Pre-PIP: Polygon PoS Bridge Liquidity Program

Honestly it’s crazy to see this proposal got this far and so many companies thought it was a good idea to go ahead with it, everyone involved in this should be fired.

You want to force users to take on farming risk, and then keep all the yield? It’s the worse risk management strategy I have seen since FTX, without considering how illegal it is.

Users don’t want to take that risk, and even less for 0 reward. It’s a bridge and everything is supposed to be backed 1:1, if you want to do anything like this it should be opt-in and most of the yield going to the user.

I have to give it to you, it’s a good way to be 1 hack or risk mismanagement to send Polygon to 0, if that’s the goal, go for it.

As a Polygon user I’m withdrawing all my assets.

8 Likes

Polymarket user here.
This proposal exposes us to additional risk but provides us zero benefit.

As such I OPPOSE the proposal.

9 Likes

I strongly oppose the proposal to deploy $1.3B in DAI, USDC, and USDT reserves from the Polygon PoS Bridge into liquidity pools. While earning yield may seem appealing, this move introduces unnecessary risk and undermines user trust in the bridge’s core function.

Unacceptable Risk Exposure: DeFi’s history of hacks and failures makes this a dangerous gamble. No amount of oversight or time locks can fully eliminate these risks.

Loss of Liquidity and User Trust: Users expect full liquidity from the bridge at all times. Delays or confusion in accessing funds could severely damage trust in Polygon’s ecosystem.

Misalignment with User Expectations: The bridge’s purpose is simple, fast asset transfers—not speculative yield farming. Turning the bridge’s reserves into investment vehicles risks alienating users and pushing them to other platforms.

Polygon’s bridge should remain simple, secure, and liquid. Yield generation is not worth the potential loss of trust and risk exposure. I strongly urge the community to reject this proposal.

10 Likes

I am against this.

These funds are user funds, representing the wrapped tokens on Polygon POS. I strongly believe these funds should de jure stay ‘risk free’ from DeFI lego’s. There might be legal implications involved. Have these been discussed?

Then, stable holders are RISK AVERSE and this proposal - without an opt in- obligates them to put their funds on the line. Even worse, they don’t recieve the yield as a reward, but will sponsor other users and protocols in the ecosystem. While taking on the risk with ‘bridge assets’, the sector most exploited in the last 5 years.

Iḿ actually having a hard time believing we are discussing this.
But hey, that’s what governance is for…

9 Likes

I strongly oppose the Polygon PoS Bridge Liquidity Program proposal, as currently written. While generating yield may appear beneficial, this approach introduces unnecessary risks to user funds, which are meant to be secure and liquid. Stablecoin holders on Polygon value safety and low risk; forcing them to take on yield farming exposure—without reward—undermines trust and could trigger a loss of confidence in the ecosystem.

With bridge security historically being a major vector for exploits, the proposal risks harming Polygon’s image, alienating platforms like Aave, and slowing adoption. Keeping the bridge simple, secure, and aligned with user expectations is critical to maintaining trust and ensuring Polygon’s continued growth.

8 Likes

First, I want to acknowledge the thorough proposal and the potential it represents. Utilizing idle assets to generate yield is indeed a significant opportunity, with the potential to generate ~$91M annually from the current $1.3B in idle assets. However, this opportunity comes with inherent risks that need careful consideration and mitigation.

Core Analysis

Yield Generation & Collateral Quality

Positives:

  • Significant potential revenue generation (~7% yield)
  • Well-selected collateral types (USTB, sUSDS, stUSD) from established protocols
  • Conservative approach to yield distribution

Concerns:

  • Need for explicit risk quantification and stress testing scenarios
  • Further analysis needed on collateral correlation during market stress scenarios
  • Limited historical data on how these assets perform in deep bear markets

Operational Structure

Risk Management:

  • The 72-hour timelock for risk parameter changes is prudent
  • Polygon Protocol Council veto power provides oversight
  • However, we need clearer criteria for what constitutes veto-worthy circumstances

Technical Architecture:

  • Strong foundation with battle-tested ERC-4626 standard
  • Modular approach to stablecoin handling is sensible
  • Gas cost implications for bridging operations need further quantification

Protocol-Specific Analysis

Angle Savings

Strengths:

  • Strong ERC4626 compliance
  • Clear rate-setting mechanism
  • Conservative 0.9x buffer on yield distribution
  • 7-day minimum between rate updates

Concerns:

  • Significant guardian multisig powers
  • Potential for sharp rate changes
  • Lack of explicit emergency shutdown mechanism

Morpho Vaults

Strengths:

  • Immutable core contracts
  • Substantial bug bounties ($3M)
  • Robust supply/withdraw mechanics
  • Formal verification through Certora

Risks:

  • 30 market limit creates concentration risk
  • 50% performance fee seems excessive
  • Flash loan vulnerability concerns
  • Complex market cap interdependencies

Superstate USTB

Strengths:

  • Direct US Treasury Bill backing
  • Continuous NAV updates
  • Conservative fee structure
  • Clear redemption mechanics

Concerns:

  • Allowlist requirement’s impact on liquidity
  • Compliance considerations for US T-Bills exposure
  • Market day restrictions affecting emergency withdrawals

Proposed Improvements

1. User Choice and Compliance

  • Implement clear opt-in feature for yield generation
  • Explore Shariah-compliant yield opportunities
  • Transparent risk communication to users

2. Risk Management Infrastructure

  • Implement comprehensive circuit breakers
  • Clear thresholds for automatic intervention
  • IMO, maintain minimum 50% bridge reserve at all times
  • Create emergency liquidity preservation hierarchy

3. Monitoring and Reporting

  • Real-time utilization tracking
  • Cross-protocol rate arbitrage detection
  • Flash loan exposure monitoring
  • Regular stress testing and public reporting

4. Emergency Procedures

  • Define clear shutdown sequence
  • Establish liquidity preservation hierarchy
  • Develop comprehensive user communication plan

Final Thoughts

While the potential benefits are significant, we must approach this with appropriate caution. The success of this program will largely depend on:

  1. Robust risk management infrastructure
  2. Clear user communication and choice
  3. Proactive monitoring and quick response capabilities
  4. Conservative reserve management

I believe this proposal has merit but requires additional development in these key areas before implementation. The focus should be on building a system that can not only generate yield but maintain stability and user trust through various market conditions.

2 Likes

I love the idea but these are bridges funds right? It changes the risk tolerance for all depositors.

This would be bad for Polygon and its future neutrality = bad for its ability to attract high quality apps and devs in the future.

It’s not worth nuking the TVL and neutrality of the entire chain for this yield: https://governance.aave.com/t/arfc-adjust-risk-parameters-for-aave-v2-and-v3-on-polygon/20211

I’m opposed.

4 Likes

Though this proposal may be trying to maximize the utilization of the locked asset there is a reason that the assets are locked and users may not need to take on additional risk
Some potential risks and drawbacks based on my thoughts and users:

1. Risk to Stablecoin Holders: One major concern is that this proposal shifts significant risk onto stablecoin holders who generally prefer low-risk investments. By deploying the stablecoins held in the bridge into yield-generating strategies, these assets are no longer just idle but are actively invested, potentially exposing them to market risks which those holders might not have agreed to when they initially bridged their assets. This could lead to a loss of trust and potentially push users to seek alternatives where their funds are not used without their explicit consent for yield generation.

2. Potential Loss of Deposits: There’s a risk that large depositors might withdraw their funds from the Polygon PoS bridge due to the new risk profile introduced by the proposal. If the bridge starts using these funds to generate yield, it might deter future deposits, or even lead to current depositors moving their assets to other platforms perceived as safer or where they can retain control over the yield. This could undermine the bridge’s liquidity and overall utility.

3. Security and Trust Issues: The proposal involves managing a large sum of stablecoins through third parties like Morpho, Yearn, and Allez Labs, which introduces an element of counterparty risk. Any mismanagement or security breach could have severe consequences, impacting not just the bridge but the Polygon ecosystem as a whole. Critics argue that this setup might not align with the security expectations of users who deposit their funds into the bridge.

4. Philosophical and Ethical Concerns: There’s an ethical debate about using user’s funds without their direct consent for yield generation. This could be seen as a breach of trust, especially since users might deposit funds for reasons other than expecting a yield from the bridge itself. The debate centers around whether it’s appropriate for infrastructure to take such liberties with user assets.

5. Implementation and Governance Risks: Even if the proposal aims to enhance the ecosystem’s liquidity and yield, the actual implementation could be fraught with challenges. The governance structure proposed might not satisfy all community members, leading to potential conflicts or inefficiencies in decision-making. Additionally, the proposal’s success would heavily depend on the effectiveness of risk management strategies, which are not guaranteed to prevent all possible downsides.

These criticisms suggest that while the proposal aims to make use of idle assets for broader ecosystem benefits, it might come at the cost of user trust, increased risk, and potential operational complications.

Lets make it not more complicated untill the agglayer materializes completely. Voiting against this PIP

4 Likes

This is a completely irresponsible proposal. It is a shame that it even reached this stage. One can’t help but wonder if there were any hidden agenda. The stagnant billion dollars you are talking about are made up of people’s hard earned savings. Act responsible. Will be voting NO

4 Likes

Though much has been said about the expectation of bridged assets and the implied contract between a bridge and its users, I want to take a second and focus on the beauty of the proposal and its ability to leverage what makes crypto so unique to create a flywheel that will be replicated by other ecosystems, if not Polygon.

Firstly, being able to drive $70M a year in non-mercenary capital to grow an ecosystem is insane. There are countless multibillion-dollar L1s and L2s with less stablecoin liquidity in the aggregate, not to mention within their DeFi ecosystem, and most of them pay up the ass for it. This drives more per year.

Secondly, allocating that liquidity in a decentralized mechanism that brings in other protocols, i.e., Yearn, is smart. It reallocated bureaucratic overhead to market efficiency while deepening a relationship with a key DeFi protocol. Cool. I’ll refrain from commenting on Morpho as idk what the risk-reward trade-offs are between their model and Aave’s, though the stated goal of wanting to own market parameters feels reasonable.

Thirdly, on the risk point, one wonders really how much marginal risk is being added here. On one level, if you already hold Dai and USDT, you’re already exposed to quite a risky collateral base for which you get a “return-free risk.” Taking on a little bit more risk by having an effectively senior position against a conservative collateral base in isolated markets sounds quite marginal.

Presumably, those that have bridged to Polygon are long the eco through some asset exposure. At first touch, the second-order gains far outweigh the marginal additional risk profile and, at the very least, are under-discussed here.

1 Like

As a user and someone who has had funds on the Polygon chain for the past 4 years, I can’t see why any other user would ever agree to this proposal or think it is a good idea.

  1. What do we as users gain from this? It’s our money at risk. Are we being compensated? Or is this a way for Polygon and the DeFi projects involved to generate gains that only benefit them?

  2. The additional risk taken on here (at the users expenses) seems like an accident waiting to happen. Putting the bridge funds ar risk? And then how are users guaranteed they can actually bridge out if/when funds are compromised?

  3. It looks like we’d lose the biggest on-chain money market (Aave) which would be a huge blow to the ecosystem.

Please I plead with everyone who is an actual user of the Polygon chain to shoot down this proposal and any further discussion. This is seems absurd and extremely dangerous and that is not an overstatement.

7 Likes

fyi there’s still time to delete this post and pretend you were hacked. Use it as an analogy for what could happen if you lend out other user’s assets.

But in seriousness, as much as I can see the heart is in the right place with this proposal, it brings chain-level systemic risk with it that we haven’t seen since terra, and it should not be considered under any circumstances.

It would take ONE pool or protocol getting exploited - that’s all - and you’d see a bank run on the bridge to exit. Protocols such as Aave would get caught holding unpegged synthetics, as would every lender & lendee.

Perps platforms ala GNS would suddenly get caught running contracts with unpegged synthetic DAI, while DEXs like QuickSwap would see all their LPs get dumped on - and the ensuing low-liq coins pump and dump as bridge funding is pulled to re-peg the stables would basically be the last bit of action the chain would see before the nuclear winter set in.

And honestly, the kicker then is that even with all this outrageous centralized risk taken onboard by every user who bridges on to Polygon - they won’t even benefit from it. Polygon or Polygon-adjacent DAOs or otherwise defining who gets a share of user-generated yield is lunacy.

If I wanted my assets to be loaned out, I’d loan them myself and assume both the risk and reward from that. I certainly wouldn’t assume the risk on Polygon’s behalf to see none of the reward. That’s literally insane.

Strongly opposed, as I don’t want to see “not your bridge, not your crypto” become the polygon bear market tagline.

5 Likes

Hello, the PIP should remove all risks of loss of user funds and in case of loss - a mechanism to recover and return them to the users must be proposed as well. Otherwise, this is a no go for me.
It is a bold plan but incomplete and immature at this stage.

A few questions (hope they will all be answered without being selective):

  • Why does your pre-PIP not pre-empt worst case scenarios? The proposal itself should have mitigations, contingency plans and remediation. Without these the proposal is of very low quality.
  • What collaterals are your teams talking about? Stables themselves as collateral ? Or even volatile assets (like Eth, BTC, POL etc?). Keeping in mind stables themselves have some volatility.
  • Risks have not been clearly highlighted: What concretely can be potential risks? Can you elaborate scenarios?
  • What happens in case of lost user funds? How are users ensured their funds are returned? Any technical/blockchain mechanism? Even if funds are lost and you can retrieve & return the funds within hours/days, users may be open to such an idea.
  • What is the minimum constant yield users can expect to measure risk/reward against?
  • Why can this not be made opt-in by users?
  • Why can a user not get similar returns with no/lesser risk elsewhere?

Appreciate this was proposed as a pre-PIP, shows some kind of concern towards community.

2 Likes

You will not use our assets to fund your development. Use your own assets.

1 Like

I don’t think this proposal is going to move anywhere due to public backslash.

It was a shameful attempt to take users bridged USDC and make them custodial play money for the asset managers.

If you want to have a yield-bearing bridge please deploy a new one, do not break the social contract with Polygon users.

2 Likes

Many of us have already expressed their voices so I wont repeat all the points already elaborated but this proposal is just ridiculous.

You guys want to use your community’s funds for your own benefit, without your user’s consent, and without even compensating them for those who would accept such risk??
Seriously, in which world do you live?

Obvisouly, I’m opposed to this proposal (I would be even if the compensation previously mentioned was on the table).

2 Likes

Looks like AAVE already decided to abandon Polygon and change LTV on Polygon assets to 0%, regardless of the outcome of this Polygon proposal:

https://governance.aave.com/t/arfc-adjust-risk-parameters-for-aave-v2-and-v3-on-polygon/20211/12

Thank you MorphoLabs for killing Polygon TVL.

Funny part, MorphoLabs (app.morpho.org) support only ETH and BASE lending markets, no Polygon Markets.

At the end, Polygon users won’t have AAVE nor MorphoLabs.

1 Like

I am against. I don’t like it and I don’t agree with it, the security risks are too high. If it was accepted, I would no longer trust or use PoS.

2 Likes

TLDR

We thank everybody that has participated thoughtfully and shared their concerns with the proposal. The Polygon community overall has expressed its rejection of this pre-PIP and it will not move forward.


After discussions with the wider Polygon PoS community, and thoughtful consideration of the feedback received, we will no longer pursue the proposed Polygon PoS Bridge Liquidity Program.

While we believe the proposed design is elegant, risk-minimized and gives the community control over its desired risk exposure, there were critical issues that were voiced. We sincerely appreciate the open dialogue, constructive feedback, and the time that everyone has invested in reviewing our proposal.

In particular we would like to highlight several community members who have voiced their opinion on the forum and X in constructive, passionate and witty ways: JourneyMacro, jdkanani, oneski22, cryptogod, Crypto_Texan, puniaviision, euler_mab and more. A special thanks to PaperImperium and Steakhouse for opening a deeper debate on the subjects underlying this pre-PIP.

While this initiative will not be pursued further, our commitment to supporting and enhancing the Polygon and AggLayer ecosystems remains unwavering. We look forward to exploring and contributing to other opportunities that align with the community’s vision and drive the continued growth and success of Polygon.

Thank you once again for your engagement and support. Together, we can build a robust and dynamic DeFi ecosystem.

3 Likes

Any response from the Polygon team on this? It’s already a week since the last post and the community clearly expressed their will against it. I’m surprised that we still see no official response.

It’s ok to make to mistakes. It’s ok to admit mistakes. It’s not ok to continue pushing a destructive decision.