I saw an interesting idea from the FEI asset listing proposal that I think would allow incentives to line up better between AAVE governance and the projects which it provides LM rewards for.
In the current defi ecosystem, it is common practice for projects to provide “staking” rewards for users that deposit their tokens into a staking vault as a reward for holding their tokens. If projects could inject their own liquidity mining rewards into AAVE at their leisure, I believe this represents a huge opportunity for AAVE. There are many projects that wish to boost the activity of their token, especially in the realm of stablecoins.
AAVE is a cornerstone of stablecoin liquidity, and there are many stablecoin projects that regularly run promotions to boost their own project’s liquidity. In fact, as we speak there is $250,000 of GUSD earning free interest for depositors in PoolTogether. TrustToken runs their own undercollateralized lending platform that rewards their TRUST tokens to depositors. PAXOS regularly runs promotions for users on various platforms as well. Of course this all applies to non-stablecoins as well, but I agree with you that stablecoin liquidity is the most important and so am focusing on that.
Ultimately, I don’t think it’s healthy for AAVE to support liquidity mining all by itself. This is not only a burden on the reserves, but also a centralized process. Projects should be empowered to boost the liquidity of their own project as much as possible, and this opens the door for AAVE to match the contributions of projects that do so. Interested to hear any feedback on my rough draft of an idea.