Allez Labs has submitted a pre-Polygon Improvement Proposal (PIP) to create yield-bearing opportunities for the approximately $1.3 billion in stablecoins held in Polygon’s proof-of-stake (PoS) Portal bridge.
According to the proposal, the stablecoins — which include Dai (DAI), Tether’s USDt (USDT), and Circle’s USDC (USDC) — could generate roughly $70 million in annual yield rather than sitting idle.
The authors proposed depositing the USDC and USDT stablecoins in Morpho Vaults, which would be owned by Polygon and curated by Allez. Decentralized lending protocol Morpho would generate the yield on these stablecoins due to the lack of native wrappers for these products.
This yield would then redirect to decentralized finance (DeFi) protocol Yearn, which will manage the Ecosystem Incentives Program through separate Polygon Ecosystem Vaults for each stablecoin asset. Yearn will then deploy the incentive rewards in Polygon’s proof-of-stake and AggLayer DeFi ecosystem to encourage project development.
An illustration breaking down the proposal from Allez Labs. Source: Merlin Egalite
Related: Ethena’s USDe beats DAI to become 3rd-largest stablecoin
Decentralized finance reclaiming 2021 high point
Maximizing returns for collateral assets and accelerating the velocity of money are core components of decentralized finance, which is currently experiencing a renaissance following a decline in market activity between April 2022 and March 2024.
According to DefiLlama, the total value locked (TVL) across the decentralized finance sector is approximately $136 billion as of December, up from 2023 lows of roughly $36 billion and approaching its 2021 highs of roughly $176 billion.
DeFi total value locked. Source: DefiLlama
In November, decentralized exchange Curve recorded annualized revenues of $37 million — a 23% gain from the previous month. A spokesperson for Curve told Cointelegraph that the surge in DeFi activity was a response to Donald Trump’s electoral victory in the United States.
The recent surge in DeFi activity is also partially attributable to the rise of tokenized Bitcoin (BTC) products that allow holders of the asset to accrue yield on their Bitcoin and deploy the asset in decentralized finance protocols in the Ethereum ecosystem.
As the DeFi sector matures, industry executives forecast that it will begin releasing financial products that compete with traditional banks such as products that provide clients access to private credit markets.
Magazine: MakerDAO’s plan to bring back ‘DeFi summer’ — Rune Christensen