[ARFC] Treasury Management: Update Balancer Ecosystem Holdings

[Dydymoon]

Thanks for your fast answer !

I believe your option is helping to reach a great compromise indeed, but besides switching market buy to USDC, I’d like to propose 2 improvements for it, and highlight potential technical issues for auraBAL staking strategy.

I’ll also post a clearer recap below with actual numbers for each to avoid confusion with previous data as prices & metrics have slightly changed over the past days.

@Karpatkey

Correct, we meant it would hurt Aave ecosystem, it was a “misclick”. ;)

How locking increasing the strategic asset voting/emission power & potentially growing boosted POL on Aura would hurt Aave ? Not sure to follow ^^

@Karpatkey

You’re right. Technically speaking—you’d still be diversifying the treasury—although not into a sufficiently liquid asset (Coingecko’s 24 Hour Trading Volume: $268,782), which defeats the risk management purpose.

It’s worth mentioning that the auraBAL liquidity ($9,7M) is not much higher than the AURA one ($5,7M) on Balancer, and the 24h trading volume is actually lower ($104K for auraBAL vs $269K for AURA).

@Karpatkey

Both using GHO or other stables in the treasury sounds reasonable for us, we’re just raising a new option for community discussion.

The token swap is indeed different to the one mentioned, and as we specified, it would require Aave to convert its BPT into auraBAL, so it’s not compatible with Option 1.

Using GHO for market buy was my main concern, so it’s great if we’re aligned on using USDC instead.

The OTC deal with AEF & Contributors is available on Options 1 & 2, and can probably be compatible to Option 3 if updated as follow:

• Increase the market buy from $300K to $400K in order to match the $200K OTC Deal + the 200k Tokenswap
• If technically possible, AURA rewards earned from staking sent to the SAM contract to be locked for vlAURA, and replaced by USDC (or AAVE) of the treasury to be used as bribes with the BAL rewards instead.

I assume that with the above updates which benefit Aura, the OTC deal should be possible to include in a revised Option 3 (and if technical topics can be handled on Aave side).

If Aura DAO refuses to do the OTC deal & token swap, the amounts can be moved back to the ones proposed in the initial Option 3.

@Karpatkey

If Aave DAO were to stake, it would receive a 35% APY (8% in AURA and the rest in auraBAL). This could be locked to increase voting power (in the case of AURA) and used to bribe to increase emissions, sold for AURA, or consider other strategies.

I’m not sure using the auraBAL compounder is a good idea for the following reasons:

• Since it’s a compounder strategy, auraBAL rewards can’t be claimed, so it would require to calculate the estimated yield (based on a 7d APY) and withdraw the corresponding amount on a weekly basis.

• Assuming auraBAL yield is calculated, withdrawn and used for bribes, this would definitely create an important selling pressure which will impact the auraBAL peg, which is not synergistic at all with the Aura DAO.

While I agree that we should avoid spending the AURA in bribes and rather lock it for vlAura, the vote incentive budget should be maintained (in AAVE or stables) in order to keep enabling the increase in weekly emissions & keep Option 3 competitive. Also the classic staking earns more AURA than the compounder.

For these reasons, I believe using the auraBAL classic staking which rewards in BAL + AURA for 18% vAPR would be more synergistic with Aura for Aave usage than depositing on the compounder.

Technical concerns of staking for auraBAL:

Assuming Option 3 is approved, did you consider the staking implementation & reward management for it ?

The StrategicAssetManager (SAM) contract which is designed to lock assets used to vote, should support veBAL & vlAURA. As auraBAL wasn’t considered before and is not really a strategic asset, it makes me wonder where it could be staked first.

There are several options imo, but this adds more complexity to define:

• Staked on the committee multisig:

Easier solution to implement this strategy as the committee could stake the auraBAL, claim the rewards weekly, use BAL for bribes, send AURA to the SAM contract & call the lock.

The complexity would be to replace the equivalent $ value of AURA earned by either USDC or AAVE to not impact the bribe budget calculated. Also, this requires trusting the committee with the auraBAL position management.

• Staked on the collector contract:

I’m not a dev so correct me if I’m wrong here, but this would probably require upgrading the collector contract to add functions enabling the auraBAL position management.

The SAM contract allows the DAO to avoid updating the collector for voting assets, but as explained above auraBAL will not be part of the assets supported when deployed (can be updated later though).

Assuming auraBAL are staked there, the committee should be able to claim & send AURA to the SAM, claim & send BAL with equivalent AURA value in USDC to the multisig for bribes creation.

• Staked on the SAM contract:

Despite auraBAL not being a strategic asset, this contract can be updated to support others.

This solution is possible but would delay the strategy as the new SAM update would need to be coded, and submitted for review to BGD.

In this case, AURA would already be in the right place, but BAL would need to be sent to the committee for bribes, with USDC from the collector to replace the AURA.

Lmk if you have other ideas. Tagging @bgdlabs who can help bring clarity to decide on these technical points.

@Karpatkey

Theproposal to create a Liquidity Committee—which in our opinion should extend its mandate beyond GHO e.g. AAVE—is an acknowledgement that this subject’s strategic nature and scale are worth dedicated resources that should manage the added complexity.

Definitely agree here, and it’s the goal since it was first proposed. The committee was initially proposed in the SM part 5 TEMP CHECK, and re submitted later under TL to implement it faster, as it’s important for GHO strategies.

Moreover, you are right that there might be way more to do for this committee than what’s in this ARFC, I’m actually working on a proposal to clarify it and update the scope.

@Karpatkey

This is indeed a separate OTC deal to the one presented above—we’ll work on the proposal and post it on the forum to seek community alignment.

Awesome, happy to help, lmk if you wanna co-author the tokenswap proposal on Aura

Recap of options with updated numbers, and inclusions of the above suggestions:

Option 1: Convert BPT to AURA

Pro & Cons available in the initial post.

Option 2: Lock BPT for veBAL & buy AURA with stables:

Pro & Cons available in the initial post.

Karpatkey Option 3 initial: Mint auraBAL & use rewards for bribes + Acquire $500K of AURA ($300K on market with USDC, $200K token swap for AAVE with the Aura DAO)

Pros:

• Mint & stake auraBAL instead of selling BPTs
• Good emission power (vlAURA votes & bribes)
• Simple management (Vote & bribe on one layer only)
• Less locking restrictions (No veBAL decay & 4 months lock)
• Reduce AURA amount to acquire on market
• Increase veBAL/vlAURA ratio

Cons:

• Complexify the strategy implementation (where to stake auraBAL)
• Complexify the rewards management (send AURA to lock, BAL to bribes + equiv)
• Requires a $500K extra investment (including $200K in AAVE)
• Suggestion to use auraBAL as bribes from compounder (dangerous for the peg)
• Low liquidity & trading volume on auraBAL

Revised Option 3 proposed: Mint auraBAL in classic staking & use BAL + USDC/AAVE rewards for bribes & lock AURA rewards + Acquire $800K of AURA ($400K on market with USDC, $200K token swap for AAVE with the Aura DAO, and $200K deal OTC with AEF for USDC).

Pros:

• Mint & stake auraBAL instead of selling BPTs
• Very good emission power (vlAURA votes & bribes)
• Simple management (Vote & bribe on one layer only)
• Less locking restrictions (No veBAL decay & 4 months lock)
• Reduce AURA amount to acquire on market ($400K vs $1,1M)
• Enable an accumulation of AURA long term (rewards replaced for bribes)
• Increase veBAL/vlAURA ratio
• 1,4M vlAURA locked & 157k BPT staked ( good for Aura)

Cons:

• Complexify the strategy implementation (where to stake auraBAL)
• Complexify rewards management (AURA to be lock, BAL + equiv USDC for bribes)
• Requires a $800K extra investment (including $200K in AAVE)
• Low liquidity & trading volume on auraBAL

In terms of emission value, the initial Option 3 is similar to Option 1 ($20,8K vs $19,8K weekly), while the revised Option 3 proposed is similar to Option 2, which was the highest amount proposed ($24,9K vs $25,4K weekly).

I believe the revised option 3 can be a very good compromise for all stakeholders.

If no other comment arises, I’ll submit the ARFC snapshot vote tonight.