ARC: Extend AAVE Liquidity Mining Rewards

Glad to see the message stirred some reactions and was not ignored this time.

I want to focus on clarifying an absolutely critical point that seems deeply misunderstood in this discussion, what I call the dilution of the safety module budget.

Ignore AAVE price going down, since indeed it’s not directly correlated to the liquidity mining. Even consider that the deposit to the safety module stayed the same (they lowered).

The safety module is to be used in case of critical failure, so we measure its effective coverage against the borrow side of Aave. I did the maths in February when I published my risk assessment article:

Let’s redo the maths for today’s situation, all in USD:

  • Safety Module Total Deposit = $ 1.05B
  • Budget that can be used (30%) = $350M
  • Total Borrows on V1 + V2 = 56 M + 6.3 B
  • Effective coverage offered by the safety module = 16.6%, roughly 3.5x times less that the figure observed in February.

This is precisely what I meant by “dilution of the safety module budget”. Even if the budget stays the same, it got diluted by the massive increase in borrowing. This is the main reason why I’m worried about borrowing side incentives as it’s essentially driving a reduction of efficiency of the insurance budget — especially if nothing is done to stimulate deposits to the SM simultaneously.

To clarify the rest of my points, allow me to restate that I do not oppose liquidity mining per se, and I recognized the results of the first wave. What I oppose is the untargeted dimension (both sides, all major tokens) & the excessive budget, amongst other concerns.

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