I wholeheartedly agree with the OP that the notification LED is a very convenient way to see if you have missed notifications or not. Though I think you could solve this issue with AOD with the following implementation which I also posted on the
OnePlus forum, but I doubt a developer will read that.
The best way for for OnePlus to implement AOD is by adding 3 options in OxygenOS (from least to most impact on battery):
1. AOD off
2. AOD semi (where AOD is only active when you have new notifications, just like the good old notification LED)
3. AOD on
And of course the placement of AOD on the screen will have to shift constantly to prevent burn-in.
Also I assume the AOD is off when your phone is in your pocket, to further preserve battery life.