polygon community decided not to proceed with pre-PIP, I don’t see any reason to proceed with any systematic off-boarding measures of Aave on Polygon, and not even any reason to do any type of proposal immediately.
Similarly, as it is very clear the Polygon and Aave communities didn’t like that re-investment of bridged funds, it is also very clear that users of Aave on Polygon want to keep using that, Aave on Polygon; and Aave should support them.

That being said, it is natural to progressively off-board bridged stablecoins to incentivize migration to natively minted. But that has nothing to do with any risk increase of the network or even with Polygon itself; it is just a process applied before (or to be used) on basically all networks where Aave is, for a matter of natively minted assets being plain better than bridged, in the case of “centralized” issuing parties.


Additionally, even if I think that is better to normalize relations and this doesn’t represent at all the Polygon broad community (always welcoming and collaborative with Aave in the past), it is simply embarrassing to see it again and again attempts to put Aave in a bad light (for example those by Marc Boiron) and some weird gas-lighting on the problem being Marc Zeller having some personal animosity against Polygon.

Some pieces of truth:

  • Everything started due to Polygon pre-PIP, and a very clear consensus was reached in the whole DeFi that the idea was terrible. That Aave stood its ground and moved the discussion mainstream (with the proposal by Marc Zeller) is probably something to even praise.
    Sure, maybe the considerably aggressive tone is not of the liking of a lot of people, but well, polarity in DAOs is real DAOs. Whoever wants bureaucracy, wearing the suits, c-suites, and talking “leadership”, should probably go to a different field.

  • Claiming centralization on this Aave DAO is more or less ridiculous, and relatively easy to check out. E.g. ACI (the biggest delegate) has like 400-500 people delegating their votes to them, and last time I checked with very important fragmentation and granularity (some delegators with tens of Aave, some with hundreds, some with thousands). All of them made the effort to delegate and pay the appropriate gas fees, it is even disrespectful to completely forget those 400 or 500 people are the voting power holders.
    In addition, there is like +500k AAVE voting power extra participating in almost all Aave proposals (all on-chain), both from holders directly or indirectly via delegates like @EzR3aL, @TokenLogic , Areta (@sid_areta), etc, etc.

  • Last, if talking about “leadership” and keeping good relations, this by itself would be a cause of breaking all of them https://x.com/0xMarcB/status/1869156974052380989

    Aside from being a bunch of nonsense from all angles (that I will not spend time discrediting), whoever does this type of public communication while building a neutral blockchain layer, should do some work of introspection.


Anyway, what matters is on-chain, and hopefully, Aave on Polygon remains as strong and good for users as has always been.

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Gm!

The organization I currently run has 25 employees who get paid on Polygon and thus use aUSDC.

As the PIP is not moving forward in Polygon Governance my organization, employees, and myself would like to see the adjustment of risk parameters dropped and an attempt of both organizations to get back to having a working relationship. As is normal in the world.

As an FYI: I am having a bit of a “debanking” feeling as I write this. I would never have expected that we as an organization would have to consider next steps following a deprecation of Aave on Polygon. Under the current situation there should be no reason users of Aave on Polygon should have to consider any changes other than getting back to business.

Thank you!

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@Radolo on the current proposal, the aUSDC of the native USDC (this one) is not affected anyhow. And even if you use the bridged version (this one) for payments/company treasury, it will not be affected either, as the proposed changes are exclusively when using USDC.e as collateral, which I guess is not your case.

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