[ARFC]: Deploy aCRV & CRV to veCRV

Governance
12

Hi everyone, :wave:

Thank you for the feedback on the above proposal. It is great to see a number of stakeholders investing time and effort participating in the discussion.

We opted to share two preferred strategies depending upon if there is a preference for governance influence or yield. Llama’s preference is for Aave to have exposure in governance influence via the base layer protocol as a core strategic holding. A relatively smaller, liquid and higher risk allocation to protocols built on top / around base layer protocols is possible as it compliments the primary core holding.

Earning a holding in another protocol requires a lot of time and capital whereas the core holding in the base protocol offers immediate benefits. This is why our preference is for Aave to initially acquire veBAL over auraBAL and veCRV over st-yCRV / cvxCRV and sdCRV.

When comparing the yield strategies offered by Convex Finance’s cvxCRV to Yearn Finance’s st-yCRV product, we preferred the st-yCRV product for the below reasons:

  • Higher Yield of st-yCRV relative to cvxCRV currently
  • Yield is nominated in CRV equivalent tokens 1 yCRV = 1 CRV and is auto compounded
  • Aave has a very small CVX holding, therefore preferable to grow CRV influence first. However, locking CVX earnings from the collector Contract to vlCVX could be considered

As for the governance influence strategies, the sdCRV option was omitted from the original proposal for the below reasoning:

  • Whilst sdCRV is tradable, there are liquidity concerns for entering and unwinding the position:

  • Upon entering CRV to sdCRV, Aave would gain 10k more units of sdCRV (0.983:1 at the moment)

  • Unwinding sdCRV to CRV, Aave would receive 41k less unit of CRV

(0.936:1 at the moment)

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  • The liquidity is low: $4.3m and the pools is skewed towards sdCRV which makes up 67.6% of the pool.

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  • veCRV offers boost whilst sdCRV forgoes Aave’s ability to boost the yield generated from depositing liquidity on Curve Finance’s liquidity pools
  • sdCRV requires revoting each week, compared to veCRV where the vote is reapplied if the gauge(s) vote wasn’t changed by the users.
  • There is no liquid wrapper for veSDT, which removes any ability to exit the position early if needed.
  • When entering in the Stake DAO liquid locker, the voting power is accruing progressively over 30 days because of the TWAVP period voted on Curve.
  • The sdCRV voting power is much lower than 1:1, even after the TWAVP period ended. If Aave decides to deposit on sdCRV without acquiring veSDT, or acquiring boost, 1 CRV when locked for sdCRV is worth 0.64 veCRV vote.

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  • In order to receive the equivalent veCRV voting power, the sdCRV holder must also own veSDT or buy veSDT boost.

Aave would need to acquire 170,000 veSDT to realize the same voting power as holding veCRV.

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  • To benefit from the max voting power boost and keep it (currently 57%), Aave would need to acquire 446,582 SDT locked for 4 years and periodically relocked according to the CRV current holdings.

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At the current rate, 446.582 SDT is worth $151,840.

With the same $151,840 amount, Aave could directly boost its veCRV voting power of 23% by acquiring ~ 150,000 more CRV. This also avoids Aave having any exposure to SDT.

Aave naturally earns CRV which can be converted to veCRV periodically to increase its voting power, veCRV boost and its yield over time.

  • Part of the voting power boost on Stake DAO is from:
    • sdCRV held in the Curve pool
    • New deposits during the TWAVP period
    • Users who have no or low veSDT holdings
    • sdCRV holders who didn’t stake / vote or delegated their voting power

As this system can be complex, it’s very possible to see the voting power boost proposed by Stake DAO decrease if all sdCRV holders decide to stake & vote.

Also, less depositors in the sdCRV liquid locker means less voting power boost from the TWAVP period.

  • If Aave opts to hold sdCRV and veSDT within the Collector Contract, this will require the Collector Contract to be upgraded and generate a lot of governance oversight. This is not optimal given the existing governance process.

At this point in time, we do not believe acquiring SDT or sdCRV holding is an optimal path forward for Aave. There are more compelling alternative options which are veCRV for governance influence and st-YCRV if Aave seeks a high yield option.

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