Aave - Initial Treasury Strategy

Authors: @elisafly, @eek637


We enjoyed reading both this post and the Asset Management Guidelines Llama has proposed. We largely agree with the approach to diversifying risk and thinking carefully about the treasury’s long term goals. However, we believe that given the rapidly-changing nature of the space, the treasury would be better served by more active management. We’ll touch on that separately in the Asset Management Guidelines comments section.

Here, we’ll outline some specific strategies we believe would be beneficial to the diversification of the treasury, focusing mainly on the stable coins from the Reserve Factor, which we believe should be implemented first. We also touch on the large AAVE balance in the ecosystem fund.

Stable Coins (DAI, USDC, USDT)

As a reminder, the Reserve Factor represents funds collected as a share of the protocol’s interest and is used to pay protocol contributors. In other words, it will be distributed in regular and predictable amounts at a regular and predictable cadence, and grow linearly with the protocol’s utilization. Its balance has no impact on the safety of the protocol, and staking rewards are paid out of the Ecosystem Reserve (which is 50-75 times larger than the Reserve Factor). These factors combine to make it an appealing first step in decentralizing the Aave treasury’s asset management program.

We like the idea of allocating 50% of the reserves to the Balancer V2 DAI / USDC / USDT pool (later migrating to staBAL3 pool when it becomes available towards the end of the year). The returns promise to be attractive, and we agree that building a strategic stake in BAL is a worthwhile endeavor.

We would note, though, that even then - diversifying across strategies would be prudent. There’s another immediately-available opportunity to run a similar strategy in another protocol where building a strategic stake of tokens also makes sense. Indeed, Curve offers a pool with a similar APR that could perhaps be boosted further over time by increasing AAVE’s CRV holdings. Whilst the Curve governance forum did not agree to a token swap in recent forum discussions there is no reason why we could not just DCA these in the market and leverage some influence over the gauge rewards as and when that becomes interesting.

With that in mind, we propose that in addition to the OP’s Balancer proposal**,** that we allocate the remaining 50% of the Reserve Factor’s stable coins to the Curve AAVE pool and running a yield farming strategy on that position. The yield on this pool may be additionally be enhanced through accumulating a position in CRV.


Borrowing stable coins against the AAVE position and deploying them in to various yield-bearing strategies is a good first step. However, given the sheer size of the position, we do not believe it should be the only strategy the treasury employs. We have spent time researching the utilization of Uniswap v3’s liquidity pools to manage a highly concentrated position. By concentrating liquidity provision effectively on different parts of the price curve, in addition to earning LP fees, we can strategically lighten up on AAVE after big rallies whilst buying more on big sell offs. We are happy to present and model this further if of interest.

Ethereum (ETH) and Bitcoin (BTC)

We agree that leveraging Balancer for the ETH/BTC strategy makes sense given the superior yields it earns. It is also worth keeping an eye on the Curve tricrypto2 pool which is yielding 11% (base) to 25% (max boost) in rewards, especially if it is decided to purchase CRV as per above suggestion.

Who We Are

Our team is Avantgarde Finance. We have been building in the DeFi space for five years and share more than 40 years of cumulative experience in TradFi. More recently, we have broadened our focus to providing Treasury Management Services. This can be anything from developing custom integrations and reporting tools required by DAOs to managing the assets on behalf of DAOs on-chain and implementing strategies.