Polygon Labs CEO Marc Boiron is advocating for a significant change in the world of decentralized finance (DeFi). He believes that DeFi protocols need to move away from strategies that rely on hype and high annual percentage yields (APYs) and instead focus on building sustainable liquidity models.
The Problem with Hype-Driven DeFi
Boiron argues that the current DeFi landscape is plagued by a liquidity crisis that is largely self-inflicted. Many protocols attract capital by offering extremely high APYs through token emissions. However, this approach, as Boiron stated, is simply “renting liquidity,” not building genuine loyalty. When yields drop or token prices decline, this liquidity quickly disappears, creating instability and deterring institutional investors.
A Call for Sustainable Liquidity
To address this issue, Boiron is urging DeFi protocols to prioritize fundamental principles over short-term gains. He emphasizes the importance of models where liquidity remains for the right reasons, citing Polygon’s POL token as an example. He suggests that protocols should utilize their treasuries to earn yield instead of diluting token value. This approach strengthens the treasury over time, providing long-term stability instead of simply compensating temporary liquidity providers.
Chain-Owned Liquidity: A Key Solution
Polygon’s vision centers on chain-owned liquidity, where protocols build their treasuries to directly own liquidity positions rather than depending on external sources. This approach offers several advantages:
- Long-term stability: Unlike token emissions, which can dilute token value, chain-owned liquidity provides a stable foundation.
- Capital efficiency: By owning their liquidity, protocols can use capital more efficiently.
The Time Trade-Off
Boiron acknowledges that building a treasury through captured fees, bond mechanisms, or limited emissions requires patience and disciplined management. However, he believes that the long-term benefits of sustainability outweigh the short-term appeal of hype-driven APYs.
Attracting Traditional Finance
For traditional finance (TradFi) institutions to fully embrace DeFi, liquidity stability and predictability are essential. TradFi operates on models that require stable and reliable market access. Sudden losses of liquidity or spikes in slippage create unacceptable levels of risk for most institutions.
Polygon’s Solutions for DeFi
Polygon’s proposed solutions – sustainable treasury management, owned liquidity, and transparent models – are not only beneficial for institutions but also for any protocol. These solutions represent sound financial fundamentals that can address DeFi’s broader challenges.
Looking Ahead: A More Stable DeFi Ecosystem
Boiron is optimistic about the future of DeFi, particularly with the emergence of regulatory frameworks like Europe’s Markets in Crypto-Assets Regulation and evolving guidance in the United States. He anticipates increased institutional involvement in the DeFi space within the next 12-18 months.
By 2026, Boiron envisions a DeFi ecosystem that is more stable, less volatile, and characterized by stronger community governance and sophisticated financial products that bridge TradFi and real-world assets. He believes that Polygon (POL) can play a crucial role in reducing reliance on mercenary capital and fostering true decentralization.
He emphasizes that POL helps protocols focus on developing better products and engaging users, rather than constantly addressing liquidity gaps or diluting tokens to stay afloat. While POL may not be a complete solution, it provides protocols with the necessary breathing room to tackle larger challenges, such as user retention and capital inflows.
Boiron’s message to DeFi protocols is clear: sustainable economics will ultimately prevail. Despite the allure of high APYs, the success of protocols from previous cycles demonstrates the value of sustainability. He is encouraged by the growing number of teams that recognize this, urging the ecosystem to adopt models that prioritize long-term growth over fleeting buzz.
Key Takeaways:
- DeFi needs to move away from hype-driven APYs.
- Sustainable liquidity models are crucial for long-term growth.
- Chain-owned liquidity offers stability and capital efficiency.
- Transparency and strong governance are essential for attracting institutional investors.
- Polygon’s POL token can play a key role in fostering decentralization.
