ARFC updated to add Fluid addresses and specific details 2024-11-29
Summary
This ARFC proposes a strategic partnership between Aave DAO and Instadapp through a $4M investment in $INST tokens at a 350M FDV, aiming to strengthen collaboration and alignment between both protocols. This is a Direct to AIP Proposal.
Motivation
Instadapp has been a long-standing partner in the Aave ecosystem, providing valuable infrastructure and user interfaces. Their upcoming tokenomics reform and rebranding present an opportunity for deeper strategic alignment.
The partnership would benefit both protocols by:
Strengthening the relationship between two major DeFi protocols
Supporting GHO adoption through Fluid integration
Ensuring priority support for Aave protocol integrations
Creating mutual value through governance participation
Specification
The proposal includes the following key components:
Aave DAO will become a launch partner for Instadappâs new tokenomics and rebranding. The DAO and service providers will implement a strict standard of non-hostility policy regarding Instadapp products and team members in public communications. The DAO will also provision of support and promotion for Instadapp products that leverage the Aave protocol including GHO and Fluid integrations. This will involve priority and tailored support for Instadapp team integrations including the provision of free flashloans to the Instadapp protocol.
To further alignemnt between the two protocols, we propose a purchase of $4M worth of $INST tokens using GHO (approximately 1% of total supply at 350M FDV)
With these tokens Aave DAO will allocate up to 1/3 of acquired INST tokens to support GHO pairs on Fluid via Merit. The rest of the tokens will be set to a one-year vesting period for with delegation to Aave Protocol Embassy for active participation in Fluid governance.
Considering the time sensitive nature of the transaction, this proposal can proceed in a direct-to-AIP vote that will allow for the following:
Allocation of $4m GHO from the treasury for purchase of $INST tokens
AIP to whitelist InstaDapp to flash loans
Fluid Whitelist Address for Flashloans is 0x352423e2fA5D5c99343d371C9e3bC56C87723Cc7
Instadapp treasury: 0x28849D2b63fA8D361e5fc15cB8aBB13019884d09 (origin of $INST tokens) -
Transfer amounts: 4M $GHO, 1.145M $INST
Disclamer
Some members of the ACI team own $INST tokens acquired on secondary markets and use instadapp products.
The ACI is a candidate to participate in Instadapp governance directly (via acquired tokens) and via the Aave protocol Embassy (APE) to support Aave synergies in the Instadapp ecosystem.
Next Steps
Collection of community feedback during the ARFC phase.
If feedback is positive, implement formal AIP for on-chain execution.
Supportive, instead of fighting we should be building bridges and work together and use the synergies created to benefit each other but especially all user.
Out of curiosity, is Instadapp/Fluid also considering buying Aave token to take part in Aaves governance?
I think could be great idea to turn it into token swap, to some sense that also would work for InstaDapp/Fluid. Overall supportive for creating more synergies between InstaDapp/Fluid and Aave, inc. the alignment deal.
Supportive of more synergies and symbiotic relationships!
However
Considering the time sensitive nature of the transaction, this proposal can proceed in a direct-to-AIP vote that will allow for the following:
Why is it time sensitive? Iâm a stickler for details and I donât think this aligns to the specifications of âdirect to AIPâ process (i.e. it is using treasury funds + adding new flash borrowers, not setting protocol params). Therefore it shouldnât be a âdirect to AIPâ.
I have nothing against the spirit of the ARFC, my concern is that governance processes should be strictly followed unless in exceptional circumstances (e.g. security reasons), since the community has certain expectations of governance process. If certain steps are skipped or previously agreed processes are not followed then it may undermine the trust in the governance process/framework. In a broader context, not having a tightly followed governance process can open up the governance attack surface.
LlamaRisk has identified some points about the proposed transaction that would benefit from further clarity.
The transaction details are not fully explained, specifically the marketplace and identity of the seller from whom INST tokens would be bought (if itâs not a standard market transaction). Important to note is the possible direct dealing with Instadapp DAO, which adds complexity since there is no officially established legal entity to handle such transactions.
Regarding the mentioned tokenomics updates, we suggest being careful about any changes in INST distribution, use, and governance that might draw unwanted regulatory attention. We believe that ACI/Aave protocol Embassy (APE)'s active role in governance offers a chance to shape protocol development and implementation of risk mitigation mechanisms.
With the September Funding Update in the final stages of review, this proposal, once executed, is expected to acquire approximately 4M GHO from spot markets. Originally allocated for other purposes, the GHO can be reallocated to support the INST acquisition.
When submitting the INST acquisition AIP, GHO from the Treasury can be used to complete the transaction. To ensure the DAO remains adequately funded, the INST acquisition AIP should be submitted after the September Funding AIP.
Upon receiving GHO, we encourage InstadApp to deploy it into Fluid and provide liquidity for users. Any liquidity mining rewards provided by the Aave Liquidity Committee or Aave DAO via Merit, should be claimed and redistributed to users in the subsequent emission round, ensuring all incentive emissions are effectively directed to users.
Saucy Block strongly supports making strategic investments in $INST Token.
However, we oppose allocating 1/3 of acquired $INST tokens as incentive costs through Merit. If the goal is to enhance GHOâs stability, we recommend the following alternative approaches:
GLC secure non-INST assets from Aave DAO Treasury as additional buget
Launch INST/GHO Pool on Fluid DEX as Protocol-Owned Liquidity (POL) in collaboration with Instadapp.
Hi @ACI, could you please provide more information on why this is so time sensitive as to not go through the usual governance process? We are wary of skirting established processes unless there is a clear reason to do so and in this case there has been no explanation of why this proposal needs to go direct to AIP.
Moreover, we would also like the treasury managers (@karpatkey_TokenLogic) to confirm that the allocation via Merit is indeed the best way to bolster GHO liquidity, since we have seen no other options suggested here.
Execution of the AIP:
The AIP execution will be done as follows:
Instadapp Governance Proposal (IGP-58): Instadapp ran their own governance proposal (IGP-58), which approved the Aave DAO executor contract with 1.145M INST tokens.
Aave DAO AIP:
Added 0x352423e2fA5D5c99343d371C9e3bC56C87723Cc7 to the Flashborrowers whitelist on Mainnet, Base, and Arbitrum, giving Instadapp access to free flashloans.
Pulled 1.145M INST tokens into the Aave DAO treasury.
Sent 4M GHO tokens to the INST treasury.
Everything will be executed in one transaction. This kind of token swap is now a fairly standard process for the DAO, first introduced by the ACI during the CRV swap.
Timeline and Sensitivity:
This token swap was negotiated during Devcon and, by its nature, istime-sensitive. The Aave DAO secured tokens OTC at a pre-negotiated price with specific conditions.
This isnât the first time the DAO has done something like this. The CRV token swap is another example of a time-sensitive deal that required quick execution.
Market Realities:
The nature of DeFi and the market means some opportunities require fast action. Weâre here to make things happen when timing demands it. Processes are important and are followed, but we also need to seize opportunities when they arise.
I appreciate the clarifications provided, but echoing some of the concerns from @SaucyBlock , @sid_areta and @daveytea in this thread, there are a number of red flags on both the structure and substance of this proposal:
The âtime sensitivityâ narrative feels constructed rather than genuine. Being discussed at Devcon doesnât inherently make something time-sensitive - in fact, that is already weeks ago. More concerning is the implication that binding commitments were apparently made on behalf of the DAO without governance approval. If promises or âpre-negotiationsâ were made that now create urgency, this raises serious questions about process and authority. This feels like a manufactured urgency where unofficial deals are struck first, then presented to the DAO as âtime-sensitiveâ to force rapid approval. This is precisely backwards from how DAO governance should work - any potential deals should be brought to governance first, not negotiated independently and then rushed through using time pressure as leverage.
The bundling of multiple distinct actions into a single proposal is concerning:
Token purchase
Flash loan whitelist
Merit program allocation
Governance delegation
The flashloan whitelist is likely fine given that anything requesting a whitelist generally just receives it. The allocation to merit and the governance delegation, however, do require some amount of scrutiny as it is not clear that this is the most optimal use of the purchased tokens.
The ânon-hostilityâ clause is also problematic. Beyond being unenforceable, it sets a dangerous precedent of trying to control public discourse through governance. What is the legal framework here? Who determines what constitutes âhostilityâ? What counts as public communications? This feels like an attempt to stifle legitimate criticism where it may arise.
The Merit program allocation seems to have been added without proper analysis. Whereâs the data showing this is the most capital-efficient way to support GHO? Have we explored other liquidity providers or incentive structures? This feels like itâs being slipped in alongside the token swap without proper justification.
The involvement of ACI members who hold INST tokens in crafting this proposal needs more scrutiny. While disclosed, the extent of these holdings and their potential influence on the proposalâs structure is not clear. The DAO should understand the full scope of these relationships and financial incentives. Even if the token amount purchased may not seem all that large, just the affiliation of the Aave brand with this external protocol is sufficient to cause meaningful downstream effects. The DAO should be cognizant of this and carefully consider whether those championing this proposal stand to benefit disproportionately from the brand alignment and subsequent token price appreciation that typically follows such high-profile partnerships. Without full transparency around existing token holdings and potential indirect benefits, itâs difficult to assess whether this proposal truly serves the DAOâs best interests or primarily benefits a select group of well-positioned individuals.
Most concerningly, this ARFC appears to be establishing a precedent for fast-tracked, multi-faceted proposals without proper community discussion. âSeizing opportunitiesâ shouldnât mean bypassing diligence. The claim that these token swaps are now a âstandardized practiceâ requires examination. A single previous instance (the CRV swap) hardly constitutes a standard.
If weâre truly moving toward standardizing such deals, we need:
Clear criteria for valuation
Established timeframes for community review
Transparent frameworks for evaluating strategic value
Documentation and accountability for outcomes
Guidelines for bundling/unbundling related actions
Conflict of interest protocols
Whatâs being presented instead feels more like an informal arrangement being retrofitted into governance process. This creates a concerning dynamic where those with personal access to decision-makers can fast-track proposals while the broader community is expected to simply trust the process.
If token swaps are to become a regular tool for the DAO, we need proper infrastructure around them first, not post-hoc justifications of rushed deals.
I would strongly suggest:
Separating these components into distinct proposals
Providing concrete data on why the Merit program allocation is optimal
Removing unenforceable social conditions
Establishing clear criteria for what constitutes âtime sensitivityâ
Having the GLC perform its role and advise on the useage of funds with respect to the maintaining of GHOâs peg
Finally, while the strategic partnership itself may have value, approving this proposal in its current form would sanction a dangerous erosion of DAO governance standards that will undoubtably be exploited in the future. I strongly urge delegates to consider the governance implications beyond just the immediate transaction.
I completely agree with the points raised by Midapple. This ARFC is highly questionable both in terms of the process implemented and the context of this request. This proposal seems more like a formality to justify adhering to a governance process, even though discussions and negotiations have been ongoing for several weeks, almost suggesting that the deal is already set, with ACI being well aware of its influence within AAVE.
I am not questioning the proposal itself, but the way this proposal has been presented does not seem appropriate to me.