Hi @stani, thanks for considering rewarding above LTV, there would be no incentive then to max lending/borrowing for rewards which mostly drives coin rates up (like in Compound). One other thought was to multiply the reward by the utilization rate. The idea would be to incentivize depositing the coins that are actually in demand. This does NOT work without the LTV rule as Compound found out with BAT. People starting borrowing BAT, depositing the BAT, borrowing stablecoins, depositing those stablecoins, borrowing more BAT, etc., all to gain the maximum reward. But with the LTV rule, it would work perfectly since none of that cycling behavior at max LTV would be rewarded.
On the higher LP rewards and “fast food LP’s who come to farm and sell for quick yields”, I did for example jump on the YFI farming. After the rewards ended, many withdrew their money and Curve, yearn, and Aave had massive withdrawals of capital. So I hope you will read my earlier post on a rewards system like Ampleforth Geyser. They have a retroactive multiplier which maxes at 3x after 60 days. Ampleforth has been having negative rebases (where you lose coins) for the last week and their Geyser deposits were steady near $26M during that time when everyone was losing money on AMPL. The reason is that all the stakers wants the 3x max retroactive multiplier for their rewards. The idea I was suggesting was to extend that out to 3x at 1 year and after that, have the retroactive multiplier continue to increase with the inflation rate. That way, the long term Aave holders would want to keep backing the Safety pool (and/or liquidity pool) even when Aave’s token was under pressure or when there was an incrementally better yield somewhere else. It really rewards long term investors which is good for Aave. I’m very interested to hear your thoughts on that.