Polygon DAO Considers Using Its Unused Stablecoin Reserves to Generate Yield

According to a preliminary governance post published on December 12, a group from the Polygon DAO is considering investing $1.3 billion in stablecoins.

Members of the Polygon DAO have proposed that the well-known L1 blockchain invest approximately 1.3 billion dollars in stablecoins in some yield protocols.

In this way Polygon would leverage a portion of the unproductive liquidity that is currently deposited in reserves in its PoS bridge.

The move would guarantee a yield of about 70 million dollars a year, which will help to enhance the project’s DeFi ecosystem.

The POL token could also benefit from the investment if it were unanimously accepted by the community.

All the details below.

According to a preliminary governance post published on December 12, a group from the Polygon DAO is considering investing 1.3 billion dollars in stablecoins.

The proposal, put forward by Allez Labs, Morpho Association, and Yearn, suggests depositing the stablecoins, currently held on the Polygon Pos Chain bridge, into yield protocols.

The plan is to take advantage of the inefficient liquidity in USDT, DAI, and USDC through the vaults of Morpho Labs, ensuring an annual return of approximately 7%.

More specifically, the coins would be deposited in an ERC-4626 vault on Ethereum, creating wrapped yield-bearing tokens like yeUSDC.

At a later stage, the resources would be distributed in selected markets and supported by high liquidity guarantees, such as USTB by Superstate, sUSDS by MakerDAO/Sky and stUSD by Angle Protocol.

In total, it is estimated that Polygon would earn approximately 70 million dollars from this move, ensuring an additional income to the revenues of the bull company.

Within the proposal, we can read what is written verbatim by the authors who are members of the Polygon DAO:

“The PoS Bridge currently holds about $1.3 billion in stablecoins, making it one of the largest, yet inactive, onchain stablecoin holders. At the current benchmark lending rate for the 3 main stablecoins, this is an opportunity cost of about $70 million per year”.

The proposal has not yet been officially approved by the community, but it is likely that at least a part of these unproductive stablecoins will be employed in the search for yield.

How will the yield generated from the commitment of reserves in stablecoin be distributed?

In the Pre-PIP published in the governance section of Polygon, it is also explained how to distribute the returns accrued from the deposit of stablecoins.

The basic idea is to strengthen the DeFi ecosystem of Polygon, offering economic incentives to the protocols and users of the blockchain.

The plan is to defer the yield produced by Ethereum to Polygon PoS, so that the funds can be invested on the AggLayer and on the main L1.

Yearn would have the task of fully managing the incentive program, building a system tailored to ensure a balanced approach.

First and foremost, the platform should develop a “Polygon Ecosystem Vault“, where depositors are rewarded with a yield directly from bridge activities.

Then Yearn could direct the revenues towards yvDAI, investing directly in DeFi projects that enhance the cross-chain composability and the user experience.

Regardless of how the prizes will be distributed, it is undeniable that a boost of 70 million dollars for Polygon’s DeFi would bring great advantages.

Users might migrate funds from other chains to take advantage of a higher yield offered by Yearn, increasing the TVL of the crypto ecosystem.

All this translates into a possible increase in Polygon’s user base, as well as its TVL, which has been stagnating for several months now around 1.2 billion dollars.

Can the news affect the price of the crypto POL?

Many are wondering if the proposal by PolygonDAO to leverage the unproductiveness in stablecoin could favor a price increase of the POL asset.

Although this strategy would not bring direct buying pressure into the cryptocurrency, we can still state that there would be some benefits.

Investors might see Polygon as a more profitable and stable platform, generating an increase in interest over time.

In parallel, the introduction of new financial instruments and the efficient management of resources could improve the market’s perception regarding the security and sustainability of the PoS network.

Polygon itself could decide to use part of the returns in buy-back policies of its own token, slowing down the annual inflation rate.

Whatever the scenario that will occur, if the project manages this substantial income well, it will certainly attract new investors in the coming months.

However, it is important to consider that the actual impact on the price of POL will depend greatly on several external factors, such as the price action of BTC and the evolution of the macroeconomic landscape.

In the last few weeks, POL has started to grow again after long months of depreciation, returning just above the EMA 50 weekly.

Unlike many other cryptocurrencies, however, it is not gaining particular traction from the crypto market’s bull outlook.

We will see if with the new proposal it will be able to find that bullish spirit that characterized it