Polygon’s $1B yield plan under fire from former employee
A former Polygon employee, via an X post, flagged the blockchain’s risky incentive injection to boost its Aggregation Layer (AggLayer) ecosystem. He suggests that the Polygon community is evaluating a proposal to generate yield from over $1 billion in stablecoin reserves held on the PoS Chain bridge.
The AggLayer is a decentralized protocol that aggregates ZK proofs from all connected chains and ensures safety for near-instant cross-chain transactions. The proposal came when Polygon recently transitioned from MATIC to POL, its new native token. POL is serving as the gas and staking token for Polygon’s proof-of-stake chain while supporting the network’s ambitious 2.0 roadmap.
Polygon’s $1B yield proposal sparks debate
Pranav Maheshwari in an X post mentioned that the proposal to generate yield from stablecoin reserves was presented by the Allez Labs in collaboration with DeFi protocols. The plan suggests approximately $70 million in annual opportunity costs from the idle reserves.
Polygon Bridge locks the stable reserves through multiple processes. First of all, a user decides to initiate the transfer of tokens from Ethereum to Polygon. After this, tokens are being locked in a smart contract on Ethereum which serves as an escrow. It ensures that the tokens remain secure until the process is complete.
The former Polygon employee highlighted that these locked tokens are the assets that the side chain is looking to use as collateral to generate yield for the ecosystem. However, Validators on Polygon are notified of the locked tokens in the process while equivalent tokens are minted on the network.
Here comes the main thing – How will the yield be generated from here? Maheshwari added that around $1.3 billion in stablecoin is sitting idle on the Polygon Pos Bridge. These funds would be bridged to Ethereum and deposited into ERC-4626 vaults (Morpho Labs, Sky Ecosystem) to generate 7% APY which will eventually yield $91 million annually.