[ARC] Repay excess debt in CRV market for Aave V2 ETH

Governance
15

@llamaxyz would like to present the following pathway forward for addressing the Bad Debt within the CRV Reserve.

Proposal

A summary of the key actions:

  • Acquire CRV to repay 100% of Bad Debt, $1,877,777.89
  • Gauntlet to transfer the insolvency fund to the DAO, $308,118.89
  • Consolidate Assets held in v2 Collector Contract, $434,299.61
  • DAO retains existing aCRV & AAVE Holding, $339,328.88, $308,118.89 respectively

Note: Values are subject to change with asset price movements within the market.

The DAO is to purchase the full amount of the bad debt within the CRV Reserve via a Bonding Curve with a 2% premium to the Chainlink Oracle price, CRV/USD.

The quantity to be purchased is equal to the variableDebtCRV position in the below wallet:

Wallet: 0x57e04786e231af3343562c062e0d058f25dace9e
Quantity: 2,651,906.53507042958070438 CRV
USD Value: 1,877,777.89 @ $0.708106/CRV
CRV: 0xD533a949740bb3306d119CC777fa900bA034cd52
CRV/USD Oracle: 0xCd627aA160A6fA45Eb793D19Ef54f5062F20f33f

Gauntlet is to redeem the stkAAVE and transfer the AAVE to the Ecosystem Reserve Contract once the funds have been withdrawn from the Safety Module.

Gauntlet Wallet: 0x7667095Caa12b79fCa489ff6E2198Ca01fDAe057
Quantity stkAAVE: 4,923.6
Value stkAAVE: $308,118.89 @ 62.5800
Ecosystem Reserve: 0x25f2226b597e8f9514b3f68f00f494cf4f286491

The following tokens in the v2 Collector Contract are to be Redeemed and exchanged for USDC via a series of Bonding Curves:

Implementation

To repay the bad debt:

pool.repay(crv, total bad debt, variableInterest, Address)

CRV:0xD533a949740bb3306d119CC777fa900bA034cd52
Total Bad Debt: 2,651,906.53507042958070438
Address: 0x57e04786e231af3343562c062e0d058f25dace9e

Discussion

Llama believes the CRV position held by the DAO can be considered a strategic asset with the intention of it being converted to veCRV and potentially used to either generate revenues, bootstrap GHO on Curve or direct CRV rewards towards new aToken gauges. At this point in time, we believe the DAO can acquire CRV with USDC, and avoid using the existing CRV holding.

The above proposal enables the DAO to continue to maintain its current CRV position. The DAO is one of the largest Liquidity Providers of CRV on the v2 Ethereum deployment and this liquidity when transferred to v3 will continue to generate revenue as CRV is one of the most sought after governance tokens listed on the protocol.

In addition, @Llamaxyz seeks to Redeem the aTokens shown in the image and then convert these holdings to USDC by deploying a series of bonding curves. The amount of tokens, price, value of each holding and the premium to the Chainlink Oracle applied on the Bonding Curve is shown above. This is intended to consolidate the assets held within the v2 Collector Contract and also partially offset the USDC outflows.

7 Likes
16

This seems like three separate proposals in one:

  1. use Gauntlet’s insolvency refund

  2. acquire 2,651,906 CRV at a market value of $1,877,777

  3. redeem the v2 Collector Contract for a total value of $434,299

Now that these are more explicit - I’d like to drill into #2:

We are supportive of using the insolvency refund and think that is a no-brainer. For the Curve acquisition, it seems a bit soon and aggressive to acquire more than needed.

To encourage full transparency, we believe this decision to acquire a surplus of CRV would be best lived in a separate discussion.

It feels like a better, more simple course of action would be the following:

  • redeem the insolvency refund (~$300,000)

  • redeem and use v2 collector contract (~$430,000)

  • acquire CRV to pay the difference of bad debt (~$1,477,000)

I am not convinced of the need to focus on future, undiscussed DAO partnerships while patching a hole.

It’s like building a new marble kitchen while your basement is flooding…

17

Hi @fig,

In general, I see the logic of three proposals. However, the way we thought about this was, what is the fastest and simplest way to repay the debt whilst achieving the same outcome. We need to acquire sufficient CRV to repay the debt, this is a requirement of the implementation and therefore we have a choice of two options:

  1. Utilise the existing aCRV holding and acquire the balance
  2. Acquire 100% of the CRV bad debt and the DAO retains the aCRV holding.

CRV is one of the best earning revenue streams outside of stables. Having a good deposit in the v3 CRV Reserve will generate revenue for the DAO. After @AaveCompanies spent the time and effort developing the new aToken collateral, @Llamaxyz wanted to be able to maximise that opportunity of having a veCRV holding (assumes the DAO converts aCRV to veCRV).

If the DAO continues to hold the aCRV holding, then the bad debt is essentially recovered through interest earned by the DAO. The period of time for the DAO to earn enough aCRV from interest payments on its aCRV holding was around 80 days a week ago, it is now 225 days and with v3 + normal borrowing conditions enabled, we expect it will probably come down from 225 days.

Screenshot 2022-11-30 at 20.40.56
Screenshot 2022-11-30 at 20.40.561724×872 41.5 KB

Due to the factors mentioned above we opted to acquire CRV to repay the bad debt knowing the DAO will earn aCRV from the existing aCRV holding over time. This directs us towards Option 2.

The easiest and simplest means of achieving option 2, is to covert a single holding to CRV. A dominant asset holding, ie: USDC, is the most logical choice. Looking at the v2 Collector Contract, ideally we would keep the USDC, plus other dominant holdings, and instead utilise other assets. The table in the earlier post outlines our thoughts around which assets to utilise. If we swap these assets for CRV directly, it may take longer and it does introduce complexity. Swapping the assets in the table to CRV risks some of the smaller holdings not being arbitraged in a timely manner and delaying the repayment. Therefore, we opted to go for the same net outcome, whilst decoupling the tasks. However, this one initiative and can be deployed in a single AIP.

I do want to thank you for asking these questions, I am happy to explain the logic. If the DAO choose to reduce its aCRV holding exposure, then we can pivot that way. :slight_smile:

3 Likes
18

I don’t have a problem with three proposals. It’s more the update in the comments.

Feels like it would be better conveyed to the community - and gain more visibility - if outside of a thread.

Generally, we will vote for reduced aCRV holdings at this time.

Keep it simple.

1 Like
19

Thanks for the update @Llamaxyz.

I am in support of the outline proposal.

Does the following fall within the scope of the Llama contract with the DAO? Or will Llama request additional payment via the Aave Grants DAO or from the DAO itself?

3 Likes
20

Hi @G-Blockchain,

Thank you for you asking the question as others could also be wondering this too.

Over the last week, Llama has submitted two AIPs adjusting risk parameters in partnership with Chaos Labs. Although the nature of this work falls outside of the scope defined in the AIP, we are glad to support the community during a busy period.

With respect to this specific proposal, aspects of it do fall within Llama work scope, as it relates to the funds held by the DAO and how said funds are managed. Whether or not the DAO addresses the bad debt is a community decision and we are pleased to be involved in presenting a potential way forward to the community.

Llama does not intend to seek any additional funding for any of the three mentioned proposals. We enjoy working with other service providers and are here to support the Aave community.

3 Likes
21

This is an important proposal that I believe should be addressed promptly. Considering the change in prices could affect the numbers at the time of writing this.

However I think that the proposal might be too broad, breaking this down into separate proposals with the most important action items being the first would be a better way to approach this.
Separate discussions for the each of the action items would allow more discourse on each action item and possibly more community feedback and visibility.

After utilizing the insolvency fund and the v2 collectors contract to satisfy the bad debt, then a separate discussion can be started on the acquisition of more CRV, we would have more time to breakdown the justification for such an acquisition without the bad debt hanging over our heads.

22

Hi @Kene_StableLab,

Llama is proposing to acquire the CRV needed to repay 100% of the bad debt from tokens held in the v2 Collector Contract on Ethereum. The bad debt is nominated in CRV and thus must be repaid in CRV, which means we must acquire CRV to pay back the full amount of bad debt. Llama is not proposing to redeem the aCRV holding to partially fund the bad debt repayment. Instead Llama prefers a different approach.

Gauntlet has put forward funds, that partially fund paying down the bad debt. Llama proposing using the assets in the table to partially fund this, just indirectly. The balance is to then be funded from the USDC holdings. Rather than swap many assets to CRV, Llama is proposing swap many assets to USDC and swap USDC to CRV. Rather than two steps in series, we are performing two steps in parallel. This reduces the dependencies and is likely to accelerate the overall schedule for paying down the bad debt.

Is there any aspect of this proposal that is not supported or isn’t clear which we can expand on.

To repay the bad debt the function requires CRV as an input. Which means paying back 100% of the bad debt requires CRV to be acquired. There is no other way.

pool.repay(crv, total bad debt, variableInterest, Address)

CRV:0xD533a949740bb3306d119CC777fa900bA034cd52
Total Bad Debt: 2,651,906.53507042958070438
Address: 0x57e04786e231af3343562c062e0d058f25dace9e

2 Likes
23

oh @MatthewGraham

“there is no other way.”

there are so many ways // there is always a way, matthewG

how about the aCRV you mention

annoyed, watching.

24

@MatthewGraham I empathize with some of the frustration expressed by the community. While using the treasury is best, it feels important to maintain the integrity of a process and allow more voices.

This debt may be nominal in dollar amounts but the proposed repayment represents different strategies; 1) preserving Gov tokens on our balance sheet vs 2) reedem aCRV - discussing surplus later

I understand it needs to be repaid in CRV - as do I believe @Kene_StableLab does too

But there are very different ways of doing it as such.

I will continue with my crappy analogies as if they do anything:

This feels like you’re are fixing an old coat you love - its got a big ole’ hole in the elbow. You have good leather at home, which may take a bit of work - it may be a bit discolored, but it would definitely fix it.

Why do we need to go get more, new leather? We already have some.

I apologize for the impassioned discussion here as I maintain my focus on letting the community be as informed as possible, and creating a predictable, consistent process.

Thanks for letting me air it out :v:

3 Likes
25

Hi @thewatcher,

Using aCRV and even Gauntlet’s stkAAVE holding to fund this is a partial solution and does not enable the full amount of bad debt to be repaid.

Bad Debt > aCRV Holding
Bad Debt > (aCRC + stkAAVE swapped to CRV)

Thus, CRV needs to be acquired to repay 100% of the bad debt.

1 Like
26

Hi Everyone :wave:

Please see the following forum publication relating to v2 Collector Contract consolidation.

@fig and @Kene_StableLab - please feel free to comment on this thread regarding any queries around swapping out the assets flagged in the table presented earlier in this thread.

3 Likes
29

Hi Everyone :wave:

Please see the following forum publication relating to how Gauntlet is to return the Insolvency Fund to Aave.

A third forum post will emerge outlining how the CRV Reserve’s Bad Debt is to be repaid.

1 Like
30

Yes Matt! Thank you - clear and concise process, allowing stakeholders to follow.

Thanks for your cooperation here.

1 Like
31

I join the opinion that market buying CRV when you can use your earned aCRV is inefficient.

aCRV earned by the protocol accounts for ~20% of the bad debt. This is 20% less CRV you need to buy from the market at a premium, given the amount and pace needed to repay the loan within a certain time.

This aCRV is barely productive and I would consider it within the long-tail asset group to be ‘consolidated’.

I also wonder whether it is a good idea to redeem and sell aRAI. RAI is decentraliced, unlike USDC, and although its price can fluctuate, it can be consider as a safe asset and thus kept to diversify the stablecoin exposure of the DAO.

32

The process to return funds back to the treasury is in process. In order to redeem the stkAAVE, the funds have been unstaked and are now in the 10 day cooldown period.

Cooldown has been initiated: Ethereum Transaction Hash (Txhash) Details | Etherscan

Following the cooldown period, Gauntlet will transfer the AAVE to the Ecosystem Reserve Contract: 0x25f2226b597e8f9514b3f68f00f494cf4f286491 and will send a follow up here with the transaction receipt.

4 Likes
33

Thanks @Llamaxyz for this “free-of-charge” initiave.

Thanks @fig and @G-Blockchain for helping on getting some light here. Your work is valuable.

Regarding the discussion about using treasury’s aCRV, now that the alternatives are clear, I suggest to let the community decide via snapshot.

34

We don’t have a strong opinion on either option, but I think it’s important to look at things holistically when choosing between repaying the excess debt with 100% of USDC and retaining aCRV vs. utilizing aCRV and paying the remainder with USDC.

To add to this and while it does distract a little from the main conversation, the community must decide the value that the current aCRV holdings bring to the future implementation of aTokens. If we deem CRV an important tool in stimulating Curve LP tokens as collateral on Aave, earn 3CRV, and/or support GHO. Will it be a mistake to save on costs now by utilizing our aCRV and then having to repurchase it further down the line?

Nonetheless, we can see in the table that of the $18.8M in the collector contract ~82% (~$15.4M) is made up of various stablecoins. This is a pretty healthy number given the size of total assets.

image

Then if we consider Option 1: using aCRV + paying the remainder in USDC, stablecoins as a proportion of total assets slightly increase by 0.07%. Alternatively, under Option 2: retaining aCRV and only utilising USDC to repay the bad debt. The proportion of stablecoins for all assets drops to 80.42%, a 2% drop from previous levels.

image

Under both options, I’d argue that the amount and composition of stablecoins remain strong and the decision ultimately comes down to how optimistic the community is on the value of CRV to the DAO.

Note: this does not take into account the premium the DAO pays to acquire CRV.

5 Likes
35

Thanks for scoping out the solutions so quickly. The CRV pool may be accruing more reserve factor collections than debt from this position; yet this debt accrual directly eats into the treasury’s CRV profits. So I’m in support of fast action to minimise the final costs for the DAO.

I appreciate the long term vision of this proposal from @Llamaxyz. Some time ago, the Aave DAO considered a token swap with CRV, more recently it did one with BAL. Why? Because these assets are strategic, there are many ways Aave DAO can benefit from boosted yields on their respective LP tokens and this is more relevant than ever as the Aave DAO prepares to launch:

  • GHO, which will need deep liquidity, and good incentives to attract it
  • V3 AMM market, with aggregated boosting

I would support a token swap to get the CRV required to proceed to the liquidation against non strategical treasury holdings or some AAVE from the ecosystem reserve. As this is time sensitive, I would recommend proceeding with a single asset that can cover the full amount such as USDC, to then proceed to the treasury consolidation without rush as this is quite complex operations across markets and chains.

1 Like
36

Hi Everyone :wave:

A third proposal has been published that discusses how the CRV, need to recapitalise the protocol, is to be funded:

Please do continue the conversation on the applicable forum thread.

6 Likes