[ARFC] Aave Umbrella - activation

Development
27

Summary

TokenLogic supports the proposed parameters presented by @bgdlabs with one minor amendment that enables the pre-Umbrella stkGHO to transition into sGHO.

Here are the key changes this proposal aims to put forward:

  • Umbrella Launch

    • Following @bgd recommendation, allocate 3M USDC, 3M USDT, 550 WETH, and 1.2M GHO to fund Umbrella.
    • Lower GHO emissions; emissions covered by existing DAO reserves.
    • Yield tied to Aave aToken performance for market-aligned returns.

  • sGHO Transition

    • Remove Cooldown and Slashing from pre-Umbrella stkGHO.
    • Rebrand as sGHO with risk-free yield and improved UX.
    • Merit rewards to be distributed weekly; focus on boosting base yield, expected yield ~7.50%.

  • stkABPT Adjustments

    • ~318k BPT withdraw-able in June; potential 50% TVL drop.
    • Recommend further reduction in AAVE emissions to target a 10-12% yield if exits occur.

  • stkAAVE Strategy

    • Buybacks to slow in June after acquiring 34k+ AAVE.
    • stkAAVE emissions now funded by protocol revenue.
    • Anticipated yield reduction; potential rise of derivative strategies.
    • Recommended AAVE emissions of 315 AAVE/day, with a 4% target yield.

Evaluation of Spending

Screenshot 2025-05-19 at 18.35.19

Umbrella’s forecasted annual emissions represents less than Q1 2025 Borrow Fee (Reserve Factor) revenue from each respective reserve. However, Q3 and Q4 2024 revenue, highlights the significant growth Aave Protocol has enjoyed and if market conditions change, we expect the Target Liquidity parameters and Emissions rate to be adjusted accordingly.

Screenshot 2025-05-19 at 19.04.12

A testiment to the DAO’s strong financial position, the annual budget can be drawn from existing reserves without impacting any Service Provider, or existing approved DAO expenses. Future funding requests shall be configured to ensure Umbrella is adequately funded at all times.

By utilising aTokens from the Aave Protocol as the base yield and providing an additional incentive yield, the Umbrella yield remains correlated to the broader market cycle. This is an attractive quality that ensure users depositing into Umbrella receive a yield that expands and contracts with broader market.

stkGHO to Temporary sGHO

By removing both the Cooldown and Slashing feature from stkGHO, GHO deposited into the pre-umbrella staking contract receives a risk-free interest rate. By increasing the cadence of Merit rewards, the pre-umbrella stkGHO becomes increasingly more like sGHO user experience. By removing the Cooldown feature users who want to migrate between pre-umbrella stkGHO and the new Umbrella stkGHO can do so seamlessly.

Given the relative performance of GHO emissions via Merit relative to the SSR, we expect capital to flow into the pre-umbrella stkGHO contract which can be rebranded as sGHO to better reflect the new risk profile. The current Merit APR offers a Base yield 7.43% before applying any Boost factor, this exceeds the SSR and generate Aave Protocol deposit rate. We recommend refining the Boosts to focus on the Base yield to amplify the yield and also for @AaveLabs to introduce sGHO to the frontend to better reflect the new risk profile.

Screenshot 2025-05-20 at 16.17.20

stkABPT

Since the recent stkABPT Emission update, minimal liquidity withdrawals from the liquidity pool has occurred and it was not until soon after the initial Umbrella configuration were shared did two wallets trigger Cooldown. 317,952 of the 630,471 BPT tokens staked in stkABPT can be withdrawn on the 5th June 2025. The net affect is the pools TVL will reduce by 50.4%, or $108.7M in TVL. Whilst the liquidity pool remains at over $100M, the largest on Balancer Protocol, the pool is more than adequate to facilitate the overwhelming majority of swaps.

Screenshot 2025-05-20 at 15.00.34

Screenshot 2025-05-20 at 15.01.27

If the two address do withdraw BPT for AAVE and wstETH, leaving the liquidity pool, we recommend reducing the AAVE emissions bring the yield back to more recent levels. The AAVE emission adjustment from 240 AAVE/day to 216 AAVE/day, could further to 10-12% yield.

stkAAVE

With the DAO to spend 10M in stablecoins on AAVE buybacks, the $5,857,304 spent to date has acquired 34,334 AAVE comparing favourably to the 78,840 proposed for maintaining stkAAVE emissions. The DAO has progressively shifted emissions to being funded from fees generated by the Aave Protocol.

Screenshot 2025-05-20 at 15.41.00

Now the Umbrella’s development has progressed and the overwhelming success acheived from the buyback program, future capital allocation towards the buyback program is to be revised. The DAO is adequately capitalised with AAVE and is in a great position to fund stkAAVE emissions. We support the direction as outlined by @bgdlabs and expect the yield to drift lower as the Slashing risk is reduced. However, given the financial health of the DAO, we favour a lesser reduction in AAVE emissions, instead of 216 AAVE/day, we recommend 315 AAVE/day resulting in an expected yield of around 4.00% at the current deposit level.

We anticipate as rewards reduce, some actors will favour more sophisticated derivative strategies that offer a higher yield. We support the continued use of AAVE emissions until such time as stkAAVE evolves into a staking role that acts as a liquidity sink receiving rewards generated from the protocol revenue and other protocol benefits, as mentioned in the AAVEnomics update. Until this aspect of the AAVEnomics is ready we prefer only minor amendments to stkAAVE emmissions whilst reducing slashing risk.

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