Polygon Risks Losing Over $300 Million TVL as Aave Halts PoS Lending Services

28-04-2025
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The Aave community has approved a measure to halt lending services on Polygon’s Proof of Stake (PoS) chain, which could result in a loss of over $300 million in total value locked (TVL) on the chain. Aave is currently the largest decentralized application on Polygon PoS, with deposits exceeding $300 million.

Halting Services Due to Risk Concerns

The move comes after Polygon proposed using over $1 billion in stablecoin reserves to generate yield. However, the Aave community opposed the proposal and decided to significantly increase the risk parameters, essentially blocking new deposits and restricting borrowing against collateral.

Marc Zeller, founder of Aave, authored the proposal to increase the risk requirements for Aave v2 and v3 on Polygon’s PoS chain. He argued that Polygon’s plan is riskier than other popular methods such as depositing ETH in liquidity staking protocols or DAI in MakerDAO’s savings module.

Zeller warned that Aave has experienced many impacts from blockchain bridge vulnerabilities, especially the Multichain and Harmony hacks. He emphasized that depositing user funds in unsafe protocols can lead to significant losses.

Aave Stops Lending Services on Polygon PoS

Aave currently holds the lead in TVL on Polygon’s PoS chain. However, with the decision to stop lending services, Polygon could lose more than $300 million in locked assets. The move would have a major impact on Polygon’s DeFi ecosystem as Aave ceases to provide key financial services.

Specifically, Aave’s proposal would reduce the loan-to-value (LTV) of stablecoins like USDT and USDC on Polygon’s PoS chain to 0%. This would prevent users from borrowing against these assets, creating a major change in how users interact with Aave’s services on Polygon.

Responses from Polygon and Aave

Marc Boiron, CEO of Polygon Labs, previously expressed his hope that Aave would abandon its shutdown plans and continue to earn profits on Polygon PoS. Boiron noted that Polygon’s community has rejected plans to deploy the asset on platforms like Morpho and Yearn – Aave’s competitors – and hopes that the relationship with Aave will be maintained.

However, the Aave community voted overwhelmingly to move forward with the move. As of 12:03 p.m. ET, more than 692,000 votes were in favor of leaving Polygon, with around 117,000 against. Aave also announced its latest upgrade, introducing changes to bad debt management and liquidation, paving the way for the upcoming Umbrella project.

Neither Polygon nor Aave have commented on the move, but it’s clear that Aave’s decision will have a significant impact on Polygon’s TVL and the decentralized finance ecosystem moving forward.