ARC: Extend AAVE Liquidity Mining Rewards

[Dydymoon]

I see this discussion evolved a lot, really happy to see the community in action !

@TokenBrice

I’ve gathered the feedback to establish what a counter-proposal incorporating them would look like.

Actually, you missed a few points on the feedback brought by other community members and myself, and the some of the ones mentioned are not fully accurate :

@TokenBrice

Instead, I’d suggest we move forward with Alex’s suggestion: factor the LM rewards on the basis of the net deposit per asset (= total deposited on asset X - total borrowed on asset X). This mechanism will ensure that users looping on USDC for instance are not extracting a neat APY despite providing no value to the platform outside of the fees collected.

I agree with @Alex_BertoG on an incentive for users keeping a HF > 2. It would motivate users to keep a safe position which can lower a bit the SM risk. Someone made a snapshot vote for this : Snapshot

We could make another one with this solution, the net deposits one, and also the current way for the community to decide which way is better

@TokenBrice

Finally, if we include LINK in the mining, it’s only natural to consider also adding AAVE who is also historically one of the top collaterals used on the platform.

I definitely think we should add AAVE if we add LINK too, however, we discussed that the rate should obviously be lower than the SM, so it doesn’t compete with StkAave yield and @Alex_BertoG said it too.

@TokenBrice

To achieve flexibility, I suggest we reserve a share of the total LM budget to incentivize new assets or markets , 50% for instance.

Considering that such decisions are timely, I’d see this share of the budget not controlled by the community or the DAO. Instead, it should be governed by an executive committee. Their mission would be to best allocate this budget to help kickstart new markets.

I fully agree on using a considerable part of the LM program to bootstrap new markets/assets, and personally, I’d allocate 40-50% of the LM program, but both the reward split between V2 and other markets and the modification of the allocation, should be voted by the community on Snapshot.

Special thanks to @state btw for building this amazing tool that finally allows all the community to have a voice in the governance.

@TokenBrice

The yearly program would be funded with a total of 600K to 803K AAVE (depending on the results of the snapshot votes).

This should also be decided by the community, and I believe there should be more voting options (for example 700/600/500/400K )

We’ll try to propose a new distribution in the coming days with some community members.

@TokenBrice

Since our LM program distributes tokens as StkAAVE, I think it would be wasteful to not be intentful about designing a plan that optimizes for their retention as StkAave

I shared with you my opinion about the inefficiency of the cooldown to avoid selling pressure and this was showed by the LM program, either because people can wait 10 days to sell it as it’s not any random token, or because some sell it with a slippage on a DEX.

My point would be to stop reward in StkAave and use Aave instead, or maybe even other tokens if we can get some from other projects as mentioned below.

@Alex_BertoG

57% of StkAAVE received via LM is held rather than redeemed (@Dydymoon I have observed many users unstaking the AAVE to deposit on the Polygon Market which had high yields)

From what i understand, 43% of StkAAVE have activated the cooldown, which means almost half of the rewards were either sold it or moved their AAVE on polygon, but the high rewards on polygon only lasted a month, so this can’t explain it all. Moreover, I assume these stats don’t take into account the StkAAVE sold on the market, meaning part of the 57% that did not called the cooldown could have sold too. Not later than yersterday, you could sell 1 stkAave for 0.984 aave, against 0.996 the day before.

Also, not sure if all the rewards for the LM are deposited on the SM and then distributed but i guess so, and in this case this also dilute the StkAave holders which already have a very low return.

@TokenBrice

Instead of penalizing people who withdraw early, I’d like us to go the other way around by rewarding users who farmed StkAave, claimed them, and held them as such for several months.

We could for instance add a long-term twist to the farming by saving a share of the budget to be distributed as an airdrop to users who did not withdraw the StkAAVE they received from the liquidity mining program.

As mentioned on our discussion, adding some vesting mechanism on the rewards with exit penalty could be very positive, as the penalty could be sent to the Safety module, solving two problems : reduce the dump and increase the safety module rewards (which is a pretty important point, we need to re balance the rewards between the SM and the LM)

A more detailed proposition on this will be shared in the coming days, working on this with a few community members.

@Alex_BertoG

I’m not convinced about using LM to launch new markets; but rather favor a progressive bootstrapping phase that allows more flexibility to adapt risk parameters as has already been required

Can you explain why you don’t think using LM to kickstart other markets like the AMM market is a good idea ?

Agree about the ability to adapt the LM and I believe a review every 3 months was mentioned above, but it could be much more often like every 2weeks or month, bot not sure this is what you meant by progressive bootstrapping phase with flexibility

@Alex_BertoG

Would make more sense if the launch LM program comes from the listed asset like what Polygon did

This could be really great, but not sure if a lot of projects would agree to just give rewards for Aave, or the one that might agree could be some new/dangerous projects that what to be listed imo

@state Agree with everything you said, but I wonder, is it mandatory to have the LM running for 1 year ? Why couldn’t we vote on it every x month like the previous LM programs ?

@spartan

Here are some snapshot polls to gauge community interest for both of these ideas:

These are some interesting ideas and i fully support the one about rewarding users with HF > 2, but the other seems a bit complicated and maybe it needs more discussions ?

@EmmanuelD

Is it desirable for large portfolios to be able to benefit from such ease in accumulating Aave without this having repercussions on the price for the smallest investors and get bigger and bigger in the DAO ?

No, it’s not imo, we don’t need VCs deciding every proposal.

@EmmanuelD

We have to choose wisely what we want for now and for the future of the protocol.

I definitely agree with you on this, the protocol is still early and needs an active community.

Thanks for reading my comments !