I believe it’s a great idea to provide DAI depositors with access to the risk-free yield offered by the DSR. However, I propose an other approach that avoids the need for an Aave upgrade and minimizes complexity in the core protocol. Instead, I suggest listing sDAI, the synthetic representation of DAI deposited into the DSR, as collateral, borrowable, or both, alongside the other assets.
Enabling sDAI as collateral would offer users the opportunity to earn a 3.49% yield on their DAI collateral. On a side note, this could potentially incentivize users to borrow other assets at a higher rate, thereby increasing borrowing activity. Enabling sDAI as borrowable would allow DAI lenders to earn a minimum of 3.49% interest rates, in addition to the interest paid by borrowers. If sDAI is listed as both collateral and borrowable, both use cases are fulfilled. In this case, the DAI market could be gradually deprecated in favor of its new alternative.
By ticking these boxes, the proposed alternative accomplishes the same goals as the initial proposal while avoiding additional complexity.