ARC: Gauge vote incentives on convex to increase stables supply

Reference two AAVE related pools on Curve in ETH mainnet:
SAAVE (SUSD & DAI): currently has $189 million down from $266 last week
AAVE (USDT USDC & DAI): currently has $183 million down from $216 last week

There’s a pool on polygon:
AAVE (USDT USDC & DAI) which has gotten a bribe from Polygon in the form of MATIC and seen its TVL and APY shoot up

Both these have had veCRV votes shift out en masse to other pools due to incentives.

Given the above, we could effectively have Curve / Convex subsidize stable coin availability through their token emissions on their pools. Those stablecoins get lent out on AAVE, so this should create a cheaper cost of funds for AAVE and therefore lead to more stable APY for lending, especially as these funds could become relatively sticky.

I propose on a trial basis we carry out a 20 stkAAVE incentive for gauge weight votes to each of the SAAVE and AAVE pools for the votes from the second Convex vote in October through the end of 2021, at which point we reassess and decide to continue. That’s about !1K USD at current prices per vote.

I propose stkAAVE as it could be support for our own stability pool. Presumably most individuals would accumulate multiple incentives before liquidating and some would keep it around as a long-term hold.

I suggest we use as this would probably be more efficient in terms of generating votes per token spent, noting the greater concentration of voting power within CVX. It also means only paying once every two weeks.

Next vote is for 14 October, but we ought to get the offer in well before, so we may not pass governance and other processes until the vote of 28 October. That means five votes would be covered by this proposal for a total of 200 AAVE tokens or about 55K USD.

I welcome your feedback and thoughts about improvements.

Thank you for your response.

The goal here is to take advantage of this method to lower AAVE’s cost of funds on stablecoins that can be lent out and to help keep AAVE a competitive offering. I believe the proposal would result in those getting an increase in CRV emissions and therefore keep liquidity in the pool, which flows downstream to AAVE and allows us to better serve more borrowers. There were about $350K USD in total value of incentives offered on Thursday’s vote, which means that those two pools would be about 1.4% of gauge vote incentives and hopefully an equal amount of gauge votes which means that they should be able to maintain satisfactory liquidity.

TVL on Curve as a platform has remained steady (strictly speaking it went from 12.6 to 13.1 billion on the same snapshot dates i.e. the day before change reward rates to Saturday 25th), but it went down from 13.1 billion the previous day, so let’s call it flat). So I doubt it has to do with market volatility.

Note the bribe I referred to is the one offered by Polygon on the platform - which is separate from the MATIC rewards being paid out to the pool directly as it went to veCRV holders who voted to support that pool getting more emissions. I’m proposing only the amount specified (20 stkAAVE per pool per vote until year end for gauge vote incentives), not an increase in incentives paid directly to LP participants. Again that goes straight through to AAVE Polygon stablecoin availability.

I personally disagree with AAVE participating in the bribery game of buying CRV votes for incentives, at least on Polygon. It seems unclear to me how these incentives would actually benefit the AAVE protocol. With fees being so low on Polygon, it is fairly trivial to obtain aTokens the standard way, e.g. just depositing the corresponding stablecoin to receive aTokens. I’m not really sure what the point of being able to trade aTokens is, and think that organic liquidity on CRV is sufficient for the edge cases in which people for some reason would actually want to swap stablecoin aTokens.

Please let me know if I’m missing something here.

Thank you for your response.

The proposal relates to the two AAVE ETH pools, as the Polygon one seems to be getting a subsidy from the network. Since every stablecoin deposited in those pools goes into AAVE directly, it is to our advantage to take advantage of this as a funding source. The CRV emissions on these pools fell from over 10% to less than 1% as a result of the last CRV gauge vote. I propose this as an experiment to see whether this could be a mechanism to restore those to normal and therefore mantain the size of the pool.

At their current size, those two pools are :

  • 90.4M of 102M USD funding in SUSD o/w 53.5M is borrowed (so more than freely available)
  • 134.2M of 1.8G USD funding in DAI o/w 1.5G is borrowed (almost half of available)
  • 73M of 5.9G USD funding in USDC o/w 5.2G is borrowed (10% of what is available)
  • 68.6M of 1.2G USD funding in USDT o/w 1.1G is borrowed (over half of what is availble)

So if those pools shrink materially, that would create a major disruption on the SUSD pool, and a noticeable one on DAI and USDT. Looks like a non-event on the USDC pool.

We should likely assume that anyone exiting those two pools will either invest in another Curve / Convex pool or on another platform, and that few would redirect their investment to AAVE.

After seeing the results from the first bribe via Voitum, I think a bribe should be passed, split 50/50 between and

Bribe Results from Votium

Have you a view as to the amount or format? I noticed that Compound pool has a votium bribe of 11420.69 DAI (odd amount) which corresponds to 37 AAVE. The Compound pool is of similar size as each of the two AAVE pools, which suggests we should up the amounts from my earlier proposal ? Current total value of bribes on votium is 387K USD

AAVE pool is down to 34.5M DAI, 65.3M USDC, 54.4M USDT (154.2M USD)
SAAVE pool is down to 75.8M DAI and 72.1M SUSD (148.0 M USD)

So the value of the pools is down 17.5% since a week ago.

If we did 40 AAVE per pool per vote at current sizes: that would annualize to an increased cost of funds of 0.2% which seems a bargain.