I fully support the extension of the liquidity mining program. It has been highly successfully in attracting deposits and borrowing activity for the Aave protocol, ultimately resulting in Aave becoming the largest DeFi protocol by TVL. The addition of LINK is also appreciated and makes since in my mind given the community support showcased by this ARC to add LM rewards for LINK back in May. My rational regarding adding LM rewards for LINK deposits and the synergies between the Chainlink and Aave communities can be read in that ARC.
However as you noted, I do think the rewards allocated to LINK are too low. With ~$311M of LINK currently deposited and ~$8.5M borrowed on Aave v2, implementing 4 stkAAVE per day in LM rewards (considering a USD value of $250 per stkAAVE), which is split 95% to depositors and 5% to borrowers (similar to WBTC and ETH), would result in a LM reward APR of 0.1% for LINK deposits and 0.2% for borrowers.
In comparison, Compound’s LM program currently offers 2.22% APY for LINK deposits and 14.52% for borrowing (although to note the collateral factor is currently 0%). As Compound turns up the collateral factor to allow borrowing against LINK though, Aave may become less competitive within the LINK token borrowing/lending/collateralization market. Therefore, I believe the current allocation for LINK LM rewards would have a negligible effect on attracting activity for LINK versus competitors (who now also use Chainlink price feeds making it a viable option).
Generally, I think it makes sense to determine LM rewards for stablecoins by looking at the amount borrowed, but I don’t think this approach works for non-stablecoins as most people use non-stablecoins like LINK as collateral to borrow stablecoins. Really the only reason to borrow LINK is to short it, which is not a common activity, especially for the Chainlink community which is the targeted audience for attracting LINK deposits (which would lead to greater amount of stablecoins being borrowed and higher yield for stablecoin lenders).
I propose increasing the LM rewards for LINK one order of magnitude from 4 stkAAVE per day to 40 stkAAVE per day which would put the allocation on a similar level with ETH and WBTC, resulting in an APR of 1% for depositing and 2% for borrowing, which is more competitive. Open to discussion, particularly how the rewards would be rebalanced from other markets or if the aggregate allocation as a whole is increased. Thank you for creating this proposal and listening to my point of view.