The $1 billion yield plan of Polygon is being criticized by a former employee

Polygon intends to generate $91M annually from stablecoin reserves exceeding $1 billion. 

The blockchain’s incentive injection to enhance its Aggregation Layer (AggLayer) ecosystem was identified by a former Polygon employee via an X post. He implies that the Polygon community is currently assessing a proposal to generate revenue from stablecoin reserves holding over $1 billion on the PoS Chain bridge.

The AggLayer is a decentralized protocol that guarantees the safety of near-instant cross-chain transactions by aggregating ZK proofs from all connected chains. Polygon recently transitioned from MATIC to POL, its new native token, which prompted the proposal. POL is supporting the network’s audacious 2.0 roadmap and functions as the gas and staking token for Polygon’s proof-of-stake chain.

Allez Labs presented a proposal to generate revenue from stablecoin reserves in collaboration with DeFi protocols, as Pranav Maheshwari noted in an X post. The proposal proposes that the dormant reserves generate approximately $70 million in annual opportunity costs.

The Polygon Bridge secures the stable reserves through a series of procedures. Initially, a user elects to commence the transmission of tokens from Ethereum to Polygon. Subsequently, tokens are secured in a smart contract on Ethereum that functions as an escrow. It guarantees the security of the tokens until the procedure is finalized.

The assets that the side chain is seeking to utilize as collateral to generate yield for the ecosystem are the secured tokens, as the former Polygon employee emphasized. Nevertheless, Validators on Polygon are informed of the restricted tokens during the process, and equivalent tokens are generated on the network.

The primary concern is how the yield will be generated from this point forward. Maheshwari also stated that the Polygon Pos Bridge is currently storing approximately $1.3 billion in stablecoin. These funds will be transferred to Ethereum and deposited into ERC-4626 repositories (Morpho Labs, Sky Ecosystem) to generate a 7% annual percentage yield, which will ultimately deliver $91 million.

The yield will be returned to the Polygon ecosystem and will be distributed to depositors through Yearnfi repositories for USDC, USDT, and DAI.

Risks exist, despite the proposal’s assurances of liquidity, decentralization, and ecosystem expansion. He cautions that the bridge’s stability could be compromised, putting user assets at risk, if a breach or attack on the yield protocols occurs.

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