ARC - Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield

[JeanBrasse]

Hey,
Glad to see that Aave’s governance finally wants to generate yield on the accumulated treasury and enter the Curve Wars.
For the most part, I agree with the proposal. However, there are several changes that I would like to propose.

1. Strategy Overview

@MatthewGraham

The table below shows asset allocation per each strategy:

I think the $CVX strategy would be an excellent decision for AAVE governance but I think this strategy would be conservative for the protocol. If Aave really wants to get into the Curve Wars I think they need to buy a minimum of $5 million worth $CVX.

I propose this new allocation:

2. Convex Allocation

@MatthewGraham

The Convex (CVX) allocation is to be funded by the assets mentioned in the table below:

Below is the new allocation for the purchase of $CVX:

@MatthewGraham

We expect to make additional CVX purchases in order to meet the minimum voting hurdle required to influence how Convex’s veCRV holding is deployed on Curve gauges. Based upon this snapshot and the Voting Rules and Information section of Convex’s documentation, we estimate around 70,000 CVX votes are needed to clear the hurdle rate. This is expected to cost a further $1.02M to what is proposed above and represents less than 1 months revenue. We intend to fund this through future revenue and have a sufficient buffer to the hurdle rate based upon voter participation on Convex’s snapshot.

The assets are to be converted to ETH and then used to purchase CVX via a Bonding Curve with a 50 bps premium that utilizes a Chainlink oracle price feed. Alternative methods can be discussed in the comments. However, we opt for a solution that can be implemented entirely through the AIP governance process and does not include manual trading.

Buying $5 million worth $CVX at the beginning would solve this problem. I think waiting another month would just be a waste of time for Aave. If we have the 70,000 $CVX required at the beginning, we can have more voting power on the Curve governance. This would increase the yield on Curve pools, and therefore the TVL of these pools, which would increase the amount of stablecoins deposited on Aave. This could reduce the average borrowing rate on Aave for stablecoins and thus encourage more stablecoin borrowing. This would bring in more revenue for the protocol in the medium term.
We would lose 1 month of yield on $3 million but we would not have to pay a premium on the purchase of new $CVX and we would also generate more revenue for the protocol but we would also generate revenue from $CVX locks (4.61% vAPR). All of this could make up for some of the lost yield.

In addition, owning $CVX not only allows one to have voting power over Curve’s governance but also over other governance bodies such as Frax Finance where Convex already owns 2.5% of the protocol’s voting power. In the future Convex also plans to deploy on other protocols and other blockchains.

Owning $CVX would therefore allow Aave to have voting power in many protocols. In the future, we can make a partnership with the Frax governance to launch a Curve aFRAX+Aave pool that we could incentivize by voting with the $CVX owned by DAO and not spend a budget to incentivize this pool. (it’s just an exemple with Frax but we can make this with others protocols who their token on Aave)

3. Productive aToken Stable Strategy

@MatthewGraham

The sAave and Aave strategies include depositing capital into a Curve pool and then staking the LP token on Convex to earn stkAAVE, CVX and CRV rewards. The two strategies are expected to generate around 4.07% vAPY and 6.19% vAPY before Aave’s CRV and CVX voting influences the CRV incentive derived yield.

The table below shows the allocation, how each strategy is funded, and which pool those funds are to be deposited into.

The new allocation if we buy 5 millions worth $CVX:

4. Balancer Boosted Pool Strategy

The new strategy with the new allocation for Aave to deposit Stablecoins in the Boosted Pool:

Other ideas:

One idea could also be to set up a recurring purchase of $CVX. I was thinking of $250k worth $CVX per month for 3 months to start and then that could be renewed for 3 months if it works well. This would ensure that the protocol keeps a decent voting power in Curve’s governance.

I would also like to add that buying CVX to vote for Curve pools during gauges weight allows to increase the TVL of Aave in an indirect way, this could also be a way to reduce the budget of liquidity mining in $AAVE currently in place. Another way that could be more efficient for the protocol could be to create Curve V1 or V2 pools with the aTokens we want to incentivize and use bribes on Votium. But this is only a medium term idea for Aave.