ARC: Add LINK Liquidity Mining Rewards

For the ARC in short

Include aLINK & variableDebtLINK as assets in the IncentivesController contract with the emissionPerSecond rate defined by the consensus of the community.

ARC Rationale

Aave’s liquidity mining program went live last month for lenders and borrowers of DAI, USDC, USDT, GUSD, WBTC, and ETH, resulting in a significant surge of capital being deployed into Aave v2 to receive stkAAVE rewards, decentralizing the AAVE supply and governance powers to the community.

In this ARC, I am proposing that the liquidity mining program be extended to include LINK as an asset eligible for rewards. LINK is the native asset of the decentralized oracle network Chainlink, a protocol that provides Price Feeds that are being used to secure all Aave markets across Ethereum and Polygon.

LINK is one of the most deposited tokens on AAVE with a total of 20.88M LINK ($1.03B) on Aave v2 and 8.14M LINK ($400M) on Aave v1. 7% of the total circulating supply of LINK is deposited onto Aave.

The Aave and Chainlink community are highly synergistic in nature, as Aave is one of Chainlink’s largest users and (imo) its best success story. Much of the LINK community use Aave as their primary solution for borrowing against their LINK stack.

The addition of liquidity mining rewards for LINK deposits would distribute stkAAVE directly to LINK holders, a community that is extremely aligned with the vision of Aave becoming the defacto money market protocol of DeFi. We have supported Aave since day one and I personally believe this program would further strengthen the ties between the two communities.

The liquidity mining rewards could use the same 95%/5% lenders/borrowers distribution as ETH and WBTC. The amount of stkAAVE distributed in each block could be increased to include LM rewards to LINK lenders/borrowers or the existing allocation for LM rewards could be kept the same but lowered for each asset to account for rewards to LINK. The former seems like the more elegant approach, but I am open to either.

If you support this ARC, feel free to delegate proposition power to my Ethereum address 0x190473B3071946df65306989972706A4c006A561 (chainlinkgod.eth)

  • Yes - Add LINK with same parameters as other assets (Increase LM budget)
  • Yes - Add LINK and reduce incentives for existing asset (Keep LM budget)
  • No

0 voters

13 Likes

The Marines & the Aavengers always been frens.

Aave is a protocol proudly powered by Chainlink since day one.

This ARC shows a few potential benefits:

  • Incentivize aLINK migration from V1 to V2
  • Incentivize a community that already knows the protocol and is known to be active users.
  • Allows the marines to gain overtime governance power and be more involved in the Aave governance.

Thanks for posting this and can’t wait to see community feedback on this proposal.

16 Likes

Link marines represent a large portion of usage of this platform and have since its inception.

They are patient, but they are not stupid. If other protocols offer LM rewards (they are), they will eventually leave.

This would occur not only due to a lack of LM rewards but also a poorly crafted stable borrow mechanism that seeks to punish borrowers with exceedingly high borrow rates based on a presumption of “loyalty” without factoring in that alternatives offer considerably better rates. It would be wise to reverse course.

Right now, I see 2 elements (lack of LM and uncompetitive borrow rates) of AAVE incentivizing long time loyal users to leave for other platforms. This proposal removes 1 of those 2 negative elements while adding LM for borrowing hedges the other.

Instead of the data centric question “what is the threshold of borrow rate would be just enough to get them to stay,” - the question should be whether AAVE wants to be a bank that rewards loyalty or a bank that wants to take advantage of loyalty.

I am in favor of the former and this proposal would continue AAVE’s journey back to that path.

8 Likes

This should get millions of aLINK migrated from v1 to v2. Definitely in favor of this proposal.

3 Likes

Many individuals would likely opt to keep there $link in the Aave protocol even with a live staking if the incentives were almost competitive enough with the $link staking return.

If the $link return was viable enough, there is no reason that the Aave protocol could not retain/acquire enough $link tokens to rival a pool like Linkpoolio $LPL even with a full fledged chainlink staking live.

I don’t think there would be much resistance on such a move but I can appreciate an open forum so thank you for reading my quick input.

3 Likes

I am also in favor of this proposal. Link is the underlying security of DeFi. It’s not going away

2 Likes

I support this in general but would be interested in big brain thoughts around allocation parameters so it’s not just a quick flash in the pan yes/no.

One thing worth mentioning is that LINK currently is the 8th largest deposit “market size” in AAVE v2, but incredibly low on the borrow side; I believe the lowest deposit/borrow ratio currently in the entire system.

I think a way to spice things up might be incentivizing borrow side only, thus kicking positive feedback loop towards depositors as well.

@iDecentralized I agree about quantifying the amount of stkAAVE rewards (ETH is allocated 224.1 stkAAVE per day and WBTC 181.55 per day, so maybe 200 stkAAVE per day for LINK as a middle ground would make sense), but I entirely disagree with just giving rewards to borrowers. What that would do is reward people who short LINK and provide zero stkAAVE LM rewards to the Chainlink community who use their LINK as collateral. ETH and WBTC are also very low on the borrow side when compared to stablecoins, because the vast majority of people are going long on crypto, not short.

7 Likes

I think there are other things you can do with borrowed LINK other than shorting, such as using as collateral on other platforms, LPing for yield (Sushi and others even have LM rewards on LINK pair) and with the coming Chainlink 2.0 explicit staking, it could help AAVE be the go-to location for nodes that want to borrow for their Tier 1 backstop.

Depositors in turn will be rewarded due to the borrowing rate increasing, thus increasing yields to depositors.

I am not against allocating to depositors either, as I would be more than happy with the extra juice myself, but I do think it’s interesting to consider all the options!

This is just me speaking off the cuff too, haven’t sat down and thought hard.

You could really say the same thing with ETH and WBTC (borrow to then use as an LP, stake in ETH2, etc), but the reason the LM rewards for these tokens are allocated 95%/5% lend/borrow (as compared the stablecoins which are 50%50%) is because people deposit ETH, WBTC, and LINK primarily to use it as collateral in loans. These are the users that should be rewarded, because they provide the most value for the Aave protocol (they borrow stablecoins which gives yield to stablecoin lenders). 95%/5% distribution would still reward borrowers, but prioritize lenders more due to their participation in increasing yield for stablecoin lenders (which incentives more stablecoin deposits, growing TVL).

If only borrowers were rewarded, what would happen is that people would recursively borrow LINK, (deposit LINK as collateral, borrow LINK, redeposit it, repeat), meaning they would be earning zero yield from lending, would provide zero liquidity to Aave in net, and the rewards still wouldn’t be available to those who are using their LINK to borrow stablecoins (the people actually providing economic value to the protocol). There doesn’t seem to be clear benefit to your proposal.

5 Likes

Would love to see some models on outcomes on:

95/5 vs 50/50 vs 40/60…etc

If anyone has time, would be fun to dig into potential outcomes / benefits / drawbacks!

Great point on recursive borrowing, I was thinking of Compound v1 model that doesn’t allow people to recursive same asset which obv doesn’t effect stable recursive…

I’m very much in favor of a 95%/5% lend/borrow split for the reasons ChainLink God described in his most recent post. It just doesn’t seem to make sense any other way at face value when comparing liquidity rewards among the current assets that are rewarded. LINK is clearly not a stablecoin. This is getting overly semantical at this point.

After all, we can always easily make that adjustment down the line, and will have plenty of more actionable data in July when the entirety of the Liquidity Mining proposal is set for renewal/modification (which honestly is all the more reason why this ARC should be expedited for voting asap). The liquidity mining process is only 11 days old right now and the data being a few months old vs. only 11 days old will definitely be way more effective, actionable data to make any useful inferences for changes to allocations of tokens.

For now, using ETH and wBTC as a template is a more than worthwhile assumption for a
95/5% lend/borrow split. Again, LINK is not a stablecoin.

I will also say that the current user votes seem to overwhelmingly agree with wanting to move this ARC along based on other comparable assets and I am also inclined to say that current user votes (over 80%) in the poll seem to therefore overwhelmingly agree with my observations of wanting to expedite this ARC along.

1 Like

It definitely doesn’t seem to hurt to get prod data and modify over time!

Agree with ChainLinkGod’s rationale for 95%/5% lender-borrower split. This has worked for other pairs, so we could adopt it for LINK at this time and modify as needed if it doesn’t play out as expected. Given the integral role of LINK in the blockchain space, allocating 224.1 stkAAVE per day does not appear outlandish.

LINK could be similarly added to Aave on Polygon for LM, though I’m unsure if this is the appropriate forum for that discussion.

1 Like

Is this Eric Wall’s alt?

Instead of the data centric question “what is the threshold of borrow rate would be just enough to get them to stay,” - the question should be whether AAVE wants to be a bank that rewards loyalty or a bank that wants to take advantage of loyalty.

AAVE does not need liquidity mining incentives to get LINK holders to stay. Until Compound whitelists LINK (and even then), LINK will continue to find its way to AAVE due to it being the most trusted credit facility. Throwing in a small piece of extra yield via LM will not change that IMO.

He doesnt know about other blockchains
He doesnt know about steak
He doesnt know how consumer retention works
He doesnt know how competition works

You want to tell link marines they will “get nothing and like it”… You know nothing about AAVE or link. Wont be responding further. Enjoy your bags.

“People go to where they are treated best”.

That saying also applies to liquidity.

It’s not just about distributing reward to incentivize LINK deposits (e.g. switching from Bancor), which would indeed increase the amount of stablecoins borrowed. It also grants the Chainlink community, which are avid DeFi users, partial ownership of the Aave protocol, because AAVE is a governance token, thereby furthering the decentralization of the protocol. LINK lending LM rewards further aligns incentives between the two communities, a net positive for both. Every proposal you’ve given here has been to lower the LM rewards for LINK holders/lenders, why?

1 Like

“Every proposal you’ve given here has been to lower the LM rewards for LINK holders/lenders, why?“

Currently there is no LM rewards for LINK lenders or borrowers or lenders, so I definitely am for raising the number from zero to a higher number. I do personally think that allocation should be seriously considered before implementation and the points I mentioned above still apply (re: deposit vs borrow ratio).

I also agree it’s important to not allow LINK deposits to be siphoned from AAVE and sent to other protocols with better rewards / security / value prop. I just personally don’t see that being the case right now, if anyone has data showing that’s occurring I would love to review!

For disclosure: I do have material LINK deposits in AAVE, I would financially benefit from LM rewards.

Cheers :unicorn::yellow_heart::ghost: