During the discussions regarding the first wave of liquidity mining, I’ve expressed my concerns regarding the use of non-targeted incentives, especially on the borrowing side. I’ve also noted that it would create recursive loops on Aave, and dilute the efficiency of the Safety Module budget since borrowing skyrocketed.
I recognize the success of the first wave of liquidity mining, it helped tremendously to grow Aave’s awareness and utilization. However, we must note that the AAVE token has not performed that well in the meantime, lowering even further the effective Safety Module budget. I’m also still looking for a documented analysis of the behaviors of the farmers who received the Ecosystem Reserve tokens: do they unstake? what’s the 1/2/3 months StkAave retention rate?
Given that Aave is now the most prominent money market, I strongly oppose any non-targeted liquidity mining program such as @Anjan-ParaFi suggests.
If the community would like to move forward with this, I would suggest at least revising the proposal to consider the following adjustments, inspired from the discussions on the first wave:
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Budget: The current proposal suggests using more than ¼ of the Ecosystem Reserve over the course of a mere year simply for growth. I find it almost indecent to even suggest something like that. I see Aave as base layer, here for decades to come. Growth-focused spending should not be this excessive.
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Profitability: As Anjan highlighted, Aave’s reserves have grown by about $7M. It’s a neat achievement but let’s not forget to place it back into its context. We’ve pulled ~ 200K AAVE so far from the Ecosystem Reserve to sustain the liquidity mining ~ 52 M $ at present price.
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Gamification: Could we adjust or skew the reward in favor of users maintaining a responsible health factor? There could be bonus for sustaining a >1.8 HF for prolonged periods for instance. We could also skew the StkAave allocation to in favor of users who stay staked into the Safety Module with the tokens they earned.
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Borrow-side incentives: do we actually need them? What are we trying to accomplish with this? We must note that the introduction of borrowing incentives created a recursive usage of Aave that was almost non existent before and now represents ~1/3 of the TVL.
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Proposition framing & objectives: What are our objectives with this liquidity mining plan? Numbah go up? Even we’re this basic, I think there should be some form of common understanding of what we are trying to achieve and how success will be measured – especially if we spend the sizable amount of AAVE initially suggested.
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Proposed tokens: while I understand the potential need for incentives on stablecoin deposits given the competitiveness of this market and its critical need for Aave, we can wonder if we need incentives for established tokens like ETH or wBTC that were already abundantly used as collateral on Aave without liquidity mining rewards.
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Duration: liquidity mining is great to make capital flow quickly. Why not harness this to help launch new markets/tokens with limited 1-2 week mining plan?
Given that this proposal seem to already have the team support before the community discussion even happened, I don’t think this message will produce any result, but allow me to try one more time. For the long-term sake of the Aave’s protocol, I hope the concerns of long-term holders and community members will not fly unanswered one more time.