[TEMP CHECK] Joint Incentive Program With Polygon

Governance
1

Author: Polygon Community Treasury Board

Date: 2024-01-16

Summary

The Polygon Community Treasury Board proposes a strategic initiative to restore relationships and strengthen ties between the Polygon and Aave communities, and drive new growth of Aave on Polygon PoS. The following proposal introduces a $3M joint liquidity incentive program that seeks to enhance liquidity and adoption of Aave on the Polygon PoS chain, and re-align our respective communities. This proposal is being put forth by the Polygon CTB, which is external from Polygon Labs and acts on behalf of the Polygon community and ecosystem.

Motivation

Long History of Success of Aave on Polygon PoS

There is no debate that Aave’s deployment on Polygon in early 2021 is what kickstarted the multichain revolution, and since then, the collaboration between our two ecosystems has yielded tremendous results. With Polygon’s high throughput and low transaction costs complementing Aave’s robust lending and borrowing infrastructure, we have witnessed exponential growth of Aave TVL on Polygon:

  • Aave v2 on Polygon PoS reached $3.5Bn+ TVL at its peak.
  • Aave v3 on Polygon PoS reached $450M+ TVL at its peak ($335M TVL as of 1/14/24).
  • Polygon and Aave, together with so many other protocols and community members, were able to contribute to the first successful high-scalability ecosystem on Ethereum. This was a proof of concept that led to many of the amazing innovations happening across the current, very healthy Ethereum scaling landscape. Polygon, with the Aave community’s amazing support, was able to prove having a scalable and affordable extension to Ethereum was not just a dream, but the future of Ethereum. We would like to continue to work together to build this future with many more firsts.
  • Polygon is the 2nd largest in ‘Cumulative Fees’ on all Aave chain deployments per Defillama https://defillama.com/protocol/aave#fees-revenue*

  • Aave users on Polygon are continuing to grow, despite the lack of an incentive program. There are clearly many users in the community that are choosing to use Aave on Polygon. We have noticed that many of these users come to Aave with Polygon as their first experience. https://dune.com/queries/4573060/7624783

  • I think this video may help people to remember how close our communities used to be. The video is with Stani, Sandeep, Mark Cuban, myself and Justin Wu. This was actually supposed to be an in-person conference, but Covid sort of messed that up: https://youtu.be/oaMBAl51P2Y?si=7RCmQniHacvDtJwG

Status of Aave on Polygon PoS

December’s Pre-PIP (aka “Stake the Bridge”) received strong engagement from both the Polygon and Aave communities and resulted in the pre-proposal being rejected. The following discourse amongst community members and back-and-forth between leaders from each respective protocol point to a future where Aave is not usable on Polygon PoS. Stakeholders emphasize that this future should not be today in order to protect users, but that it could, or should, be tomorrow:

Analysis from Llama Risk, Aave’s risk manager:

  1. 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.

  2. 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).

Commentary from EzR3aL, a very active and long-time Aave community member:

  • Aave user on Polygon shouldn’t be the affected ones by this vote and should have time to act accordingly.

So my proposal would be, instead of moving away from Polygon immediately by changing parameter drastically, I would suggest the DAO simply stops business there over time. This means we don’t raise caps anymore, we don’t add new assets, we raise the RF over time and encourage user to move to other chains, as there were already a few comments from those chains where they would incentivize this. That way user have enough time to adjust their loans without getting rekt on day one. We keep the market functional as long as needed but don’t invest more time and money into it.

We are concerned with the feedback shown above:

  • Not only does the community believe that Aave should not increase supply caps, but that it should decrease them, eliminating hopes for any future growth
  • Removing potential listings for future assets is a lose-lose for both communities, as users will miss out on future blue-chip assets coming to Polygon
  • Raising RF’s over time will make Aave unusable practically for Polygon PoS users

There is additional commentary from other community members, risk managers, and Aave leaders that further support our concerns of the existing trajectory.

Useful Links

Pre-PIP: Polygon PoS Bridge Liquidity Program - Proposal Ideas

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

AAVE - DefiLlama

Specification

Proposal for Joint Incentives

To build on previous success and address the evolving needs of both our communities and the market at-large, the Polygon Community Treasury Board proposes a “Joint Liquidity Incentive Program” featuring a combined $3M of incentives:

  • Polygon Contribution: $1.5M USD in POL tokens from the Polygon Community Treasury
  • Aave Contribution: $1.5M USD in AAVE tokens from the Aave Treasury

The combined incentives would be used for the following:

  1. Liquidity Incentives: Attracting new users and liquidity providers to Aave on Polygon PoS by offering competitive rewards.
  2. Protocol Growth: Retaining and enhancing the utility of POL and AAVE tokens while driving adoption of Aave v3 on Polygon PoS.

The combined $3M of incentives could be distributed to Aave users on Polygon PoS over the course of the next 4 months. This could result in an incentive APR of 3-4% for lenders, and 1-2% incentive APR for borrowers.

The Need for Joint Incentives

Given the Aave Community is in the AFRC stage with both Mantle and Sonic, who will each provide eight figures of liquidity incentives, along with additional discussions with other chains, we believe that a program of this size is needed in order to provide competitive rates to other markets. Furthermore, we believe that this proposal needs to move along swiftly given that other proposals seem to be in final stages that will target the migration of liquidity from Polygon PoS to Aave markets on other chains.

Useful Links

[ARFC] Deploy Aave v3 on Sonic - Governance

[ARFC] Deploy Aave v3 on Mantle - Governance

Disclaimer

This proposal is being submitted by Roc Zacharias, who is on the Polygon Community Treasury Board (CTB), which oversees the Polygon Community Grants Program (CGP); on behalf of the CTB and Polygon community. Roc Zacharias is not an employee of Polygon Labs, and the CTB operates on the community’s behalf. This proposal has been voted ‘Yes’ by the members of the CTB with a majority vote pending results of this joint proposal.

Next Steps

Should this proposal gain the support of the Aave DAO, we envision the following steps:

  1. Token Allocation: Disbursement of $1.5M in POL and AAVE tokens into a multisig wallet managed by representatives from both communities.
  2. Liquidity Program Design: Finalize the specifics of the incentive program, ensuring transparency, inclusivity, and measurable KPIs.
  3. Deployment and Monitoring: Launch the program, actively monitor its progress, and adjust strategies based on performance metrics and community feedback.

The proposal is more than just a funding request; it represents a renewed commitment to collaboration, signaling that Polygon and Aave have put previous differences aside in order to prioritize the long-term growth and success of our ecosystems. By leveraging combined strengths, we can create a lasting impact that benefits not only Aave and Polygon, but also the broader decentralized ecosystem and its users.

We invite the Aave DAO and Polygon governance participants to engage in an open dialogue, share their thoughts, and ultimately support this initiative. Together, let’s build a brighter future for DeFi. Whatever happens, in the end I hope our communities can stay friends, regardless of how this all turns out.

With all of our Love,

Roc
Polygon Community Treasury Board

Copyright

Copyright and related rights waived via CC0.

12 Likes
2

I am in favor of this proposal.

As a DeFi power user who has utilized Aave on Polygon since the early days when we farmed MATIC, this proposal would help create a synergistic continuation of the early days on Matic Network and restore the current relationship between both parties.

I would love to see the Aave DAO vote to make this proposal a reality.

Polygon family would continue using and championing Aave.

8 Likes
3

Why should the Aave DAO pay for incentives? It baffles me to see such kind of proposal.
As you posted my comment from the other proposal my view is pretty clear.

I’m against stopping anything from this minute on but rather focus on other markets where there is growth potential. Polygon TVL has been stagnating for years now.

11 Likes
4

I support this proposal. The collaboration between Aave and Polygon has historically brought incredible growth and innovation to DeFi. Strengthening ties between these communities while driving liquidity and adoption on Polygon PoS benefits everyone involved.

7 Likes
5

I am but a humble panda that contributes to QuickSwap, but Aave and QuickSwap have been the backbone of DeFi on Polygon for years, driving liquidity and adoption across the ecosystem.

I’d love to see Aave continue to help grow the ecosystem alongside us. A joint incentive campaign using is a great way to realign incentives and keep a major DeFi pillar like Aave engaged on Polygon.

3 Likes
6

Roc Zacharias has proposed a $3M joint liquidity incentive program, evenly split between POL and AAVE tokens, to boost Aave on Polygon PoS. This initiative is about more than just financial incentives; it’s about revitalizing our past successes and ensuring we continue to lead in DeFi innovation. By offering competitive APRs, we’re not only aiming to attract new users but also to keep our communities closely knit, demonstrating our commitment to growth and collaboration.

With other chains vying for Aave’s attention, this proposal is our strategic move to maintain and enhance our position. It’s an opportunity to show that when Polygon and Aave work together, we can overcome challenges and set new standards in the DeFi space. I encourage everyone to support this proposal to ensure our mutual growth and continued partnership.

1 Like
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Pol holder here, i find this a strange proposal, but maybe you can enlighten me?

  • why are community funds used to fix mistakes and bad communication by polygon leadership?
  • why not use funds from the polygon treasury if the aave relationship is so strategic important?
  • expanding on the point above: why are you only taking risks with community funds that are essentially printed out of thin air by inflating POL supply? Easy and cheap way to act 'concerned ’
  • if you really care why not propose to use some quickswap funds too and get skin in the game?

If actual voting with our tokens were possible on Polygon id be surprised to see these kind of propsals spending user funds go through.

So no, bad proposal and another show of disconnect between Polygon tokenholders and ‘leadership’.

6 Likes
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As Polygon has been historically one of Aave’s most successful deployments - this makes sense

1 Like
9

Both a Pol and Aave holder here. Whilst it’s encouraging to see attempts at bridge building I’m struggling to see the benefits for Aave Dao. To me it reads a little like Polygon’s leadership has messed up attacks Aave for taking a security first approach then “reaches out” via its community to ask them for 3 million (combined) to “rebuild bridges”. If Polygon are so committed why hasn’t, & I use this term in the loosest possible sense “leadership” committed treasury funds, why should the Polygon community pay?
And the rationale behind the proposal? Other chains are coming to Aave with incentives so lets ask Aave/Polygon communities to pay to support Polygons growth. Sure, I maybe reading this wrong and also acknowledge the history between Polygon & Aave but currently as far as I can see there is no proposal to remove Poly from Aave, (which I’d oppose at the moment) so why should we fund an already established chain on Aave? If Polygon Treasury want to incentivize then great feel free to do so but I won’t be voting for this.

7 Likes
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We are in support of this joint incentive program to grow the Aave V3 Polygon Market, on our end we are pleased to see both teams working together.

Our only point of concern would be that we are invested in seeing the impact of this $3M Incentive program, it is essential make sure that this incentive program encourages growth and retention.

2 Likes
11

Thank you, @RocZacharias, and the Polygon Community Treasury Board, for presenting this proposal to the Aave community.

While we acknowledge that the Polygon network could benefit from an incentivization program following minimal TVL growth over the past year, we believe the Aave DAO should not allocate funds to this initiative.

From January 1, 2024, to January 19, 2025, Aave Protocol’s TVL on Polygon increased by 11.8%, compared to just 0.7% growth for the overall Polygon network. Currently, Aave’s TVL accounts for 44.98% of Polygon’s total TVL, reflecting Aave’s dominant position within the ecosystem.

Data source: https://defillama.com/chain/Polygon

As Aave Protocol prepares to deploy across multiple networks—many offering incentives to attract users—it would be strategic for Polygon to provide its own rewards to retain users. The Merit program presents an excellent tool for rewarding specific user actions in isolation, with its effectiveness measurable through new Incentive Portal designed to help teams track and optimize their rewards programs.

While this proposal provides an opportunity to collaborate and strengthen ties, we recommend focusing on growth initiatives tied to new Aave deployments. Recreating past successes through innovative strategies beyond the existing Aave deployment would be mutually beneficial for both Aave DAO and Polygon Labs.

10 Likes
12

AAVE and POL Holder here, but have been dumping POL since the inflation madness begun, because I won’t pay for Polygon Politics Costs through inflation.

Pair AAVE with inflationary s*? At their current rate of inflation $1.8M is printed every week, if they are so interested in this they can simply take 2 weeks of POL emissions and create liquidity.
First Polygon need to fix their s* emissions and inflation, then they will be able to propose something. Otherwise, any AAVE token added to this pool will be drained to the Polygon treasury.

2 Likes
13

The simple fact that @RocZacharias is proposing pairing AAVE resources with inflationary valueless POL tokens is insulting. Basically he “intends” to improve Aave and Polygon relationship by testing the Aave community ignorance and subtly calling everybody in this Aave forum dumb.

14

I think this is a little unfair or harsh. Polygon’s inflation is 1% per year. This is about the same as Bitcoin (before April Bitcoin was 1.8%), and before Ethereum went to staking + burn, it would be lower than Ethereum inflation. Most protocols in our industry have much much higher inflation. Aave stands as one of the better ones in the industry at around 2.3%/year.

2 Likes
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I think in fairness, both sides may have been overly harsh. I didn’t come here to try to defend anyone’s actions, but it’s not fair to paint this as a one-sided Polygon leadership attacking Aave leadership. They both had disagreements.

I’m not here representing Polygon Labs, I am here representing Polygon CTB and our community to try to mend the wounds. Like most here, I wasn’t involved in any of the conversations between leadership. I don’t even know the full story.

I, the Polygon community, and the Aave community are sort of stuck in the middle of the situation in front of us. My personal hope is that we can find a way to get along and keep growing and building together. The funds would be used to grow both ecosystems. Thank you MrKris for your feedback, I appreciate you taking the time to voice your thoughts.

5 Likes
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I don’t have any insight or oversight of Polygon Labs treasury. I am here on behalf of CTB (Community Treasury Board), which manages the CGP (Community Grants Program). Polygon took the step of decentralizing by handing over the grants program to the community. The CGP is the official grants program of the Polygon ecosystem.

The CTB’s opinion is that this would be a great move to both 1. Show that Polygon stands together with Aave 2. Try to find some creative ways to grow Aave on Polygon. There are lots of new styles of pools that could be interesting for us to work together on.

Calling the tokens “printed out of thin air” is one way to put it, but keep in mind, almost every project in the industry tokens came “out of thin air”, so do equities, so do US Dollars. Not sure what the point of that is. Aave has inflation also. So does Bitcoin. The only project that might not is Ethereum after staking + EIP1559. 99.99% of projects have some inflation. The US Dollar has averaged 7% new money supply for 100 years lol.

For what it’s worth, I’m a Polygon token holder for 6 years, and I think it’s a great idea, or else I wouldn’t have voted for it. I understand though that we all have different opinions.

On the note of QuickSwap. If this goes through I would be happy to ask the QuickSwap community to contribute something as well, but please keep in mind, our marketcap is much smaller than both Polygon and Aave. QuickSwap has given a ton of rewards to Aave, Aavegotchi, etc over the years :)

4 Likes
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Thank you TokenLogic, for your thoughts.

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Thanks for your support Kene!

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Thanks for your support Alexi!

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Thanks for your support KingDank!