Polygon, one of the most prominent scaling platforms in the Ethereum ecosystem, is considering an innovative proposal put forward by its DAO to deploy its $1.300 billion dormant stablecoin reserves into DeFi vaults.
The main objective of this proposal, which can be consulted in the Polygon Forum, is to generate a $70 million annual return and thereby revitalize Polygon’s DeFi ecosystem.
The proposal is being developed and driven by Morpho Labs, Allez Labs, Yearn and other key players, who propose a detailed and secure strategy to maximize the value of idle assets, for the benefit of developers, users and the overall Polygon Network ecosystem.
This is how Polygon's reservation activation will work
The proposal, known as Pre-PIP (Pre-Proposal Improvement), has been submitted by a consortium of DeFi experts, including Morpho Labs, Allez Labs, and Yearn. The plan focuses on utilizing ERC-4626 vaults, an Ethereum vault standard that allows for the creation of deposit tokens representing the value of underlying assets. These vaults will be managed by Morpho Vaults and Allez Labs, who will handle curation and risk management.
For USDC and USDT, Morpho Vaults will act as the primary source of yield, employing Lending and investment strategies in selected marketsThese markets include Superstate’s USTB, MakerDAO’s sUSDS, and Angle Protocol’s stUSD. Allez Labs, as risk curator, will conduct detailed analysis of these markets and publish recommendations both on the Polygon forum and in presentations to the Polygon Protocol Governance Council (PPGC).
In the case of DAI, the plan proposes that all reserves be deposited in sUSDS, MakerDAO's yield wrapper, which will allow earn returns within the Maker ecosystem.Each asset in the program will be activated through independent proposals (PIPs) that will detail specific strategies and gain community approval.
Furthermore, the developers of this proposal propose that the implementation be carried out in gradual way, with a focus on risk minimization and transparency. All decisions that increase risk, such as increasing market caps or adding new markets, will be subject to a 72-hour timeout. Additionally, the Polygon Protocol Council will retain a veto via the gatekeeper role, ensuring that decisions are aligned with the best interests of the community.
Reinvesting performance for the benefit of the Polygon ecosystem
Furthermore, the proposal notes that the yield generated by Morpho and sUSDS vaults will be reinvested into the Polygon ecosystem, in order to create a virtuous circle of growth and development.
Yearn, known for its expertise in yield management, will be responsible for creating and managing three Polygon Ecosystem Vaults, one for each type of stablecoin (USDC, USDT, and DAI). These vaults will be designed to maximize yield while maintaining a conservative risk profile. Deposits in these vaults will be used to Funding projects and protocols on Polygon PoS and AggLayer, stimulating activity and innovation in the ecosystem.
Similarly, Yearn will implement investment strategies in lending platforms, token swaps, and other DeFi protocols, to ensure that funds generate the highest possible yield. This yield will be distributed among depositors and used to fund incentive programs, in order to improve the Polygon ecosystem for both developers and network users.
According to the developers, by taking this approach they not only ensure that they maximize the value of idle assets, but they will also strengthen Polygon’s position as a key player in the DeFi ecosystem. By reinvesting the yield back into the ecosystem, Polygon can attract more projects, developers, and users, creating a more robust and dynamic environment. Furthermore, transparency and community governance ensure that funds are used responsibly and for the benefit of all stakeholders.
The proposal also has the potential to reduce the selling pressure on POL, Polygon’s native token, by offering attractive returns to users and developers. This, overall, can stabilize the token price and attract more investments in the long run. As such, the proposal to activate Polygon stablecoin reserves will not only generate significant returns but also drive growth and innovation in the DeFi ecosystem, benefiting all participants.
