[TEMP CHECK] Aave x Messari Protocol Services

Governance
1

Summary

Messari Protocol Services is proposing a 12-month engagement to provide a comprehensive suite of reporting and analytics for the Aave protocols, GHO, Aave Governance, and the Aave DAO. This will add new analysis for the Aave community and stakeholders to help guide strategic decisions while strengthening Aave’s institutional reporting reach through our distribution partners (Bloomberg, S&P, Refinitiv, etc.). We see this proposal as complimentary to current reporting initiatives for the DAO.

Background

Messari Overview

Messari is a team of crypto natives passionate about building powerful research, data, and analytics tools for the web3 world. The company was founded in 2018 with the mission to bring more transparency to the crypto ecosystem and has since grown into two divisions, a market intelligence platform and a protocol services team, the latter of which is making this proposal. Our protocol services team has worked with more than 40 teams to provide services such as quarterly reporting, governance analysis, subgraph development, and comprehensive data dashboards, all of which are made freely available.

We have a history of contributing to the Aave ecosystem and some examples of our work includes:

Problems Addressed

Specialized Reporting Provider

Robust reporting is table stakes for any economic organization, particularly one of the size of the Aave DAO. Without it, stakeholders are unable to make adequately informed decisions. This leads to a misallocation of resources, both time and money, since there are investors, developers, and users that are not acting with the full breadth of knowledge at their disposal.

While there has been great work done for Aave to date, there remains an opportunity for a specialized provider to focus on building out best in class reporting, data tools, and strategic financial analysis.

Institutional Reach

Existing mainstream coverage of crypto is woefully lacking. Investment banking and sell-side equity research coverage of crypto fails to paint an accurate picture of the material developments in this industry. When it comes to DeFi and even more nuanced aspects of this industry, things only get worse.

To combat this we have spent significant resources getting onboarded to many of the largest traditional research platforms in the world including the Bloomberg terminal, S&P Capital IQ, and Refinitv. This goes a long way to further professionalize the projects we work with to the vast majority of major funds, banks, financial service companies, and large corporations in the world that will better grasp the magnitude of economic activity generated by the protocol.

There are trillions of dollars in AUM represented by the consumers of these platforms so even a small percentage of users consuming this information and acting on it can drive meaningful activity on-chain.

Transparency

Transparency is at the core of this industry. However, much of what goes on is off-chain making it harder to verify. Therefore, as an industry we need to put a structure in place to ensure we’re holding ourselves to the highest standards.

For DAOs this means having insight into all the activity of the core service providers they work with (Messari included). This will act to hold them accountable to their stated mandates, better showcase the great work being done, and surface external work done with other DAOs to ensure any semblance of conflict of interest is at the least available for the community to have a discussion around.

Proposal Breakdown

Financial Reporting

  • Quarterly reports
    • Key Metrics
      • Outstanding loans/deposits, new loans originated/deposits, liquidations, unique addresses, daily active users
    • Value Flows
      • Interest revenue, depositor claims, protocol revenue, flashloan premiums, liquidation revenue, expenses
    • User analysis
      • DAUs (v2, v3), # deposits, # borrows
    • Rewards/incentives
      • AAVE claimed, staking AAVE claimed, AAVE incentives
    • GHO analysis
      • Facilitators
      • Outstanding GHO loans
      • Potentially track where GHO lives (EOAs vs Apps)
      • Interest paid from GHO loans
      • GHO risk parameters
      • % of outstanding GHO backed by SM staking
    • Treasury analysis
      • Breakdown of the treasury and its performance
      • Stress test
      • Monte-carlo simulation for treasury balance at future date using historical price relationships and DAO spending/revenue forecast
    • Qualitative analysis
      • Protocol upgrades, asset listings, governance proposals

Where applicable metrics will be shown at the aggregate level as well as split out by individual assets and network deployments.

  • Monthly reports
    • Snapshot of the financials (similar to our weekly)

Strategic Finance

  • Financial planning and analysis
    • Detailed financial forecast (revenue, expenses, cash flow)
    • Review of our key assumptions and rationale
    • Open sourced financial model with flexibility to change assumptions
    • Scenario analysis with sensitivities for key assumptions
    • Runway analysis
      • Including input assumption to take into account betas to BTC/ETH

Service Provider Transparency

  • Bi-annual report on Aave’s Service Providers
    • Outline their contributions over the last 6 months
    • Benchmark against their KPIs
    • What are their other DAO engagements

Governance Reports

  • Governance Research & Reports
    • Messari will create reports to analyze key governance KPIs and metrics and provide a detailed look into governance structure, process, dynamics, and analysis. (ex: Optimism)
      • Voter Study - Research & Report (example)
        • Potential Votable Supply:
          • The current circulating supply of AAVE is not representative of the true votable supply, as it does not account for AAVE that is used in the protocol, on centralized exchanges, or used in LPs. To accurately assess the percentage of tokens participating in governance, it is necessary to first identify the true potential voting power.
        • Delegation Breakdown:
          • To understand the current landscape of voters, we will examine the individuals delegating their AAVE and stkAAVE, and the delegate’s voting activity with this power. The delegators will be broken down by delegate. From there, we will analyze individual delegators, delegation type (proposing/voting), and delegation amount (by delegated token: AAVE/stkAAVE).
        • Voter Participation:
          • The final report will comprise all research and findings from the Potential Votable Supply and Delegation Breakdown sections to analyze the current and historic activity levels of participants in the Aave DAO. This will include an analysis of:
            • Delegate Voter Activity.
            • Independent Voter Activity.
            • Delegates, delegators, and independent voters by tokens held/delegated (AAVE/stkAAVE). The goal of this will be to understand which areas of the Aave protocol are influencing governance the most (e.g., Emissions).
      • Aave Governance Design Research & Report:
        • The Governance Design Research and Report will incorporate learnings from the Voter Study research, as well as community feedback to provide the DAO with an in-depth analysis on current design and processes, and provide alternatives where it may be needed. The final report will include an in-depth analysis of the following:
          • Governance Design and Process overview.
            • Areas where the DAO excels.
            • Areas to improve.
          • Process & Design alternatives.
            • Trade-off analysis.
            • Potential issues.
            • Next steps.
  • Retainer for Aave Governor Notes (x1-4) (example)
    • A 1,500-3,000 word proposal-specific analysis designed to educate stakeholders on the impacts of important DAO proposals.
    • Governor Notes represent an opportunity to highlight specific DAO products, partnerships, case-studies, and debates.

Community Engagement

In order to fully engage the community around our work we will host quarterly calls between our analysts and members of the Aave team to go in-depth on the findings of the reports. There will also be an opportunity to for community Q+A to gain clarity on pressing issues.

Rationale & Success Metrics

Given the nature of reporting and analytics there are not as clear cut metrics as say a risk or growth-focused service provider that can point towards increasing utilization rates and protocol revenue or decreasing insolvencies and losses. While there are some KPIs we can point to, many of them will be more qualitative in nature but nonetheless can demonstrate tangible value.

Our work will be judged based on the following criteria:

  • Timeliness and completion of the reports and dashboards.
  • Number of views on the reports
    • Messari newsletter reach: 300k subscribers
    • Third party distribution
      • Bloomberg Terminal: 325,000 users
      • S&P Capital IQ: 12,000 enterprises
      • Refinitiv (formerly Thomson Reuters): 40,000 enterprises and 400,000 users
  • Quality of readership
    • We will provide a breakdown of the persona types that read each report including the sector in which they work.
    • These reports play a key role in the user journey for institutions from project discovery to final diligence for investment committees.
  • Decisions resulting from our analysis
    • Examples:
      • Our scenario analysis informed potential capital expenditures by outlining the financial health of the DAO in differing cases
      • Our voter analysis informed the conversation around xyz governance change to improve participation

Pricing & Resources

The total cost will be $350,000 for the year.

  • $150,000 upfront in stablecoins
  • $200,000 streaming linearly over the course of the contract
    • $100,000 stablecoins
    • $100,000 AAVE

This will go towards funding the following resources that will spend ~20% of their annual capacity towards this engagement.

  • Research (4 FTEs)
    • 1 senior research analyst
    • 1 junior research analyst
    • 2 governance analysts
  • 1 strategic finance associate
  • 1 data scientist
  • 1 engineer
  • 1 account manager
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Thanks for putting up this proposal! Just a few thoughts / comments from our side:

  • It would be good to clearly differentiate the scope of what Messari is proposing with Llama’s scope.
  • What is the ROI for Aave on the $350k investment? What are the financial benefits of engaging Messari at this point? What are the alternatives to the deployment of $350k?
  • How exactly would this proposal help expand Aave to an institutional audience and what are the tangible steps proposed for this? The problem with banks and other institutions engaging with protocols like Aave are more to do with regulatory concerns (unable to hold digital assets in custody, for example), lack of infrastructure and know-how to engage, and difficulty to integrate with legacy infrastructure. How would improving financial reporting at this stage help Aave work more closely with institutions and enable them to act on this information? Is this a proposal that may be more beneficial when the market is more mature?
  • Some aspects of the proposal are interesting and would be very useful, e.g., the Service Provider Transparency and Governance Reports.
  • Aave is a flagship DeFi protocol and has good engagement in the DAO. Therefore, the number of views and quality of readership may not be the most fit for purpose success metrics but this should be validated with the rest of the DAO. There may be a need for more tangible metrics that bring financial benefits to Aave via increased institutional engagement.
  • The $350k may be a bit too expensive and we may need to cut the scope down. This should be validated with the rest of the DAO.
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Thanks for the feedback @lbsblockchain on those points

• It would be good to clearly differentiate the scope of what Messari is proposing with Llama’s scope.

Llama has provided great work to date, and we feel our proposal is complementary. Our deliverable is different in that their quarterly reports are more of a chartbook format while ours takes the form of a research report with a bit more context. This enables us to redistribute them on the institutional research platforms mentioned. In addition, we’re proposing entirely new analytics and deliverables (see governance reports and service provider transparency).

On the strategic finance side, Llama has built a runway analysis looking at existing treasury, incoming revenue, and outgoing costs. We plan to build a full financial model to enable forecasting with variable assumptions. This forward-looking tool allows the DAO to make even more informed strategic decisions such as future capital expenditures or revenue generating opportunities.

• What is the ROI for Aave on the $350k investment? What are the financial benefits of engaging Messari at this point? What are the alternatives to the deployment of $350k?

The tangible ROI comes from the increased exposure and credibility to a large institutional audience that can then provide additional borrowing, lending, and investment as a result of insights gleaned from reading these reports. Anecdotally we know that decision makers at tradfi funds have used these as key parts in their diligence process to participate in crypto’s credit markets.

In terms of alternatives, I’m not aware of other routes to gain access to these institutional platforms. But if the DAO wanted to execute on these deliverables, it would require a few full-time hires which would very likely cost more than the proposed cost.

• How exactly would this proposal help expand Aave to an institutional audience and what are the tangible steps proposed for this? The problem with banks and other institutions engaging with protocols like Aave are more to do with regulatory concerns (unable to hold digital assets in custody, for example), lack of infrastructure and know-how to engage, and difficulty to integrate with legacy infrastructure. How would improving financial reporting at this stage help Aave work more closely with institutions and enable them to act on this information? Is this a proposal that may be more beneficial when the market is more mature?

Institutions are some of the more risk averse investors and they’re also in the earlier stages in their crypto journey. This means they won’t be scouring the web for scattered dune dashboards and information hidden on governance forums. Instead, they need professionalized reports they can access in trusted platforms the same way they do for traditional investments to provide a basis for their due diligence. From our conversations with this audience the infrastructure component is being figured out. It’s more so the information overload and not knowing where to start or what protocols to trust that’s holding them back.

• Some aspects of the proposal are interesting and would be very useful, e.g., the Service Provider Transparency and Governance Reports.

Thanks we agree!

• Aave is a flagship DeFi protocol and has good engagement in the DAO. Therefore, the number of views and quality of readership may not be the most fit for purpose success metrics but this should be validated with the rest of the DAO. There may be a need for more tangible metrics that bring financial benefits to Aave via increased institutional engagement.

Given the nature of this type of engagement it’s extremely difficult to say $x came from xyz investor that decided to borrow/lend after reading the report on the Bloomberg terminal. We can be as transparent as possible though so thinking probabilistically it doesn’t become a huge leap to deduce a tangible ROI.

• The $350k may be a bit too expensive and we may need to cut the scope down. This should be validated with the rest of the DAO.

On price, we feel this is in line with or below the industry’s average for highly involved service provider engagements. We’re able to provide unique value-add to the DAO with a clear path towards paying for itself as well as guiding better strategic decision making.

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Thanks @JackPurdy_Messari for this proposal.

Overall lots of good work outlined that could bring more exposure to Aave and we find the cost for what you described reasonable. 8 people engaging (with 4 FTEs) for the Aave DAO and then providing the Messari marketing exposure to institutional target audience as well is within the line of costs we would expect for something like this.

The question here is does the DAO really need everything from what is outlined? 350K out of the DAO budget is steep so we believe there should be a discussion of what’s absolutely essential and doesn’t overlap with @Llamaxyz work.

In our opinion:

  • Institutional reach is a must but at the same time; with the current regulatory and sentiment conditions would a Messari involvement push the needle? Would love to hear everyone’s opinion on this.
  • Financial Reporting will be good for the institutional audience so that they can get an easy high level view of the protocol’s health.
  • Governance reports would be great and peak the interest of institutional audiences as well

If overall sentiment is that the 2 bullet points below are not required, could we get a total cost without those as well? @JackPurdy_Messari

  • We’re not quite sure Strategic Finance is needed as there is a @Llamaxyz dashboard with some of that data here.
  • Service Provider transparency reports would be useful. At the same time, this feel like a task that could be done or mandated to the Service providers themselves for publishing.
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Thank you for creating this post, @JackPurdy_Messari.

Our main concern is that there are too many different services and types of analyses being conducted here. We’ve been thinking on how professional service provision should interact with DAOs, and we typically lean towards more specific service provision services–like an entity that is solely involved in risk analysis or treasury management.

Messari’s general approach to research, however, is very well done, especially from the stance of clarity. In reading your research reports, we can tell that the information is accurately sourced and articulated in a comprehensible manner. The structure of posts like the quarterly reports have the potential of better resonating with traditional, non crypto folk. Nonetheless, this proposal does seem to be casting too wide of a net.

If the proposal is able to offer a more exclusive type of value provision, it may resonate better with the DAO. Maybe advertise it as a broad reporting service aimed to aid the DAO and other stakeholders interested in Aave since most service providers today are focused on helping out the DAO and not the external stakeholders. However, we may see reluctance from the DAO here as well. Usually, large fees like the one asked for above are typically granted to services directed towards aiding token holders and delegates in their decision making process.

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On the need of those 2 bullets @0xkeyrock.eth we think the strategic finance portion of the proposal is critical as the model we aim to build will be more robust than just a runway analysis, enabling deeper analysis. For example, we’d be able to model out how the addition a new service provider like Messari would affect the DAOs finances. Stakeholders could run their own bull/bear cases based on market conditions and growth assumptions to ultimately make the most informed decision.

As for the service provider transparency aspect, the point is that it’s done by a 3rd party. While we don’t question the integrity of any of Aave’s service providers, we feel there is value in having an outsider independently report on the work done.

On this point @Michigan_Blockchain

thinking on how professional service provision should interact with DAOs, and we typically lean towards more specific service provision services–like an entity that is solely involved in risk analysis or treasury management.

We could not agree more! That is why we feel Messari can come in as the specialist provider solely on financial services - including reporting, analytics (both protocol fundamental and governance related), and more advanced cash flow modeling.

As it pertains to the overlap with @llama we see 2 paths forward for how Aave could introduce Messari as a service provider

  1.   Build redundancy + expand capabilities

In a similar manner to how @omergoldberg viewed the Chaos/Gauntlet overlap -we believe multiple vendors are feature not a bug.

The DAO can benefit from multiple vendors conducting independent and collaborative research. Underlying differences in technology will result in analysis drift and varied results and recommendations. This will allow the community to compare results, conduct discussions, and ultimately make informed decisions

In this case the DAO would have multiple parties providing monthly/quarterly financial which ensures an accurate picture of the data is being presented. And to reiterate, the deliverables are not the same in how we present them as well as the ROI given the distribution. From this lens, if you think about what Aave’s “finance arm” looks like with the combined entities this option unlocks tremendous value by reaching a wider audience both crypto native and institutional while providing wholly new analyses that will enable better decision making.

Option #1 would add <$30k/month in spending or an increase in 1.8% of the DAOs budget, leaving Aave still cash flow positive by a wide margin.

  1.   Specialize services + keep spending flat

Currently a portion of this work proposed is being completed by @Llamaxyz who has done a great job executing on those deliverables. But that spreads one resource constrained entity into doing all of the aforementioned work plus growth, protocol upgrades, and treasury management.

Messari could relieve Llama of producing the ongoing reporting while acting as a more full-service provider in the realm of all things reporting and finance. The DAO can then reduce their payment by 20% and use that to pay Messari.

Option #2 would keep the overall service provider spend flat, greatly expand the reach of Aave’s reporting, and free up Llama to double down on their core competencies further enhancing the excellent work done on their other mandates.

We feel these are two highly attractive options that leave Aave better off and are looking forward to hearing the opinions of other stakeholders. @MarcZeller @eboado @PennBlockchain @fig @BlockchainAtColumbia

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@JackPurdy_Messari We see value in Option #1.

Looking forward to everyone’s feedback.

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hello @JackPurdy_Messari

i’ve been watching // now it’s time to chime in.

why should Aave pay for services which lead to proposals like this:

it’s messy // reads poorly // and lacks critical next steps

additionally, how has Messari benefitted Aave in the past? with most contributors there is a strong history of engagement for the services they offer —

for Governance Reports, Service Provider Transparency, Community Engagement, there’s no precedent which has been maintained by your crew

take a look at team accounts like @raho https://governance.aave.com/u/raho/activity // the activity is sparse and infrequent. how are voters convinced by this sort of intermittent contribution

the watcher believes the value is in Messari’s distribution towards traditional business and finance

i acknowledge the competency in your financial analysis and strategic finance //

i also support trimming and segmenting the scope of Llama

now - 02 05 23 - however, feels too soon

critically, watching.

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this is helpful feedback - ty

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Appreciate the thoughts @thewatcher

We’ve built open-source subgraphs for every Aave deployment to get live dashboards on nearly every fundamental metric (TVL, active deposits/withdrawals, $ borrowed/lent, # of borrows/lends, liquidations, repayments, withdrawals) all at both the aggregate level or split out by specific networks and individual assets. We did a one-off build to fit Aave’s custom governance framework into our Governor platform and backfilled with every proposal to make it a very useful platform for the community.

We’ve done Governance Reports and Community Engagement for other DAOs (ex. State of Optimism Governance) and (ex. Compound quarterly call). The Service Provider Transparency would be a first as there aren’t many DAOs it makes sense for but this something we’ve heard from a number of stakeholders that it would be a big value add for Aave.

On this point, admittedly we were not looking to propose a concrete change, we just had thoughts we wanted to share (should have been [Discussion]). But also our services here don’t include actively pushing forward proposals on protocol changes so that should not be used to judge this current proposal.

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I’d suggest evaluating which services Aave DAO requires from external service providers rather than seeing it as a manner of what Messari can offer. As mentioned, Llama already covers some of the work, but redundancy is not bad, especially in DAOs, but it should be executed correctly.

In your mention of Chaos Labs & Gauntlet for redundancy, Chaos Labs started with a grant from Aave DAO to show their impact before a DAO-wide agreement. This helped the DAO evaluate the opportunity cost of having two service providers before making a long-term & costly agreement with Chaos Labs.

I don’t see this agreement moving forward in its current state so, I suggest you guys take a similar route via Aave Grants DAO or a smaller scope (4-6 month agreement with fewer services). Once the DAO can see the impact, it will be easier to evaluate your services.

(I see you guys received a grant previously, but it’s not dated when and this was purely for reporting.)

1 Like