[ARFC] Treasury Management: Update Balancer Ecosystem Holdings

This proposal presents two distinct options, both primarily focused on monetary returns, while overlooking the non-monetary commitments already made by Aave DAO. Our comments on each option are outlined below:

Option 1 - Convert All BPT to AURA

The original terms of the token swap need to be considered within the context of this proposal. In Part 1 of the ARC - Strategic Investment BAL Token, it stipulates that the BAL acquired, along with the aBAL holding of Aave DAO, is to be converted to B-80BAL-20wETH (BPT) and locked for a minimum of 1 year. This condition is also reflected in the proposal on the Balancer governance forum, available here.

To consider Option 1 as a valid choice, it should be approved by the Balancer community to ensure a positive relationship is maintained. The best approach to achieve this is to create a proposal for the Balancer community to vote on.

It’s important to note that the BPT to GHO proposal has not progressed beyond the TEMP CHECK stage and is currently on hold while we deliberate on next steps.

The Balancer core team has provided significant veBAL support to launch GHO and continues to support GHO pools. These votes hold monetary value and reflect a strong and healthy relationship. While we acknowledged that voting support can change over time, it underscores the benefits of a robust and prosperous relationship with Balancer. Option 1 prioritizes economic optimization over past commitments and maintaining a close working relationship with Balancer.

Without public endorsement from the Balancer core team and a favorable vote on the Balancer DAO’s Snapshot, we consider Option 1 to be invalid, as it runs counter to the spirit of the partnership.

Option 2 - Convert BPT to veBAL and Acquire More AURA, Locking for vlAURA

In general, we believe Aave DAO should have the option to retain and lock all the current BPT, lock all AURA holdings, and delay further actions. The token swap with Aura Finance and its contributors is integrated into this proposal and should be presented separately through a new ARFC. While acquiring more AURA is something we support, it should not follow the approach outlined in this proposal.

There are additional considerations beyond implementing the token swap. We note that @bgdlabs has a streaming fee nominated in USDC from Aave v3, valued at 760,000 units. After considering the BGD streaming fee, the Aave DAO would still hold 643,600 units of USDC across v2 and v3 in its reserves on Ethereum.

The estimated value of the swap at spot pricing (93 cents) places the 200,000 units of AURA via OTC at 186,000 USDC, slightly higher than the 162,944 units mentioned in the proposal. Acquiring an additional 1.1M units of AURA would cost over $1,000,000 at current spot market prices. Other assets would need to be used to acquire the entire AURA position, as outlined in the proposal, which adds complexity and warrants further analysis and discussion.

Additionally, the 200,000 AURA from Aura Finance and its contributors are conditional upon acquiring at least another 200,000 units of AURA on the market within 6 months (based on our discussions with the Aura Finance team). The effective OTC value is $186,000 upfront and then another $186,000 (assuming the price doesn’t change) through on-market buys.

It’s worth noting that while this comment was being drafted, the spot price of AURA fluctuated significantly, completing a round trip from sub 90 cents to over $1.40 and back again. This highlights the risk of committing to buy on the market, as AURA’s price volatility is difficult to hedge, which @WintermuteGovernance may be able to also confirm.

We recognize that this is a complex topic, and bundling multiple components together may seem like an attempt to simplify things. However, we prefer to first align on the best way to manage the BPT holdings. If acquiring more AURA is the logical next step, we can take the time to carefully consider the next steps.

We extend our appreciation to @Dydymoon for his dedication and effort in presenting his personal perspective. This comment was drafted by @MatthewGraham and represents @TokenLogic’s viewpoint on the matter.