ARC: Extend AAVE Liquidity Mining Rewards

Blockquote Why should we redirect more to DAI?

As much as DAI get criticized, it’s still the best alternative we have to fully centralized stablecoins. Sure it has its up and downs (and i’m perfectly aware that AT THE MOMENT, it’s mostly backed by USDC) but the Maker community is striving to improve.
Maker also chose Aave for its direct deposit module (which would bring additional DAI directly in Aave).

With all honesty, LUSD and RAI are not yet even close to what DAI has achieved until now. I believe RAI is promising, but too early still to bet on it directly.

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So you’re saying that the protocol should be able to generate enough revenues in two years with this emission rate to basically cover everything the protocol has to pay for, rewards for the safety module included ?

Considering the huge amount of tokens distributed and the value it represent, i doubt two years would be enough but i’ll be happy to be wrong on this.

Also really not sure that lowering the emission would result to a loss of Aave leadership.
With all the features that Aave should propose in the coming months, imo it seems logical to use Aave vs competitors like Compound.

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I’d like to voice my support in keeping the liquidity mining budget high in this crucial period of growth for AAVE. Though I think there’s good reason to be concerned with the spending, I think it’s far more important to improve the metrics that @Emilio outlined. This is simply because incentivizing more users to use the platform and giving them a stake in governance is by far the best thing that can happen for AAVE imo. The rewards should at least be continued uninterrupted for another few months so that people don’t have to shuffle their positions around while we settle this. 27% of the treasury in what is essentially the first year of the treasury’s existence is not a catastrophic amount of money to spend on attracting users and capital.

I would prefer that the reward system remain as simple as possible for the end user, and the current system functions well in that regard. Rewards are already denominated in stkAAVE, and that’s confusing enough for a lot of people already. I think we should leave the method of distribution alone and work on a solid replacement over a longer period of time.

I do think the distribution ratio could be tweaked quite a bit. Like @Emilio suggests, I think USDT and WBTC could use a cut in emissions, while currencies like SUSD and LINK get added onto the list. I would add onto that list TUSD, PAX, and BUSD personally, but this is trivial for now.

I think a reserve factor adjustment should happen outside of the liquidity mining proposal. Reserve factors are supposed to be calibrated according to the risk that the asset brings to AAVE. But assuming that it is related, I don’t think it’s a good idea to raise the reserve factor too much. 10% may not seem like a lot when interest rates are only 2-3%, but small differences in interest rates between protocols drives up utilization for the more competitive protocol drastically. I think this is the entire point of why the interest rate curves are so low until the safe utilization parameter is reached.

And even if you don’t agree with all that, a reserve factor adjustment for the assets that generate the most revenue for AAVE should be carefully studied with strong evidence to make sure that AAVE community isn’t self sabotaging itself.

no, where did i say that? I said that worst case scenario even without touching the emission, they would still last 2 years. Protocol income is another story. As i mentioned before, i would be ok with lowering the emission - but not now, it’s too early - there is still a lot to accomplish to assert full dominance.
In 3 months from now, L2 solutions will be more mature and we can think of diversifying the emission across networks.

It may be another story, but it’s a quite important one :
What happens if the revenues are not important enough to support the expenses once the ER is over ? Especially considering that there is no profit sharing for now, but i guess there should be someday.

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i 100% agree that the emission should be adjusted. I don’t think it should be managed now. I would keep going till the end of the year, to then progressively adjusting it towards a more long term emission scheme.

I do agree to leave LM rewards for GUSD. As it does not consume noticeable amount of stkAAVE, but adds variety for the program. It is better to decrease USDC rewards and put it to LINK and AAVE LM rewards.

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I would like to highlight how key is that liquidity mining incentives are rewarded in stkAAVE.
Yes, the budget if we take into account % of the Aave DAO treasury or even $ value is important, but let’s not forget that technically, the liquidity mining program is creating a really interesting feedback loop where people providing liquidity on the protocol become automatic participants on the Safety Module, protecting the protocol.
Of course, it is possible to argue that they simply don’t need to stay there, but I think the majority does, most probably because of 2 reasons:

  • They believe on the Aave Protocol long-term.
  • They profit from the liquidity mining of the protocol + the incentives of the Safety Module.
  • They want a say on governance.

So is it even possible to understand the budget on liquidity mining on the protocol as a direct growth mechanism of the reserve factor? I don’t think so. It’s a mechanism to grow involvement of liquidity providers on all other aspects of the Aave ecosystem.

Because of that, I support keeping the same emission for now during the next 6 months, adjusting to give bigger role to assets like DAI.

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This is the proposal for new LM distribution:

You can leave comments in the calculation file:

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personally im interested in lowering so that we can redirect some of the aave to boostrap new markets like the AMM one or optimism/arbitrum, this can also be good for adoption

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That’s it. There are still incentives needed for expanding the ecosystem. LM only shouldn’t be the main thing to do.

First of all it’s been very interesting discussion to follow with plenty of interesting ideas that could be implemented short-term or long-term depending on the technicalities and community support.

As a community member I have bee quite satisfied of the liquidity mining program for the objective part of bringing more users as stakeholders for the Aave Protocol and distributing the governance power to a wider decentralized extent. Especially the idea of users receiving StkAAVE means that they become directly also backstoppers of the protocol and have automatically skin in the game. For future long-term reference I would recommend community members to consider whether there could be additional staking utility for StkAAVE - maybe allowing community members to take additional risk or “asset-specific” risk based on staking StkAAVE. Just some food for thoughts.

In terms of the @Anjan-ParaFi’s proposal on asset specific allocation and reading @TokenBrice’s thoughts I would say that most liquidity that a liquidity protocol such as the Aave Protocol needs is stablecoins - incentivised as diversely as possibly and also encouraging stablecoins that are aiming towards decentralization such as RAI.

I would not either go too much into rewarding assets that are more used as collateral and are already been listed long time ago unless if that particular asset-linked community is strategically important for the Aave community - I would rather incentivise new listed assets with fixed time period to kickstart supply liquidity and extend governance power and ownership of the protocol to that new community, this would also bring more diversity to the community.

In terms of GUSD - I haven’t seen substantial growth of the stablecoin across DeFi, however supporting it does bring more diversity. Maybe GUSD incentives could be directed to RAI for the time being and continue experimenting.

Would also say that liquidity mining on Aave Protocol indeed has been very successful experimentation and brought the protocol to become the biggest and most utilized protocol in DeFi - would also see the recursive borrowing more as a practice for capital efficiency than anything else for now and the @TokenBrice’s point on the increased surface for coverage is valid point but which can either be serviced by increasing the current rewards to increase the supply in to the SM or by bulking up the risk parameters on liquidations on less liquid assets - the technical risk of the protocol should anyways decrease over time, which means that the risk of slashing in large amounts decreases (but is not 0 in any case).

Another thing to consider is that the Aave Protocol is becoming more self-sustainable than ever before, meaning that the RF collected can be used in the future in various ways and essentially means that the DAO itself can hire developers through Developers DAO, a potential sub-dao for the Aave DAO, which would allow more craftier proposals to be made by the community such as the idea of HF-based liquidity mining rewards.

Summa summarum, I would support the continuation of the LP rewards for the next 3 months or even by end of the year with adjustments and recommendations from the community that are easy to implement - such as decreasing or removing GUSD, adding RAI (small amount), increasing the total emissions slightly on SM to increase the SM capitalization.

During this next 3 months - the community could use the time to come up with more craftier proposal where there could be more creative ways to manage the rewards distribution (HF-based incentives, staking StkAAVE or something else).

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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.

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https://snapshot.org/#/aave.eth/proposal/QmeHAwW7XwUD3vqYLMRPF8MJiXkj2nnbRg1ae7mZ1SNQdm

A Snapshot vote has been posted with a new distribution proposal including feedback from the community. Please vote.

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Defi cannot be stopped. Incentives for the community continue.

Hello everyone, while reviewing the latest proposals and the current proposal configuration, i noticed that an important piece of configuration for the liquidity mining for the new assets added (assets that were not rewarding during the previous liquidity mining round) is missing. Therefore, although the UI is showing as the rewards are activated, they aren’t actually being distributed yet (only for the new assets - old assets are working just fine).
This will require another proposal to fix. I will coordinate with @Anjan-ParaFi to help solving the situation.

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Hi @Emilio

Can DPI be added to the list of assets to receive liquidity mining rewards when the new AIP is submitted? DPI was listed on 21st August, and in just over 2 weeks already has $20M deposited!!

There is $21.3M un-incentivised on Cream which could be lured across to Aave V2 with incentives.

Please do let us know, if we need to submit a fresh proposal for this.

Tagging @Anjan-ParaFi for visibility.

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@Emilio any update on this after ~2 weeks? Also, will be it be retro-active to when they were supposed to be in place once they do get implemented?

Hi, @Emilio

This is TrueUSD team. Thank you for adding rewards for TUSD market.
Please let us know the updates about fixing the LM distribution bug or update in AAVE forum. Thanks.

hey, sorry about this - i missed these messages. The fix has been applied, it is impossible unfortunately to give retroactive rewards - the speed of emission though has been increased to match the rewards for the 3 months as it was scheduled initially.