ARC - Strategic Partnership with Balancer Part #1

Governance General
1

title: ARC - Strategic Partnership with Balancer
status: Proposed
author: Llama Community - @MatthewGraham
created: 21-03-2022

Simple Summary

Acquire 300,000 BAL tokens via a combination of performing a BAL for AAVE token swap and via deploying a Bonding Curve contract. The BAL tokens are to be deployed to earn yield and used to direct incentives to new aToken Boosted Pools when Balancer’s new tokenomics system is launched, [1].

Abstract

Perform a token swap with Balancer by exchanging 14,666.67 AAVE from the Economic Reserve for 200,000 BAL token. Exchange rate $AAVE $150 and $BAL $11. Deploy a Bonding Curve to acquire an additional 100,000 BAL tokens on market at the chainlink oracle price +50 bps, for a cost $1,105,500 with BAL at $11. This is in addition to the existing 1,604 BAL in the Reserve Factor.

Aave will become one of eight token holders with 300,000 BAL tokens. All 300,000 BAL tokens are to be deposited into the Balancer V2 BAL:ETH (80:20) pool and participate in Balancer’s revised tokenomics come 28th March. This is equivalent to approximately 3.80% of the BAL:ETH pool at the time of writing.

Initially, the veBAL will be used to vote BAL rewards to pools which support aTokens that create TVL for Aave and/or AAVE liquidity pools.

Motivation

Aave and Balance have a long history of working together. The AAVE : ETH (80/20) Balancer V1 pool BPT is accepted within the Aave Safe Module and the newly created Balancer Boosted Pools drive TVL to Aave markets, [2].

When the AAVE : ETH (80/20) Balancer V1 pool is moved to Balancer V2 and integrated into Aave’s Safety Module, the veBAL tokens can be used to vote BAL rewards to the newly created AAVE : ETH (80/20) Balancer V2 pool.

In addition, the veBAL can be used to vote BAL rewards to Balancer Boosted Pools which utilise Aave markets in the background to create yield for passively held liquidity, [3]. There are likely to be many more Balancer Boosted Pools that utilise aTokens in the future and the veBAL votes can be used to help bootstrap these pools by directing BAL rewards to those pools. Using veBAL to vote for BAL rewards to pools that strengthen Aave is a strategic advantage of deploying the BAL tokens into the BAL:ETH pool.

By exchanging AAVE for BAL, the tokenswap reflects the ongoing collaboration and shared vision through governance in each other’s community. The token exchange, plus additional acquisition, is significant enough for Aave to become a Top 30 holder of BAL tokens, based on etherscan BAL holder rankings, [4]. Balancer will become a Top 80 AAVE holder, [5]. Each community will have influence in the other’s governance process, enabling them to best represent their interests and to collaborate.

Aave will likely be one of the first movers in the upcoming BAL wars and will gain a strategic advantage to bootstrap new Balancer Boosted Pools which lead to tokens being deposited in Aave markets to earn yield. This has the benefit of creating TVL and Revenue for Aave.

The initial sizing to acquire 200,000 BAL was something that was reached via discussions with the Balancer community and happens to be the same size as the recent Tribe DAO and Balancer token swap, [6]. The additional 100,000 BAL purchase is something that could be extended in the future.

The initial cost from the Economic Reserve is 14,666.67 AAVE and $1,105,500 from the Reserve Factor with BAL at $11. This places Aave inside the Top 30 BAL holders which is an important consideration. If an additional 75,000 BAL was acquired then Aave would become a Top 20 holder and this includes three community wallets, one Polygon bridge pool and the main BAL liquidity pool. So really it would be more like the Top 15 holders if another 75,000 BAL was acquired.

The initial sizing was also determined by the ability to influence how the BAL emissions are to be distributed. If all BPT from the BAL : ETH pool are converted to veBAL, Aave will receive 3.8% of the 14,500 BAL emission schedule which is equivalent to 551 BAL weekly, or $6,061/week at $11/BAL or $315,172/year. This is approximately 9.5% ROI in Year 1 based on 3.8% of the veBAL supply. This is direct yield for supply BAL : ETH liquidity. Other deployments from the Reserve Factor will also earn BAL rewards over time, [7].

With 3.8% of veBAL supply, Aave will determine where 3,085 of the 81,200 BAL tokens are to be distributed each week via the Ethereum mainnet pool gauge. This is equivalent to 5% APR on a $35.30M pool without any compounding or other yield sources like swap fees or yield from Aave markets. This is sufficient to support bootstrapping new liquidity pools that support growing TVL for the Aave community. Given the size of the Aave community investment in the Balancer community, it is reasonable to think that Liquidity Mining Committee may also be voting to allocate a portion of there 14,500 weekly BAL emission to support Balancer Boosted Pools which drive TVL to Aave markets.

Implementation

The token swap is to be performed by both Balancer and Aave by depositing tokens into a contract like how Tribe DAO swapped TRIBE for INDEX, [8].

A Bonding Curve deployment utilising Chainlink’s BAL/USD oracle feed with a 50 bps incentive for arbitrage trades to acquire BAL on market and deposit into the contract. Aave will provide USDC to fund the Bonding Curve contract. An example of this type of transaction occurred when Tribe purchased $10M of DPI on market, [9].

The 50 bps fee is to provide an economic incentive for arbitrage traders to attain BAL on market and deposit BAL into the contract profitably by more than offsetting gas costs. This mechanism enables everyone within defi to participate and essentially crowdsources the BAL tokens on Aave’s behalf. Once the BAL has been received it will be transferred to the Reserve Factor from there it will be deployed into the BAL : ETH pool on Balancer V2 and then into the veBAL contract.

References:

[1] Introducing veBAL tokenomics - Proposals - Balancer
[2] Pool management - Balancer
[3] Balancer
[4] $17.88 | Balancer (BAL) Token Tracker | Etherscan
[5] $186.55 | Aave Token (AAVE) Token Tracker | Etherscan
[6] FIP 33: Swap between Balancer DAO and Fei DAO - Proposals - Tribe
[7] ARC - Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield
[8] https://github.com/fei-protocol/fei-protocol-core/blob/develop/contracts/utils/OtcEscrow.sol
[9] BondingCurve | Address 0xbf5721c5e1c370f6f1a3e21b3972e0ace93a1e84 | Etherscan

Copyright

Copyright and related rights waived via CC0.

Amendments:

Change Token Swap Terms:

  • From “exchanging 14,666.67 AAVE from the Economic Reserve for 200,000 BAL token. Exchange rate $AAVE $150 and $BAL $11.” to “200,000 BAL from the Ecosystem Fund would be exchanged for the equivalent USD value of AAVE in equal proportions from DAO Treasury, using the 90-day moving average price when the votes pass on both sides.”

Providing Liquidity for veBAL:

  • Aave is to provide ETH when depositing BAL as to prevent significant negative price impact that coudl occur adding all that BAL as single sided liquidity in the 80/20. At the time of writing Aave holds around $336K in V1 and $258K in V2 Reserve Factors which is more than enough to meet the 80/20 BAL/ETH requirements.
14 Likes
2

I definitely think it’s a good idea to start swapping some Aave for other assets that governance can leverage. As it stands the AAVE in the treasury is wasted idle capital because it won’t ever be used for voting. Getting a stake in other strong protocols and offering them a stake in AAVE seems like a productive move.

Could you elaborate on why a bonding curve implementation is necessary? I am not completely sure why it would be in the interest of governance to use this scheme rather than just market buying when the price is below oracle price (which is pretty much guaranteed to happen regularly). I personally would never vote to share profits with arbers. That doesn’t seem to be in our interest at all.

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4

the team should definitely consider allocating BAL to the Polygon deployment too as it has 17% of BAL emissions and potential of 10% via strategic LM commitee.

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5

I believe there are strong synergies between Aave and Balancer and am excited to see the communities response above. This partnership leads to two things:

  1. treasury diversification

  2. meta-governance optimization

Integrating BAL seems to give Aave the opportunity to have a greater stake in a complimentary product.

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6

Sure thing @pakim249.

I am glad you asked as there are probably many people wondering just this. The reasoning is rather simple, if we do an on-market purchase there is a risk market participants will know when the AIP will execute, will see the transaction and will be able to sandwich the trade. We would also need to write the code rather than use something already audited. A 15K BAL purchase via Cowswap incurs 52 bps slippage. Therefore we would need several transactions over a period of time. The Bonding Curve is an easy, governance friendly approach.

With the bonding curve, what we are doing is crowd sourcing the BAL and providing a small price incentive for participants to purchase the BAL and deposit it into the Bonding Contract. At 50bps, is it quite small. If we used just the oracle feed and no premium, we risk the order not being filled. I think of the 50 bps as paying for a service and also the ability to acquire BAL via a transparent on-chain governance process. We intend to work with audited code that has been used before.

I am open to suggestions and want the best outcome that is time efficient to implement. ie: light on dev time.

2 Likes
7

I support this initiative, as I feel it aligns pretty well with the interests of the Aave community:

  • A swap AAVE<>BAL feels like a perfect representation of the collaboration between Balancer and Aave communities, lasting for a pretty long time already. It makes sense that both the Balancer DAO and the Aave DAO will have governance power on each others’ systems.
  • Diversification-wise, I think it is acceptable too, as the amount of AAVE is small enough compared with the current reserves. Still, I think this argument is of lower importance than the previous, as in my opinion this kind of swap should only be done with really close partners. Having the Aave DAO accepting a deal involving the native governance asset should be considered a privilege (same as I guess the Balancer community thinks).
  • Following with the previous, I would also like to understand if these types of swaps will not be so frequent from Balancer’s side, and only with a really solid group of long-term partners. That will definitely give more confidence to Aave community members. Maybe somebody of the Balancer community could comment on that?
  • Regarding the extra purchase of BAL, I agree it is a priority to not be submitted to arbitrage on it, together with keeping some simplicity on the purchase, for potential future scalability of the process. So most probably makes more sense to have that as the second phase of this.

Lastly, I would say it could be interesting to start modeling a bit if it could be worth it to redirect some specific liquidity mining to Balancer <> Aave pools, for example, the boosted of stablecoins. Considering the introduction of new veBAL dynamics.

3 Likes
8

Hey @MatthewGraham,

LuukDAO here from BalancerDAO’s Partnership sub-DAO. I’m in full support of this proposal.

I would love to connect with you to align on the details, process, and timeline for a potential BAL <> AAVE swap & formalized DAO partnership. I’ll shoot you a msg!

4 Likes
9

Hey there, I’m a contributor at BalancerDAO. I can speak to

  • Following with the previous, I would also like to understand if these types of swaps will not be so frequent from Balancer’s side, and only with a really solid group of long-term partners. That will definitely give more confidence to Aave community members. Maybe somebody of the Balancer community could comment on that?

The Balancer community wants to maintain a level playing field for protocols planning to participate in veBAL so we plan to only endorse treasury swaps with key long term partners, like Aave. We have executed a few swaps before veBAL was announced with close partners - TribeDAO, Gnosis, mStable, and PrimeDAO. Going forward I expect very few if any swaps to get endorsed by the community. A swap with Aave might be one of the very few we would support in my view.

All that said, anyone can propose a treasury swap and veBAL governance has the final say to approve it or not - so we cannot guarantee anything of course :slight_smile:

2 Likes
10

Following with the previous, I would also like to understand if these types of swaps will not be so frequent from Balancer’s side, and only with a really solid group of long-term partners. That will definitely give more confidence to Aave community members. Maybe somebody of the Balancer community could comment on that?

Hi @eboado,
Andrea here from BalancerDAO. I believe AAVE could be very much the last substantial token swap we will see in a considerable time. The new tokenomics would strongly discourage any further BAL token distribution so not to affect “bribing”.

We are long term partners with AAVE and we believe this swap could help maintain the great relationship we enjoyed for a very long time.

4 Likes
11

Love the proposal as usual, big fan of your work @MatthewGraham and the Llama crew.

I second what @Andrea81 and @solarcurve said above about swaps.

My only concern with the proposal is the significant negative price impact that adding all that BAL as single sided liquidity in the 80/20 would have.

Would it be possible to reserve some of the AAVE used to instead buy ETH to pair with the BAL, allowing for adding liquidity proportionally?

Another option would be to use ETH from the reserve if that is at all possible.

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12

At the moment, between all instances of Aave across networks there are enough ETH funds to provide liquidity. So personally I think that using them is the most reasonable way to go.

2 Likes
13

Great feedback and yeh, I think the way forward here will be to provide ETH to pair with BAL. Let me work on this offline and come back on a proposed way forward.

My initial thoughts are to keep the BAL sizing and to do the tokenswap first, then bonding curve later. That said, I am sure we are all watching to see what the new veBAL tokenomics does to the market.

2 Likes
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Balancer & Aave Partnership Agreement

Authors: @MatthewGraham (Llama) & @LuukDAO (Balancer)

Between BalancerDAO & Aave DAO

This partnership agreement comes into effect on the th of April 2022, by and between:

BalancerDAO, a DAO governing the Balancer Protocol, automated portfolio manager, and trading platform, governed through the Balancer Snapshot following the Balancer Governance Process.

and

Aave, a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers, governed through the Aave Governance following the Aave governance framework.

Partnership Purpose

The partnership aims to align the interest of the parties to intensify the collaboration between both organizations.

Background on the Partnership

BalancerDAO & Aave have a long collaboration history.

Some of the most noteworthy collaborations include

  • The AAVE risk module using BPT tokens instead of plain AAVE
  • Balancer Boosted pools using linear pools with aTokens (aUSDC, aDAI, aUSDT)

Commitment of the Organizations

Both parties agreed that they intend to contribute the following towards this partnership:

Marketing

To ensure both entities will profit from each other’s reach and marketing or sales activities, we will do co-branded communication & services where useful.

  1. Token Transaction

To align governance interests, a Token Swap between the two organizations is initiated as part of this agreement.

200,000 BAL from the Ecosystem Fund would be exchanged for the equivalent USD value of AAVE in equal proportions from DAO Treasury, using the 90-day moving average price when the votes pass on both sides.


Source: Calculation

Management of the Partnership

Partnership Term

The Partnership is open-ended and does not have an expiry date.

Partnership Governance

The partnership is supported by representatives of the organizations directed by the respective governance processes of the organizations. The representatives are just to participate in coordination events, but do not carry any legal power or responsibility regarding the DAOs.

Exit Clause

Both organizations can at any moment terminate the agreement through their respective governance systems.

Communications around the Partnership

  • A Partnership announcement blog will be published within a few days of when the AIP is implemented and the token swap occurs. .

  • To ensure operational effectiveness, a monthly call will be set up with at least one representative of each entity

Both DAOs acknowledge that DAO agreements are inherently unpredictable and irreversible and agree to this initial partnership agreement.

Screenshot 2022-04-07 at 20.21.45
Screenshot 2022-04-07 at 20.21.451260×330 9.43 KB

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Hi All,

I have revised the proposal to reflect the amendments discussed above, the following is to be submitted on Snapshot for voting.

The additional 100,000 BAL acquisition will be presented in a separate forum post and voted on separately to this proposal.

title: ARC - Strategic Investment BAL Token
status: WIP
author: Llama Community - @MatthewGraham
created: 21-03-2022

Simple Summary

Acquire 200,000 BAL tokens via a combination of performing a BAL for AAVE token swap. The BAL tokens are to be complemented with ETH and deposited into the 80/20 BAL/ETH pool. The BPT token is deposited into the veBAL contract and locked for 1 year. The veBAL holding is then used to direct incentives to new aToken Boosted Pools, [1].

Abstract

Perform a token swap with Balancer by exchanging AAVE from the Ecosystem Reserve for 200,000 BAL tokens. The exchange rate to be used is the 90-day moving average price when the votes pass on both sides.

All 200,000 BAL tokens plus the aBAL tokens in the Reserve Factor (redeemed for BAL) are to be paired with sufficient ETH and deposited into the Balancer V2 BAL:ETH (80:20) pool. The veBAL holding will then participate in Balancer’s revised tokenomics that commenced on the 28th March.

Initially, the veBAL will be used to vote BAL rewards to pools which support aTokens that create TVL for Aave and/or AAVE liquidity pools.

Motivation

Aave and Balance have a long history of working together. The AAVE : ETH (80/20) Balancer V1 pool BPT is accepted within the Aave Safe Module and the newly created Balancer Boosted Pools drive TVL to Aave markets, [2].

When the AAVE : ETH (80/20) Balancer V1 pool is moved to Balancer V2 and integrated into Aave’s Safety Module, the veBAL tokens can be used to vote BAL rewards to the newly created AAVE : ETH (80/20) Balancer V2 pool.

In addition, the veBAL can be used to vote BAL rewards to Balancer Boosted Pools which utilise Aave markets in the background to create yield for passively held liquidity, [3]. There are likely to be many more Balancer Boosted Pools that utilise aTokens in the future and the veBAL votes can be used to help bootstrap these pools by directing BAL rewards to those pools. Using veBAL to vote for BAL rewards to pools that strengthen Aave is a strategic advantage of deploying the BAL tokens into the BAL:ETH pool.

By exchanging AAVE for BAL, the tokenswap reflects the ongoing collaboration and shared vision through governance in each other’s community. The token exchange, plus additional acquisition, is significant enough for Aave to become just outside of the Top 50 BAL tokens holder, based on etherscan BAL holder rankings, [4]. Balancer will become a Top 80 AAVE holder, [5]. Each community will have influence in the other’s governance process, enabling them to best represent their interests and to collaborate.

Aave will likely be one of the first movers in the upcoming BAL wars and will gain a strategic advantage to bootstrap new Balancer Boosted Pools which lead to tokens being deposited in Aave markets to earn yield. This has the benefit of creating TVL and Revenue for Aave.

The initial sizing to acquire 200,000 BAL was something that was reached via discussions with the Balancer community and happens to be the same size as the recent Tribe DAO and Balancer token swap, [6].

The initial sizing was also determined by the ability to influence how the BAL emissions are to be distributed. If all BPT from the BAL : ETH pool are converted to veBAL, Aave will receive 3.3% of the 14,500 BAL emission schedule which is equivalent to 478 BAL weekly, or $8,126/week at $17/BAL or $422,552/year. If 100% of the current BPT were deposited into the veBAL contract, the yield is very close to 10%. Other deployments from the Reserve Factor will also earn BAL rewards over time, [7].

With 3.3% of veBAL supply, Aave will determine where 2,680 of the 81,200 BAL tokens are to be distributed each week via the Ethereum mainnet pool gauge. This is equivalent to 5% APR on a $47.40M pool without any compounding or other yield sources like swap fees or yield from Aave markets. This is sufficient to support bootstrapping new liquidity pools that support growing TVL for the Aave community. Given the size of the Aave community investment in the Balancer community, it is reasonable to think that Liquidity Mining Committee may also be voting to allocate a portion of there 14,500 weekly BAL emission to support Balancer Boosted Pools which drive TVL to Aave markets.

Implementation

The token swap is to be performed by both Balancer and Aave by depositing tokens into a contract like how Tribe DAO swapped TRIBE for INDEX, [8].

The aBAL holding in the Reserve Factor, 1,890 aBAL at the time of writing which will be redeemed for BAL and deployed along with the 200,000 BAL tokens attained via the proposed swap, [9].

Once the BAL has been received it will be transferred to the Reserve Factor from there the BAL and matching amount of ETH will be deployed into the BAL : ETH pool on Balancer V2. The BPT token is deposited into the veBAL contract and locked for 1 year.

The veBAL holding is then used to direct incentives to new aToken Boosted Pools

References:

[1] Introducing veBAL tokenomics - Proposals - Balancer
[2] Pool management - Balancer
[3] Balancer
[4] $17.88 | Balancer (BAL) Token Tracker | Etherscan
[5] $186.72 | Aave Token (AAVE) Token Tracker | Etherscan
[6] FIP 33: Swap between Balancer DAO and Fei DAO - Proposals - Tribe
[7] ARC - Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield
[8] https://github.com/fei-protocol/fei-protocol-core/blob/develop/contracts/utils/OtcEscrow.sol
[9] Aave: Aave Collector V2 | Address 0x464c71f6c2f760dda6093dcb91c24c39e5d6e18c | Etherscan

Copyright

Copyright and related rights waived via CC0.

4 Likes
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Hi Matt - thanks for moving this along.

Curious if you have seen this proposal on Balancer’s forum: [Proposal] Allowlist Aura Finance in Balancer VotingEscrow - General Proposal - Balancer. Seems to fit with your agenda below:

While Aura is still young and requires more development, it is interesting to consider acquiring $AURA for meta-governance purposes and earning extra rewards.

Doing so would control veBAL rewards as outlined as a goal of this future proposal.

2 Likes
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Hi @fig,

Most definitely :slight_smile:

I believe this statement relating to AURA token distribution is of particular interest:

“50% Balancer LP rewards Rewarded pro-rata for BAL received on Aura”

If this is like Convex, “Convert CRV to cvxCRV.” then holding BAL and being ready to move early on Aura is key to maximising the returns on the strategy.

The additional 100,000 BAL purchase via bonding curve would be a great way to be prepared for the Aura launch. This is a bit different to the original strategy presented above. A separate forum post was created which details just the first step in the process that is to acquire the BAL. A follow up forum post can then discuss how best to deploy the 100,000 BAL holding. My initial thinking is to pursue an AURA strategy.

For further details, please see this forum post:

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Hi Everyone,

There is a really important vote taking place on Balance’s Snapshot. This vote will determine if Balancer DAO proceeds with the tokenswap as outline above.

Strategic Partnership with Aave DAO

3 Likes
19

I support this initiative

1 Like
20

Hi everyone :wave:,

After completing Part 1 as outlined above with AIP-87 we are now preparing for Part 2.

We have scoped out how we intend to acquire the BAL at the Chainlink Oracle plus 50bps incentive to attract deposits and are now in the testing phase. We hope soon to be ready for peer review and then submission for voting.

This comment is to serve as a sense check, to ensure we progress in the communities most preferred manner. We can proceed in one of two options.

Option 1)
Deploy Part 2, acquiring an additional 100,000 BAL next with the status outline above.

Or,

Option 2)
Deploy the 200,000 BAL recently acquired into the 80BAL/20BAL pool as the priority.

Please don’t comment below if there is a preference on the above topic. We have a few weeks work left to close out Option 1). Where as Option 2) has a few considerations we need to optimise before writing the payload.

5 Likes
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Option 1) should be the next step IMHO.

with GHO potential release, voting to support liquidity in both safety module and GHO liquidity pools will be strategic, we still have some time before activation of option 2) with 300k BAL

3 Likes