[ARFC] Acquire CRV with treasury USDT

Governance
1

[ARFC] Acquire CRV with treasury USDT
author: Marc Zeller @marczeller - Aave Chan Initiative
date: 2023-08-01

Summary

This ARFC proposes the strategic acquisition of CRV tokens using USDT from the Aave DAO treasury (collector contract). The acquisition aims to support the DeFi ecosystem and position Aave DAO strategically in the Curve wars, benefiting GHO secondary liquidity.

Motivation

Recent events related to the 0x7a16ff8270133f063aab6c9977183d9e72835428 position on Aave V2 have presented the Aave DAO with an opportunity to support the DeFi ecosystem and make a strategic acquisition of CRV tokens. These tokens can be mobilized to incentivize GHO liquidity via locking them to gather Curve voting power and support a GHO-specific Gauge.

A 2M USDT worth of CRV acquisition would send a strong signal of DeFi supporting DeFi, while allowing the Aave DAO to strategically position itself in the Curve wars, benefiting GHO secondary liquidity.

The treasury balance and the predicted lower costs for service providers for the 2023-2024 budget would allow this strategic acquisition while maintaining a conservative stance with DAO treasury holdings. Given the time-sensitive nature of this proposition, the ACI requests an exceptional “Direct-to-AIP” process for this proposal.

Specification

The proposal suggests using 2M aUSDT from the Aave DAO treasury to acquire 5M aCRV tokens from 0x7a16ff8270133f063aab6c9977183d9e72835428

In terms of implementation, the AIP will withdraw aUSDT and transfer them to an ad-hoc escrow smart contract

if this AIP outcome is YAE, 0x7a16ff8270133f063aab6c9977183d9e72835428 will have the opportunity to send aCRV to this ad-hoc escrow contract.

The escrow contract will only be able to send aCRV to Aave collector contract: 0x464C71f6c2F760DdA6093dCB91C24c39e5d6e18c and repay 0x7a16ff8270133f063aab6c9977183d9e72835428 debt with USDT if conditions are met.

If conditions are unmet, USDT can be clawed back into the collector contract via an ad-hoc AIP.

Disclaimer

The Aave Chan Initiative (ACI) is not presenting this ARFC on behalf of any third party and is not compensated for creating this ARFC.

Next Steps

  1. Gather community feedback on this ARFC.
  2. If community consensus is reached, escalate this proposal to the AIP stage.

Copyright

Copyright and related rights waived via CC0.

13 Likes
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Aave should think about ways to reduce its exposure to the risk of CRV liquidation, NOT increase its exposure even more.

This proposal suggests to use the treasury USDT (funds that would be needed to cover losses in case of CRV liquidation), to increase even more the Aave exposure to CRV.

This is a joke and goes against the best interest of both Aave stakeholders and Aave lenders, just to help a user who took too much leverage. How is this decentralized finance?

8 Likes
4

This is an excellent idea as it both de-risks the current CRV over leverage and helps GHO growing.

Small question however, would the CRV directly be used as per this ARFC or would it need another proposal? Considering the total deposit would be 9x higher than anticiapted.

4 Likes
5

Could you elaborate on how the CRV acquisition will benefit GHO’s liquidity?
Btw, Is it possible to acquire these CRV on an OTC deal (as the stake dao team) ?

1 Like
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This is an OTC deal

Having Aave own Gauge decrease aave DAO dependence on third-party (yearn, stakeDAO, convex) and allow LP of GHO pairs to earn yield.

No it needs to be done in at least 2 differents AIPs as we use an escrow contract as a trustless “intermediary”

you’re free to vote no and argue against the proposal, that’s the point of decentralization. every opinion is welcomed but not all ways to express them. the Aave governance forum is not social media. and we will not tolerate “it’s not going exactly as I want therefore it’s not decentralized” argumentation here.

2 Likes
7

The treasury won’t be used to cover possible bad debt it will be the user staking in the SM. So why not help those people, help GHO boost and help reduce a cascade liquidation. You have to think about it that way.

1 Like
8

1 - How did you come up with the amount of ‘2 mln’?
2 - Is there any gentle agreement that 0x7a16ff8270133f063aab6c9977183d9e72835428 needs to use the USDT to repay the active loan on AAVE?
3 - The CRV Tokens acquired by the treasury are subject to vesting?

9

this is the result of offchain discussions, governance are allowed to argue the amount down (but not up) or reject agreement

the way the smart contract is designed, there’s simply no other option, 0x7a16ff8270133f063aab6c9977183d9e72835428 never “touch” the USDT, debt is repaid by smart contract on their behalf

As they’re meant to be used to vote on Curve Wars the most efficient approach is to convert them to VeCRV for the next 4 years for maximum voting efficiency.

3 Likes
10

Hello @MarcZeller, thank you for this proposal. Agree with @Figue, good idea to help de-risking Mich’s current position, while enjoying the OTC deal with a great CRV price. btw, +38.5% on Curve TVL today.
It’s also a very good opportunity to enter the Curve War as said before. I don’t have the financial knowledge to judge the evaluated 2 millions USDT to spend, but i guess this proposal should pass as quickly as possible when the amount is validated

2 Likes
11

Would love to hear from @TokenLogic on the Treasury impact. Personally in favor but want to weight against existing financial obligations.

3 Likes
12

Good opportunity so take it, in the past aave has already make some proposals to acquiere some crv tokens to boost the liquidity/incentives on gho curve pools, many fud in this period but curve is a solid defi protocols with many connexion & here to stay
lock 4 years & maybe use stakedao protocole sdcrv to boost the power

13

Aho, we would love to understand if 2M USDT of CRV is enough to bootstrap GHO liquidity on Curve, or we might need more. Are we also planning to swap CRV for a veCRV liquid wrapper?

1 Like
14

If the goal is to establish a mean to maintain the GHO peg, would it be possible to get a cost comparison of buying CRV compared to other potential solutions? With Uniswap v4 hooks around the corner, I would have liked to see some suggestions that do not make Aave reliant on the success of other protocols. Especially considering, as others have pointed it, that aave is already greatly exposed to CRV price.
Curve is a protocol that emits much more token value daily than what it earns in fees. This is even truer now that a gigantic supply of CRV has entered the market through OTC deals with Curve founder. This leaves me extremely skeptical about the acquisition and lockup of CRV as a sound financial decision.

4 Likes
15

Hello,

I think it makes total sense for Aave to buy CRV at this level to be well positioned to build long term liquidity for GHO.
However, I don’t understand why choosing to lock directly CRV into veCRV when it was voted 4 months ago to go through sdCRV, which is more convenient for Aave for many reasons that were discussed at the time.

Is it part of the preliminary discussions that are being held with Michael?

5 Likes
16

For me

the positives are:

  • It helps ameliorate the ongoing situation with Aave’s exposure to Crv and reduces the risk of possible bad debt to the protocol.
  • Facilities the decentralization and adoption of GHO
  • Aave gets a say in future Crv voting to advance it’s own agenda similar to that at Balancer
  • Crv will be bought at a discount and subject to vesting
  • Further diversification of the treasury

the negatives are:

  • Increasing Crv exposure does present a risk
  • There is no guarantee Michael Egorov will reduce his Aave position although if the current AIP to set LTV to 0 passes this is negated somewhat (even if he posses the skill to potentially circumvent this)

Weighing both up and with the time sensitive nature of this proposal I’m in favour of moving straight to an AIP and put it to the community subject to the usual Chaos/Gauntlet inputs.

17

Thanks @MarcZeller for bringing such a proposal forward and for engaging in conversations to bring this forward.

The only benefit of this proposal is the DAO acquiring and locking CRV for veCRV (at a discount rate) which as mentioned will help mobilise incentives for GHO liquidity, which will lead to more GHO borrowed & more revenue for the DAO.

In no way does this proposal help reduce the risk of 0x7a16ff8270133f063aab6c9977183d9e72835428 position and should not be seen by the community as doing so.

4 Likes
18

I intend to dissent from this proposal.

Currently, there exists a potential risk of a black swan event in the DeFi sector. Apart from Curve, AAVE stands as the second most exposed protocol. The recent Curve crisis resulted in the 5th highest Tether volume in a single day, surpassing even the Celsius collapse, thus underscoring the significance of the matter. It is essential not to underestimate the potential consequences. If Curve’s value falls below $0.37, we could be left with 300M CRV tokens devoid of liquidity for selling. The only plausible path to recovery in such a situation is if the CRV price increases, which, given the circumstances, is doubtful.

Additionally, BTC currently exhibits notably very low volatility and appears to be precariously positioned, potentially exacerbating the situation if its value declines. A cascade of adverse effects could unfold if this loan undergoes liquidation, making this a genuine black swan scenario requiring a meticulous and professional approach.

In general, the sole advantage of this proposal lies in its potential to reduce the likelihood of a black swan event in the entire DeFi ecosystem. However, it is important to recognize that AAVE would become even more exposed should such an event transpire.

In my view, prioritizing cash preservation should be of utmost importance in these circumstances, rather than further exposing ourselves to unnecessary risks with limited potential upside. I propose exploring the possibility of seeking OTC investors to offload the CRV loan in case of liquidation, thereby avoiding additional exposure.

Furthermore, it is crucial to consider whether we can trust individuals who take imprudent risks and use the funds to acquire luxury properties. Additionally, the decision to provide such a substantial loan without adequate liquidity appears questionable.

LM

5 Likes
19

Despite that we partially agree with your view @lmihaylov ; it is important to understand that we are in a situation that is too late to avoid the damage; now it’s time to control it, and by buying CRV at a discount and forcing the user to pay his debts is much more pleasant than having a huge bad debt on our shoulders. The question we should ask ourselves is how can we prevent another CRV scenario in the future. How did we allow to have soft parameters for v2 and not a proper risk management team behind it? Is it possible to automate some of these parameters by market conditions?

We should not blame the user, he played his cards with the parameters that the design allowed it; it’s our own fault. Tradfi world learnt this hard lesson long
time ago, lets do it better.

20

I completely oppose this proposal.

“Curve wars” are a stupid and unsustainable ponzi, and the goal of increasing GHO liquidity would be much better and more sustainably achieved by the DAO itself creating a Uniswap v3 position, or just using a PSM.

Additionally, it’s not clear to me that GHO liquidity is even particularly low, relative to its market cap, so I believe that this proposal is addressing an issue that does not need to be solved.

3 Likes
21

Hello.

I would like to ask a question: is goal of this proposal of having more yield exposure for GHO holders to yield, or for AAVE to have a role in “save the current DeFi situation” because Curve is too big to fail?

I would assume is both. And tbh i don’t condemn neither the former nor the latter.

But if we are also opening the can of using a portion of treasury for productive assets to have yield and liquidity for GHO, I think there are also alternatives that should be explored, as addendum to this, for 1) creating a sustainable economic support model for GHO 2) having a robust source of yield that is not too much concentrated into single assets.