Aave - Treasury Report

Hey treasury crew, the Llama team is doing an amazing job with the monthly treasury reports, I myself have a treasury background for many years. Along the lines of diversification that has been mentioned, I’m sure the Llama team would love to have some stable coins / ETH to play with if the DAO treasury was diversified a bit, to earn some yield and also pay for the DAO grants. I saw the new DAO grant proposal for $6mm to be paid fully in AAVE tokens - which seems wild to me. I am planning a proposal discussion to start diversification efforts, would appreciate any feedback from the teams in here as well.

Disclaimer - I’m Alex, a cofounder at Hedgey Finance, CFA and former global treasury manager at WeWork for 6 years (and part of the idea is to use a protocol we’ve deployed to help diversify some of the treasury - though not necessarily the sole tool in this endeavor, just one piece of the toolkit).

This is the outline I’m going for:

Governance Discussion: Aave DAO should diversify a portion of its treasury from governance AAVE tokens into stable coins & ETH

Summary:

There is significant research around the risks for DAOs who hold a large majority of their treasury in native tokens, especially when it comes to long term planning for DAO funding and operations. I am putting forth this initial forum discussion to propose action to begin diversification of the treasury into stable coins and ETH, with a larger goal of creating a treasury management working group, a subgroup under the DAO, to lead ongoing diversification and treasury management goals on behalf of and for the benefit of the DAO. Initially, I propose converting $50mm worth of AAVE tokens to a mix of stable coins (USDC / DAI) and Ether using the Hedgey OTC protocol. $50mm was chosen as an initial diversification amount given other proposals for funding, where some of this cash could be utilized in grants (like upcoming $6mm grant funding proposal), and sufficient funding to formalize paying contributors in stable coins as the DAO forms more formal working groups, like the treasury management group I’ve also proposed.

Pros:

  • Builds a stable capital pool that does not fluctuate with the markets
  • AAVE sale (via OTC protocol) is publicly available, and can include token time locks to avoid any impacts to liquid markets
  • Grants and investments can be funded with ETH and stable coins, avoiding the significant sell pressure often associated with funding grants in AAVE tokens

Cons:

  • Appreciation of the tokens converted will benefit the buyers instead of the Treasury

Outline:

While there are several methods that DAOs can use to convert tokens responsibly to stable coins, I propose a simple over the counter style token sale offering to the Aave community and public at large. This sale would have the additional parameters of incorporating a discount plus a time-lock for the purchased tokens. At Hedgey, we have built protocols for this purpose, allowing DAOs to publicly sell tokens with a time-lock (with tokens locked in an NFT representing their right to claim those tokens after the vesting period ends). Anyone can participate in the sale, including institutional investors, as well as community and retail investors. Utilizing the Hedgey OTC permissionless protocol is a simple way to execute the transaction and event, which would be incorporated directly into a DAO proposal and executed automatically from the passing of the proposal. Exact details regarding the amount, sale price, and discount are up for discussion, though I would propose the following as a starting point. Draft numbers below (three separate tranches of sales):

Amount of Tokens: 150k
Payment Currency: USDC
Price per token: $130
Effective discount: ~20%
Lock Period / Unlock Date: 2 years

Amount of Tokens: 150k
Payment Currency: DAI
Price per token: $140
Effective discount: ~15%
Lock Period / Unlock Date: 18 Months

Amount of Tokens: 75k
Payment Currency: ETH
Price per token: $120 (priced in ETH)
Effective discount: ~25%
Lock Period / Unlock Date: 3 years

Justification:

Aave Protocols DAO are a core infrastructure of the web3 ecosystem. As the DAO evolves to expand its involvement with the larger DeFi and web3 ecosystem via grants and additional protocol developments and deployments, the DAO needs to have in place the financial stability to support these important endeavors, with a strong and balanced treasury as its backbone. DAOs, such as Gnosis, that have successfully diversified their treasuries are now able to operate, grow, and invest primarily from their non-native token offerings. By diversifying a portion of the Aave treasury into stable coins, the treasury can then generate stable coin yield on those assets using its own protocols, and fund grants and the DAO indefinitely. Ultimately, this would be the first step in creating an active, healthy, diverse treasury ensuring longevity of the Aave ecosystem.

Hedgey Protocol Information:

The Hedgey OTC protocol is a permissionless OTC smart contract that simply allows a seller to create a sale for their tokens with a given set of parameters; price per token, minimum purchase size, total sale amount, payment currency and unlock date. When purchased the buyers pay directly to the DAO the amount owed, and if the tokens are locked, then the buyers are minted an NFT representing their right to claim those locked tokens after the unlockDate. The NFT contract is the combination of a standard NFT contract with the token-time-locks (with some fun artwork by the Hedgey team to help visualize the tokens purchased that are locked up). As such, the NFTs can be traded and sold on marketplaces such as OpenSea, to get access to secondary liquidity while the tokens are still locked and cannot impact liquid UNI markets.

Links to Hedgey documentation:

About: Hedgey Finance

Audited smart contracts can be found at: Github repo

Documentation: Documentation

Does anyone notice most diagram of the link in Dune is “took too long to execute”

@iceman very interesting proposal, did u get some feedback?

Hey @damonxu, I haven’t gotten any feedback yet! looking for some help and feedback before I post this in the broader forum for discussion and hopefully a quick proposal. I put all this in a shared google doc, would love any feedback on here, or just on this forum discussion before going to the broader group.

@iceman thanks for jumping in here.

I would note the need for a bit more specifics - assuming you mean Aave Grants DAO here?

This reads a bit confusing and misleading.

Second, I would note that Llama does not “play” with the treasury:

Instead, they monitor and report on the balance, helping with workflows and suggesting strategy. All deployments and use of funds must be confirmed via Governance.

I would also remind you that Llama’s relationship is funded via the Grants DAO. This is all to say it feels like the audience for your proposal is a bit misguided.

While there can be better diversification of stablecoins for Aave, this needs a bit more development.

75mm tokens? This is almost 5x the circulating supply - seems this is the Amount in USD?

Great points, sorry meant thousands instead of millions. And yes agreed, Llama does not ‘play’ with tokens, they do an incredible job at reporting and monitoring everything.

Does the AAVE tokens in the DAO not fund the Grants DAO? And would it not make sense to ensure that the Grants DAO has stable coins to utilize for grants rather than deploying AAVE tokens? Are they two separate DAOs operating independently? (hard to find legal organization charts, so I understand I could be completely wrong here in the underlying operating mechanics of the entire ecosystem)

This was just an idea to get some discussion going! Appreciate you jumping in where I’m off basis here, so what do you think would make sense?

Ah, I see - makes a bit more sense now.

At a total of $375k the proposal is less daunting.

I feel it may be better received if you posted this on the forum instead of in the comments to gain more visibility and feedback.

Yea, sry about that. but i agree - will kick off a separate discussion entirely to get some thoughts from people in general first.

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@Elliott thanks for this amazing work! When will the Mar’21 report be released?

Hi all,

We are pleased to present the March Financial report, we apologise for the late running of this report. We have run into limitations with the use of Dune and are working with their team to improve the user experience of the current dashboard. We are also developing in-house our own financial reporting system that is more flexible than dune, allowing us to incorporate all markets Aave operates in. We are hoping to be able to share this with the Aave community by the end of this month in the April update.

In the meantime please do comment and let us know what you would like to see included within these reports going forward.

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thanks @Elliott! this is great. do we have CY20 financial data available by any chance?