[ARFC] Merit - A New Aave-Alignment User Reward System

That’s right. Time to be aggressive and be ready for the liquidity wars :saluting_face:

Thank you for the great proposal, @MarcZeller . SaucyBlock is recommends to the Aave Community the modification of some of the Rewarded Actions and proposes Option2. Additionally, we are seeking responses from @MarcZeller regarding two questions.

Saucy Block’s Option 2

This option enables the promotion of supply to the new Pool(sFRAX, crvUSD) and the issuance of GHO without compromising the censorship resistance and integrity of GHO collateral assets.

Deposit LST, Borrow wETH
Deposit LSTs, Borrow wETH using emode
Deposit sDAI/sFRAX, Borrow GHO
Deposit DAI/LUSD/FRAX/crvUSD, Borrow GHO
Deposit BAL/CRV, Borrow GHO

Reason for changing reward action

  • Deposit sDAI, Borrow GHO → Deposit sDAI/sFRAX, Borrow GHO:
    Saucy Block is currently creating the sFRAX AIP and will release it soon.

  • Deposit USDT/USDC, Borrow GHO → Deposit DAI/LUSD/FRAX/crvUSD, Borrow GHO:
    Promoting the issuance of GHO with USDC/USDT as collateral has the potential to increase the supply of stablecoins on Aave V3. However, it also poses a high risk of reducing the censorship resistance of GHO collateral assets. By changing to deposits DAI/LUSD/FRAX/crvUSD, it is possible to mitigate the decrease in censorship resistance while increasing the supply of stablecoins on Aave V3.

  • Deposit AAVE, Borrow GHO → Deposit BAL/CRV, Borrow GHO
    Aave DAO should never provide incentives for issuing GHO with AAVE as collateral assets. Instead, Aave DAO should encourage AAVE holders to deposit AAVE into the Safety Module (SM) and convert it into stkAAVE. Changing to deposits in BAL/CRV has a high potential to increase the strategic assets of Aave DAO and can also encourage the migration from Aave V2.

Two Question

  1. Does the Merit Designer includ within Merit booster?

  2. Please provide a specific schedule. The schedule for Merit should be announced in advance to many DeFi users.

1 Like

my bad. i skim read the proposal. i thought spark was part of the non-aligned.

if it is just morpho then that is fine.i hear you that using morpho is not diversification and is in fact more risky that just using aave as it is built on top of aave.

so yeah i am in support.

Interesting, so you were against it because you thought Spark was “non-aligned”, but now that Emilio told you its only Morpho you are fine again. And now its no centralization of power anymore, because you think you will get some of the revenue share?


no. it is because morpho is built on top of aave and therefore inherits aave’s risks and it adds another layer of risk on top of that which is it’s own smart contract risk.

as i mentioned with this line:
“i hear you that using morpho is not diversification and is in fact more risky that just using aave as it is built on top of aave”

spark is a fork of aave but it is a separate protocol so if aave gets hacked it doesn’t mean spark is hacked. that is not true for morpho.

at least that is my understanding.

so the centralization of power thing is different as i initially thought spark was included in the non-aligned protocols list. it is not so therefore i don’t think there is a centralization of power issue.

Following feedback here’s some proposed updates to current ARFC, if community find consensus on it the ARFC will be updated:

Rewarded Actions

Actions have been simplified for proposal decreased complexity, technical implementation & reward calculation purposes.

Borrowing specific assets are the eligible actions. Those assets are the leading revenue providers for the DAO and strategic markets for our vertical

Borrow wETH
Borrow GHO

Merit boosters

Merit boosters have been simplified; First-degree user have been removed, all aave users except non-aligned protocol one will get the same base reward, but Second-degree user of aligned protocol is maintained.

Currently, zero second-degree protocols are eligible for this booster. The DAO welcomes any alignment proposal from protocols willing to put Aave first in their integrations, resulting in boosted yield for their users and creating competitive advantages.

Governance/staking-related boosters have been grouped at the end; they’re intended to reward aligned behaviour; some of these boosts overlap and are cumulative. as such someone staking Aave and delegating since a long time will get holdoor, stakoor, staker & active in governance bonus at the same time. We’re completely supportive of having the most aligned of our members having the most boost.

Behavior Multiplier description
Second-degree user of aligned protocol booster for users coming from aligned protocols that favor Aave over other protocols.
Migrator Incentive for moving positions to Aave from others protocols
Diversity Supporter Rewards for using minority LSTs
OG DAO Participant Booster for early DAO voters or delegates
Holdooor Booster for ≥100-day AAVE holders in the past year
Stakoor Booster for ≥100-day StkAAVE holders in the past year
Staker Bonus for staking AAVE, StkGHO
Active in Governance Rewards for voting or delegating to an Aave DAO-recognized delegate platform

Merit Diluters

Diluters have been cleaned up, dumpoor was designed for an early version of Merit distributing AAVE.
Freerider has been removed, we heard loud and clear feedback to focus on the reward part, therefore, users participating in governance will get a boost, others will get base reward.
the user of the non-aligned protocol has been clarified. These users will be zeroed out of Merit and removed from the reward pool, allowing aligned users larger rewards.

Behavior Dilution Description/Effect
User of Non-Aligned Protocol -100%

This current proposal update does not discriminate collateral but only boosts some (LST minority assets). This will make many more users eligible but have a dilution effect on reward/$ borrowed. Should we consider collaterals less strategic in the diluters category or remain neutral?
The ACI has no strong feelings on this part of the proposal and welcome community feedback.


Hello Marc,
I think the update is now clearer for everybody and nearly ready to be shipped.
Some things I would like to add/see here.

  • boost sDAI & AAVE similiar to minority LST

With those added I do think we have everything important included and are ready to share with Aave user.


Hi, imho this is a first step. We will need to track this to see the real effect. I think its hard to make any estimations to know what is going to happen. But if we never try, we will never see i guess, right?

I don’t have a feeling its because of the points meta currently being there. I would rather call it “real yield” being shared with user. But not all the time, like some protocols do and then go bust, but rather in waves.
And Merit has been choosen wisely capital-wise. The protocol/treasury is still healthy after Merit and there is plenty $ to reinvest in sustainbale growth of the protocol and especially GHO.

Thank you everyone who participated providing feedback.

The following proposal has been escalated to ARFC Snapshot. Voting will start tomorrow. We encourage everyone to participate.

As voted in the Merit TEMP CHECK according to our rationale here, we are in favour of the Merit experiment. Making it clearer that the rewarded actions are to borrow wETH and borrow GHO, which are especially profitable for the DAO, simplifies the program and is a step in the right direction. This will help with GHO borrows, increase usage of GHO, and drive revenue to the DAO, which is the right call to make.

The arguments that this proposal is ‘unfair’ because of the 100% dilution for using non-aligned protocols like Morpho Optimizers do not make sense. Firstly, the dilution is only of rewards, not anything else - which is completely fair, since using the Optimizers diverts from Aave protocol revenues. The DAO is completely in the right to reward users who bring more revenue to the protocol, and not reward those who drive revenue away. This is a form of incentive alignment that is only possible in crypto. Secondly, the reward system incentivises users to use Aave and not other competitor protocols - this is standard business practice and cannot be seen as anti-competitive, especially since Aave DAO can and should protect its revenues. Lastly, using $5M of Aave’s own profits to reward users doing more profitable actions for Aave, in turn driving increased revenue and profit to the protocol, make sense - especially as the first iteration of this program.

Therefore, we will vote YES in favour of this ARFC.


Thank you everyone again for your feedback and participation.

Following snapshot monitoring, the current ARFC Snapshot have just ended with both Quorum and YAE as winning option with 549K votes.

Next step will be escalating this proposal to the AIP stage for official voting and implementation.


The following SAFE has been created to support the distribution of rewards by the Merit program:

Merit SAFE: ‘0xdeadD8aB03075b7FBA81864202a2f59EE25B312b’

Allowances for 600 ETH and 2,900,000 are to be created enabling the funds to transferred to from the Treasury to the Merit SAFE.

The SAFE is configured with a 2 of 3 signer requirement. The Signers are @MarcZeller from @ACI, @MatthewGraham and @Sisyphos from @karpatkey_TokenLogic.


I saw multiple ppl point out and twitter and tend to agree, that the current proposed meris program is fundamentally broken.

By inventivicing borrowing, but not allowing to borrow you’re just funneling huge amounts of money into the bags of current holders. I think the liquidity committee should consider temporarily soften up their peg goal in order to allow increased utilization of the asset, otherwise non of this makes sense in my eyes.


Hello, @sakulstra, I do understand and share a fair amount of the frustration; I’m personally hungry for more GHO debt.

But the current ALC consensus is to keep tight control on the GHO minting to avoid losing the peg. Unfortunately, very high stable coin yield across the ecosystem makes it difficult to attract “buy walls” liquidity to protect the GHO peg.

the ALC requested funds [ARFC] Aave Liquidity Committee Funding to maintain and increase the incentives on the secondary market.

AIP-44 is scheduled to increase demand for GHO with large buys, and if this execution allows for a more balanced secondary liquidity landscape, I’ll will be easier to advocate for a larger mint.

Merit distribution pathways are at the discretion of ACI and Finance SPs; if wETH distribution is highly strategic and must not be delayed, we can be supportive of keeping the majority of the GHO budget earmarked for when the GHO supply is above 50M to allow more users to be eligible.


We understand @sakulstra’s frustration - however, we think it is much more important right now to have a tighter GHO peg for a longer period of time to drive confidence in the asset. We think @ACI’s suggestion that the GHO budget should be earmarked for when it rewards a higher proportion of GHO borrowers makes a lot of sense. It may be better to hold off on executing the Merit program for GHO specifically once the ALC and Funding Update proposals are executed and have had time to have an impact on the market.

1 Like

I think what could be a suitable solution would be top create a third rewarded action on Merit:
holder of StkGHO and remove stkGHO part of Staker Boost to avoid circular logic.

there will be an overlap between “Borrow GHO” and “Hold StkGHO” rewarded users but that’s an acceptable outcome.

In this case, GHO part of merit will be delayed in its kickstart (but still distributed in 90 days).

I think it’s an elegant solution. With the ACI, we’re against rewarding StkGHO with AAVE long term, and this new reward action would allow a smooth transition to a StkGHO safety module rewarded 100% in GHO long term.

We need governance approval to modify merit, therefore we suggest with the ACI the following:

  1. Create a new rewarded action, “Hold StkGHO”
  2. remove StkGHO component in the Staker bonus
  3. approve the delayed start of GHO distribution in the merit program
  4. As long as GHO borrow cap is below 50M favor STkGHO holders rewarded action over having GHO debt in Merit distribution.

If we have community consensus on this path we will escalate today this to snapshot as a [ARFC-addendum] to stay on track with merit program schedule.

asking for feedback from @sakulstra @karpatkey_TokenLogic @sid_areta


The intention behind rewarding stkGHO is that it is also a positive action for the DAO by contributing to the SM, correct? And in doing so, we can initially prioritise this positive action over the borrow GHO action until the borrow cap is >= 50M, which is when we can start distributing GHO for borrowers?

This seems to make sense to me. Could you clarify whether the reasoning is correct or if I have missed anything?

1 Like

You’re accurate, StkGHO does not generate revenue directly but:

  1. Every GHO has been minted by someone paying fees to the DAO
  2. StkGHO rewards incentivize buying it on secondary markets to Stake it having a positive effect on peg that would allow more mints thus more DAO revenue
  3. StkGHO is the stablecoin part of the Safety module, this is what we want to support for Aave users as it’s easier to clear bad debt with stablecoins in the context of a shortfall event.

All of these points are logical. In that case, I’m in favour.

Intrigued to see the rest of the community’s opinion on this!

1 Like

We’re publishing this vote to snapshot to update the governance approval on Merit scope

Title: [ARFC-Addendum] Introduce “Hold StkGHO” Reward Action

Authors: @ACI (Aave Chan Initiative)

Date: 2024-03-08

Simple Summary

This ARFC-Addendum proposes introducing a new rewarded action, “Hold StkGHO,” within the Merit program. It also involves removing the StkGHO component from the “Staker” boost and approving the delayed start of GHO distribution.


To expand the Merit reward system scope and address concerns about long-term AAVE rewards for StkGHO holders, we propose introducing a new rewarded action: “Hold StkGHO.” This change allows for a smooth transition to a safety module that is eventually 100% rewarded in GHO.

While there is an overlap between “Borrow GHO” and “Hold StkGHO” rewarded users, this outcome is considered acceptable. The introduction of a new rewarded action for “Hold StkGHO” allows us to address concerns about rewarding users for non-enforcable actions due to the GHO borrow cap reached. "Holding StkGHO is an incentive to liquidity sink GHO and secondary market demand.


Proposed Changes:

  1. Introduce a new rewarded action, “Hold StkGHO.”
  2. Remove the StkGHO component from the “Staker” boost to avoid circular logic.
  3. Approve the delayed start of GHO distribution within the Merit program.
  4. Prioritize StkGHO holders’ rewarded actions over having GHO debt in the Merit distribution as long as the GHO borrow cap remains below 50M.

Next Steps

  1. If this proposal reaches consensus on Snapshot, update the Merit reward system accordingly


This proposal is made independently by the ACI.


Copyright and related rights waived via CC0.