[ARFC] Aave Funding Update

Governance
1

title: [ARFC] Aave Funding Update
author:
@TokenLogic - @MatthewGraham, @scottincrypto
@r3genFinance - @Elliott_r3gen, @Pepperoni_Jo3_r3gen
created: 2023-10-23

Summary

This publication proposes updating Aave DAO’s stable coin holdings in preparation for the emergence of several service provider proposals. Upon implementation, the DAO will be sufficiently capitalised for the next 6 months.

Motivation

The below outlines the current service provider and delegate nominated expenses.

The is also a maximum $1M USD bounty program with Immunefi to be aware of.

In the near future, Q4 2023 and Q1 2024, we expect new proposals to emerge in the following areas:

  • Security (Certora, Sigma)
  • Risk (Chaos Labs, Gauntlet)
  • Financial Service Providers (numerous)
  • Marketing (Aave Companies)
  • Delegates (6 teams)
  • Liquidity Committee (GLC)

Assuming the DAO continues migrating service providers to GHO and stops using AAVE as a form of payment outside of the SM, the DAO will require additional GHO.

The GHO Stability Module (GSM) is some weeks away from being production ready and this proposal intends to sufficiently capitalise the DAO in preparation for receiving several service provider proposals in the areas mentioned above.

The previous GHO Funding Proposal is sufficient to cover the following:

  • $375k ACI (6 months)
  • $180k Delegate Funding (6 months)
  • $616k Aave Grants DAO (6 months)
  • $550k Aave Companies (3 months)

Total: $1,721k GHO

The DAO holds 1,226,040.11 GHO with the TUSD and BUSD assets still to be swapped ot GHO. When these swaps have been executed, there is enough GHO to cover the above expenses but not sufficient to onboard future service providers.

This proposal intends to ensure the DAO is well capitalised. A separate DAO budget publication will be shared during Q4 2023.

The DAO has sufficient USDC, DAI and USDT deposited across the various instances of Aave Protocol to support existing streams and the AURA purchase.

However, with the emergence of new service provider proposal expected, the DAO needs to adjust its stable coin holdings. Ths publication supports transferring additional funds from Polygon to Mainnet and acquiring GHO on the market to ensure the DAO is well capitalised for the next 6 months.

Security Service Providers

Aave DAO’s 2H 2023 Security budget consisted of the last 3 months of Certora’s 10 month stream, the last month of Sigma’s 12 month stream and the adhoc Sigma funding proposal for the audit of Governance v3, a.DI and GSM.

  • Certora 10 months Nov 22 to Sep 23 ($2,700,000 USD equivalent)
  • Sigma 12 months Jul 22 to Jul 23 ($1,296,000 USD)
  • Sigma Gov v3, a.DI and GSM during Q3 to Q4 2023 ($162k)

This proposal assumes the DAO will receive a 12 month proposal from Certora and will continue to use Sigma on an adhoc basis.

For the next 6 months, we propose having $1.5M of funds available for Security service providers. We expect this budget to not include AAVE, and to include DAI and GHO.

Bug Bounty Program

The Aave DAO has a $1M USD bug bounty program with Immunefi. It is important the DAO has sufficient funds available, if ever they are needed.

Risk Service Providers

During 2023, the Risk Service provider budget was $3.5M nominated in AAVE, aUSDC and aEthUSDT. Going forward we expect this to be nominated in aUSDT and GHO, provided the community aligns with this approach. The most recent Chaos Labs proposal was nominated solely in aEthUSDT and we have received feedback future proposals are to exclude AAVE.

Based upon our discussions, we anticipate the overall risk budget for the next 12 months being approximately $2.5M assuming both service providers are retained by the DAO.

Voting Service Providers

The current Orbit program has 6 participating delegates. This proposal makes allowance for 6 delegates to continue receiving funding. At $5k per month, this is 360k of GHO per year.

We note, @EzR3aL is expected to emerge as a paid delegate and at least one delegate will progress to being a service provider. It is very possible the number of paid delegates decreases over time and if so, the GHO can be reassigned.

Financial Service Providers

A budget of $400k is proposed for the next 6 months. This is $50k more than the TokenLogic funding proposal and should be sufficient to encourage other bids to emerge.

** Disclosure: TokenLogic intends to pursue becoming a service provider in this area. Our previous proposal was $350k spanning 6 months.**

Marketing Service Provider

Currently performed by @AaveLabs at the rate of 550k per 3 months. The previous 6 month grant period spend approximate 950k USD on events and marketing. The Aave brand and swag is renowned across the industry. There are no proposed changes to the average 500k USD per quarter spend rate.

GHO Liquidity Committee

The GLC is expected to continue beyond the initial 3 months duration. For the purpose of this publication, it is assumed the GLC will require similar funding during the next 3 month funding cycle.

$450k in GHO has been allocated to this initiative which is $50k more than the current funding rate.

Growth Service Provider

The ACI team with $375k GHO. Supported by existing GHO holdings.

Development Service Provider

The @bgdlabs team with <2k AAVE and <630k aEthDAI remaining on the current 6 month stream. Supported by existing DAI on Aave v3 Ethereum holdings.

Aave Grants DAO Service Provider

The AGD team is currently funded with the 616k GHO, 612k aUSDT and $400k in ARB for the next 6 months. Supported by existing GHO and aUSDT (v2) holdings.

Safety Module

Expenses relating to the Safety Module (SM) have been omitted. Currently, the SM is funded with AAVE emissions. If the DAO was to upgrade the SM in the near future, it is unclear if that will happen within the next 6 months. As a result, any bribe / quest funding request will be managed separately.

Funding

Over the next 6 months, the DAO should be sufficiently well capitalised to accommodate the emergence of the following expenses:

  • $1.5M - Security (6 months)
  • $1.25M - Risk (6 months)
  • $1.0M - Bug Bounty (unknown)
  • $0.5M - Marketing (3 months)
  • $0.4M - Financial Services (6 months)
  • $0.45M - GHO Liquidity Committee (3 months)

Total: 5.1M USD

All Financial Services, Marketing and Liquidity Committee expenses are to be nominated in GHO.

Risk and Security allocation can be nominated in any of the following aEthDAI or aETHUSDT or GHO. A separate proposal can adjust the asset composition if any amendments are required. Alternatively, the future GLC proposal can swap assets to GHO upon being renewed.

There is 1.5M of DAI already being transferred from PR339 - Polygon to Ethereum. 1M of this can be deposited into Aave v3, the aDAI on Aave v2 can be redeemed and deposited into v3 and net BGD stream allocation is 1.34M aEthDAI. An additional 0.5M can be transferred from Polygon to Ethereum increasing the overal aEthDAI holding to 1.84M aEthDAI for future expenses.

The ACI aUSDT stream is now complete and only the AGD allowance, 613k, remains. Therefore, of the1.03M of aUSDT in Aave v2, leaving 0.7M for AGD to draw down 0.613M from, 0.33M (at time of writing) can be migrated to Aave v3. There is 0.4M aEthUSDT in Aave v3 with 0.23M aEthUSDT allocated to Chaos Labs. Net transfer of aUSDT and unallocated aEthUSDT is 0.50M aEthUSDT. Transfer 0.75M of USDT from Polygon to Ethereum increases the available USDT on Ethereum to 1.25M aEthUSDT.

An additional 1.0M USDC from Polygon is to be transferred to Ethereum to ensure the Immunefi bug bounty program has sufficient funds available if required.

Additional funds will be required to cover the full amount of expenses mentioned above. This proposal will start moving Aave in the right direction.

Specification

This proposal will perform the following tasks on Ethereum:

  • Deposit 1M units of DAI from Treasury into Aave v3, aEthDAI
  • Migrate all but 0.7M aUSDT from Aave v2 to v3, aEthUSDT (0.33M units at time of writing)
  • Migrate all aDAI from Aave v2 to v3, aEthDAI (470k units at time of writing)

Swap the following asset holdings to GHO:

  • All Aave ARC aUSDC (56,843.44 units at time of writing)
  • All GUSD (18,464.03 units at time of writing)
  • All available aTUSD that can be redeemed (57,373.85 units at time of writing)
  • All UST (893,257.63 units at time of writing)
  • 500k units of DAI held in Treasury (on route from Polygon)

Bridge the following assets from Polygon to Ethereum:

  • Redeem and transfer 1.7M USDC to Ethereum Treasury
  • Redeem and transfer 0.5M DAI to Ethereum Treasury
  • Redeem and transfer 0.75M USDT to Ethereum Treasury

The USDC bridged from Polygon can neither be swapped nor deposited into Aave v3 in a single AIP submission. A second AIP will perform the following:

  • Deposit 0.5M DAI into Aave v3
  • Deposit 0.75M USDT into Aave v3
  • Deposit 1.0M USDC into Aave v3
  • Swap 700k USDC to GHO

Upon implementing the second AIP, the following funds will be available to support new expenses:

  • More than 1.25M of aEthUSDT (Migration v2 to v3, Polygon Transfer, Net Chaos Labs stream)
  • More than 1.8M of aEthDAI (Migration v2 to v3, Deposit, Polygon Transfer, Net BGD Stream)
  • More than 1.5M of GHO (Swap assets to GHO, net current known expenses)
  • More than 1.0M of aEthUSDC (Polygon Transfer)

The above takes into consideration current streaming contract obligations and proposals already advancing through governance.

Next Steps

  1. If consensus on ARFC stage is reached, escalate to ARFC snapshot stage.
  2. If ARFC snapshot stage outcome is YAE, escalate to AIP stage.

Whilst we advocate for having 12 months on runway readily available in the right asset configuration. The priority is to ensure the DAO is sufficiently capitalised for the next 6 months.

As mentioned within the proposal, during Q4 2023, a publication relating to the DAOs overal budget allocation will be shared.

Disclosure

TokenLogic receives no compensation beyond Aave protocol for the creation of this proposal. TokenLogic is a delegate within the Aave ecosystem.

Copyright

Copyright and related rights waived via CC0.

11 Likes
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This is what treasury management is about. This ARFC is transparent with all costs, holdings and actions need to be done to pay for everything and still be solvent and have a great runway for the DAO.

As mentioned within the proposal, during Q4 2023, a publication relating to the DAOs overal budget allocation will be shared.

I am looking forward for the publication. What I would love to see is a dashboard like Llama had in the past to see the expenses, streams and so on of all SP and the predicted runway.
This way it would be easy to read and understandable for anyone in a short time of matter.

Great work @TokenLogic

7 Likes
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Thanks for putting all of this together @TokenLogic . This was very much needed to get the total overview of costs for the DAO.

We also share the opinion that the DAO should have 12months of clear runway, but this 6month projection is a great first step.

4 Likes
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Thanks for outlining the expenses in detail @TokenLogic

I suggest adding a 10% buffer ($0.5M ) to the calculation to address unexpected costs inside this expense timeline. This would bring the total to $5.6M USD

2 Likes
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Hi Everyone,

This proposal has been progressed to Snapshot, link here.

Start date Oct 31, 2023, 3:27 PM
End date Nov 3, 2023, 3:27 PM

Thank you in advance to those that participate in the vote.

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Thanks so much @TokenLogic for this proposal - it’s the standard for treasury management that we need to get to as a DAO and it’s great to see the transparency here alongside clear recommended actions. Appreciate the effort!

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We appreciate the effort exerted in putting this together, however it is important to ensure that the funding amounts allocated to each vertical are adequate.

For example with the Financial Services Scope, allocating $400,000 may be an inadequate for 6 months considering that the costs of these services may go well over $400,000.

In our opinion it is better to overestimate capitalization requirements than to underestimate them.

3 Likes
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Hi @EzR3aL

How did you know? We will soon be sharing a preliminary frontend containing all the active streams and allowances for the community to view. It will be basic and we intend to continually iterate by adding new features over time.

Hi @lbsblockchain,

We certainly agree this is standard work for any finance team and all the information is readily available on-chain. Consolidating it and making it more accessible is value additive.

Whilst looking at the Runway and the current infrastructure, we identified a need for the Aave DAO to have the functionality of being able to move funds between various networks. Our low cost solution can be found here. The upgrade to the Aave Swap contract further enables the community to change the composition of the DAOs funds to match its expense profile on Ethereum. The introduction of TWAPs, Limit Orders and Tenderly tooling expands the functionality of what can be achieved via the AIP process.

This tooling combined with the Skyward service offered by ACI breaks down barriers and enables any community member to present proposals to move funds around. Much like how the risk dashboards by Chaos Labs and Gauntlet provide valuable insights and Skyward enables any community member to suggest changes to any risk parameter.

Hi @Kene_StableLab,

Thank you for the feedback. We will always adopt the direction of the DAO and if that is to increase the spend in this area, the runway can be updated to reflect this.

2 Likes
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The services laid out are essential to the operation of Aave. Hence, we believe that allocating GHO and stables to support these service providers is a good, necessary move. We support paying service providers in GHO instead of AAVE due to its price stability, however, note that this will take at least 630k GHO out of circulation due to swapping other assets into GHO. This is good because it acts as a positive force to bolster GHOs peg.

We have questions on the following:

  • Just for clarity, how exactly does Aave plan on swapping these assets into GHO?
  • How will withdrawing 1.75M USDC, 0.5M DAI, 0.75M USDT from Polygon to Ethereum Treasury affect Aave on Polgyon? Where are these tokens being transferred from, what does “redeem and transfer” mean?
1 Like
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Hi Everyone,

We have create a preliminary runway frontend for tracking the various streams and outstanding balances yet to be claimed. We have also provided the daily revenue for each applicable reserve enabling users to see daily expenses and daily revenue side-by-side.

Please note, the runway forecast is based solely upon funds current held in the Treasury and excludes future revenue. A later iteration will include with and without, daily revenue forecast. For now the data is based solely upon what the Aave DAO has in the Ethereum Treasury.

Screenshot 2023-11-07 at 16.18.58
Note: The DAI in the Treasury will be deposited addressing the aEthDAI forecast.

A huge thank you to @scottincrypto and @agentmak for pulling this together.

Hi @PennBlockchain,

Thank you for asking.

Part A is being worked on here will use the Polygon Bridge contract.

Part B is being worked on here and will use the Aave Swap contract.

Based upon our assessment, there is sufficient liquidity on Aave v2 Polygon to withdraw the DAO’s funds. Redeem refers to going from amToken to Token on Polygon and Transfer is referring to moving funds from Polygon Network to Ethereum Network.

Polygon Treasury: 0xe8599F3cc5D38a9aD6F3684cd5CEa72f10Dbc383
Ethereum Treasury: 0x464C71f6c2F760DdA6093dCB91C24c39e5d6e18c

4 Likes
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Hi Everyone,

We would like to provide an update to the specification section outlined in the original proposal.

The Aave DAO is expected to incur the following expenses/streams:

As a result, we are proceeding with updating the stable coin holdings as outlined below:

AIP #1

The following assets are to be redeemed, where applicable, and deposited into Aave v3 Ethereum:

  • 1M DAI from the Treasury
  • All aDAI from v2

Redeem and Transfer the following asset from Polygon v2 to Ethereum

  • 1.70M amUSDC
  • 0.50M amDAI
  • 0.75M amUSDT

The following assets are to redeemed, where applicable, and swapped to GHO:

  • All aTUSD
  • 0.50M of DAI
  • All GUSD
  • All UST
  • All aBUSD

The following assets are to be swapped to USDC:

  • All GUSD
  • All UST

AIP #2

Deposit the following assets into Aave v3 Ethereum:

  • 1.02M units of USDC
  • 0.35M units of USDT
  • 0.50M units of DAI

Deposit the following assets into Aave v2 Ethereum:

  • 0.40M units of USDT

Swap the following assets to GHO:

  • 0.70M units of USDC

There is currently 1.1M aUSDT held in Aave v2 Ethereum. AGD and Chaos Labs have an allowance and stream valued at 0.70M and 0.80M respectively. Redeeming 0.75M amUSDT from Polygon v2, transferring 0.75M USDT to Ethereum and then depositing 0.35M and 0.40M into Aave v2 and v3 ensures both AGD and Chaos Labs are well funded for the next 12 months.

With the proposal to reward a bounty with 50,000 GHO passing Snapshot, we have also included aBUSD amongst the assets to be swapped for GHO. At the time of writing, there is 42,446 aBUSD held in the Ethereum Treasury.

6 Likes
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Hi Everyone,

In preparation for Gauntlet’s funding, AIP #2 will be amended to reflect the below:

Withdraw all the following assets from Aave v2 Ethereum:

  • aUSDC estimated 1.51M units

Deposit the following assets into Aave v3 Ethereum:

  • 1.70M units of USDC (Aave Funding Part A)
  • 0.51M units of USDC (withdrawn from Aave v2)

Deposit the following assets into Aave v2 Ethereum:

  • 0.75M units of USDT

Swap the following assets to GHO:

  • All DAI in Treasury, 0.50M units
  • 1M unit USDC (withdrawn from v2 above)

The below summaries the Choas Labs, Gauntlet and AGD aUSDT funding.

Description Amount
Current Balance 1,455,200
AGD Allowance Remaining 612,900
Chaos Labs Stream Remaining 765,800
Gauntlet Insolvency Fund 480,000
Gauntlet Stream 320,000
Deposit AIP #2 750,000
Net Balance 26,500

A separate proposal will be presented to discuss how to fund the GSM and capture any other more recent funding request proposals on the forum.

6 Likes
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