Updated Proposal: Llama <> Aave

Summary

We outlined a 12-month proposal to work with Aave on treasury management, protocol upgrades, growth, and analytics.

We received a lot of positive interest and feedback from the community. Based on the feedback, we incorporated the following changes:

  • Removed deliverables related to GHO. Removed deliverables relating to risk: risk parameter amendments and asset liquidation risk. We have ensured that there is little to no overlap between existing contributors to Aave like BGD and Gauntlet.
  • Added a deliverable relating to Aave’s treasury we were requested to work on.
  • Emphasized the ability for Aave DAO to cancel Llama’s contract and stream after a 6-month period if the community is not satisfied with our performance. We will provide a detailed report on our progress after 6 months that empowers the community with the necessary information to make that decision. Additionally, we will provide monthly updates on our work.
  • Updated pricing to a $1.5 million base fee plus a $0-500k performance bonus based on accomplishment of KPIs.

The Proposal

Context

Llama is one of the most active contributors to Aave. We hope to deepen our engagement with the community and ensure that Aave is a market-leading protocol for many decades to come.

Aave currently has $9 billion of liquidity locked across 7 networks and over 13 markets, with more in the works. Aave DAO has supported community initiatives like Aave Grants DAO, Bored Ghost Developing (BGD), and Gauntlet, which have served to advance the protocol.

To continue its rate of growth, the community needs to onboard proven contributors who can drive value to the Aave ecosystem. Skilled teams that have the knowledge, trust, and alignment can meaningfully contribute to growing Aave.

Llama has received grants from Aave Grants DAO over the past 12 months for work that includes treasury management, protocol upgrades, DAO to DAO partnerships, and analytics. Aave Grants has recommended that we move from short-term grants to a longer-term work scope funded through governance, allowing us to drive more impact to the Aave ecosystem.

It should be noted that many of the deliverables in this proposal require substantial smart contract engineering and financial expertise. We will have the following people allocated to our work with Aave: two smart contract engineers, one backend engineer, one frontend engineer, one DeFi strategist, one data scientist, and one accountant.

Llama

Overview

Llama works with DAOs on protocol engineering, treasury allocation, and analytics. Our customers include Aave, Nouns, Uniswap, dYdX, Lido, Gitcoin, Maker, Radicle, PoolTogether, and FWB. We have implemented protocol upgrades, built treasury strategies and liquidity incentive programs, created bidding interfaces and on-chain indices, and built analytics dashboards and financial reports.

Our Values

  • Rigor. Work done by Llama is of the highest quality. We care deeply about getting the details right.
  • Ownership. We treat the problems of our customers as if they were our own. There is little to no separation between Llama and the DAOs we work with.
  • Trust. We seek to actively earn the trust of our customers. We involve the community in our work and incorporate feedback where relevant.
  • Transparency. We believe in open lines of communication and are comfortable working in a DAO-native manner.

Previous Work with Aave

A selection of our work with Aave includes:

The Proposal

Llama complements BGD, Gauntlet, and others who might emerge by offering support to grow the Aave ecosystem. We focus on treasury management, analytics, and growth.

The tables below provide the initiatives with which Llama plans to support Aave.

Treasury Management and Analytics

Task Description
Strategic Partnerships

Work with other communities to determine if they are a good match for the Aave community and Aave’s vision/future intentions. Coordinate and deploy all on-chain proposals across necessary platforms.

Acquire assets to accelerate growth or provide a competitive edge. This includes the construction of investment strategies and submission of AIPs to acquire, deploy, and maximize the utility of any acquisition.

E.g. Acquire BAL, deploy to B-80BAL-20WETH, then deploy into veBAL and coordinate / implement DAO voting on BAL incentive distribution.

Earning Yield

Deploy a portion of the DAO’s funds across diversified strategies of varying risk profiles to earn yield across many networks while maintaining sufficient stablecoin runway and optimizing risk exposure.

Design, model, and deploy investment strategies across various networks via Aave’s governance process to earn yield on assets held in the respective network’s Reserve Factor.

Preference will be given to acquiring tokens that provide extra utility to the DAO beyond governance influence. Llama will optimize for the intersection of risk, including smart contract surface area, and return on investment. These strategies will be biased towards retaining the accrued governance token yield.

Grow Aave’s Revenue

Position Aave’s assets to bolster revenue growth. Utilize assets from the Reserve Factor to unlock and promote the growth of Aave markets and revenue.

Deploy the Reserve Factor to boost Aave’s revenue. Enable the Balancer and Aura strategies to have a meaningful impact on TVL and revenue.
Hedging

Explore and implement ways to provide downside protection to the Ecosystem Reserve.

Aave’s token price is volatile and the DAO has significant exposure to this single asset.

Reduce asset price exposure through hedging, which may include using derivatives on a rolling basis, to protect against adverse market conditions.

E.g. hedging downside price exposure of the Ecosystem Reserve whilst the Safety Module is heavily concentrated in AAVE.

Claim Revenue to Treasury for Aave V3

Make periodic calls to claim Aave V3 revenue to Aave’s treasury.

In Aave V3, revenue doesn't automatically accrue to the treasury, and instead must be claimed via a public call.

Llama will make periodic calls on Optimism, Arbitrum, Avalanche, and Polygon to ensure that revenue goes to Aave’s treasury.

Improve Capital Efficiency of the Safety Module (SM)

Create various optimizations for the SM to ensure that it functions with Aave’s increased TVL.

The SM provides a backstop to Aave markets. As Aave’s TVL grows, the SM must grow with it. Aave’s capital is limited and must be managed to maximize the backstop for users.

Deploy an upgrade to improve the capital efficiency of the SM and maximize the dollar value of the backstop.

Safety Module Performance

Provide detailed analysis of the SM’s historical and current performance relative to TVL, market conditions, and market volatility.

Backtest different compositions of the SM with assets of varying volatility and correlations to Aave’s TVL. Track the DAO’s ability to cover % of TVL on various markets with market price movements.
Shortfall Event Analysis

Model the effect of a shortfall event on the SM’s backstop and AAVE token price.

Develop models that simulate the effect of a shortfall event and how the market would absorb the sell pressure of various assets. Ensure the unlock period is sufficient to enable the governance process to be enacted.
Runway Analysis

Provide analysis that will shape investment, amongst other, decisions across the DAO.

For the DAO to grow in a sustainable manner, sufficient capital must be kept safe to guarantee the longevity of the community.

Model expenses and revenues under various market conditions. Liaise with other members of the DAO to create a comprehensive forecast of the DAO’s finances. Draw upon input from community members who have received AIP funding and those delivering material improvements across the Aave ecosystem.

Develop a Data Warehouse for Aave

Develop a live, customized, and transparent financial reporting backend solution for Aave.

Develop a data warehouse that combines and transforms on-chain data from numerous networks with off-chain data sources to provide a comprehensive base layer of Aave blockchain data that can be used to build real-time analytics dashboards.

This will enable live financial reporting for the various Aave markets and Aave DAO as a whole.

Accounting Reports

Publish financial reporting statements enabled by the data warehouse.

Provide monthly and quarterly financial statements including income statements, cash flow statements, and balance sheets.

Provide periodic token distribution analyses, transparency on outflows, and more economic analyses. In time, this will be expanded to cover the Aave Grants DAO as well.

Investment Performance Reporting

Provide visibility into each investment strategy, its performance, and associated risks.

Use the data warehouse to provide in-depth analyses of the performance of the DAO’s assets, ROI, recent price valuation, and volatility analysis.

Share this data through reports on the forum and a dedicated website alongside other financial reporting data.

Risk Modeling for DAO Investments

Model various risk scenarios to ensure the DAO has exit strategies during periods of market turbulence.

Provide risk analysis (including tail-risk analysis and scenario forecasting) on DAO investments in preparation for deploying the community’s funds via the governance process, taking into account the nature of how DAOs work and how quickly DeFi evolves.

Growth

ARC Market Liquidity Mining Module

Upgrade the Aave ARC market to include a liquidity mining module.

Deploy an upgrade to the ARC market implementing LM functionality (required if incentives are distributed across the market).
New Collateral Types

Work with Balancer to bring a new type of productive collateral to Aave markets and subsequently roll it out across the various Aave V3 deployments.

Collaborate on the creation of new types of collateral which will drive TVL and use of Aave markets.

E.g. Create ERC-4626 strategies that enable BPTs to be deposited whilst enabling users to earn rewards as if the BPT was deposited into an Aura gauge.

DeFi Integrations

Bolster the adoption of Aave’s tokens across DeFi by supporting initiatives that build on top of Aave markets or integrations that create TVL for Aave markets.

Identify and promote new initiatives that will grow TVL and adoption of Aave’s tokens.

This will span liquidity growth and the integration of AAVE and aTokens into other protocols.

E.g. Create linear pools on Balancer V2 that deposit tokens into Aave markets to earn yield (for example, bb-a-USD).

Metagovernance

Enable AAVE and stkAAVE holders to participate in metagovernance by voting on proposals within other communities in which Aave DAO holds tokens.

Enable, support, and implement any metagovernance initiatives on behalf of the community as it grows and starts participating in other communities’ governance votes.
Asset Listing Risk Assessments

Support asset listings by providing a qualitative risk analysis report on the forum that details the initial risk parameters.

Adopt any risk parameters suggested by Gauntlet, provided borrowing is enabled at launch.

Continue to support communities seeking to list their token on Aave markets by performing and publishing risk assessments with suggested initial parameters. Llama has a strong track record of progressing assets from the original ARC to AIP submission.

Note that we only charge Aave for risk assessments of specific assets, not for the AIPs and coordination involved outside of the risk assessment. We will liaise with individual communities and support new asset listings, with all efforts outside of the risk assessment funded by those respective communities.

Note that we have excluded GHO from the scope of this proposal but plan to support it with a separate proposal after it is launched.

Compensation Model & KPIs

Llama charges a $1.5 million base fee for 12 months plus a KPI-based bonus of $0-500k. 70% of the total fee will be in USDC and 30% in AAVE.

The base fee is broken down into two components:

  • $0.5 million paid up front: $0.35 million in USDC and $0.15 million in AAVE.
  • $1 million streamed over 12 months: $0.7 million in USDC and $0.3 million in AAVE (30-day TWAP at proposal submission)

The AAVE held in Llama’s treasury will be used to participate in governance.

The KPI-based bonus is paid at the end of our 12-month contract based on the accomplishment of deliverables listed in our proposal. 70% of the bonus will be in USDC and 30% will be in AAVE.

  • $0 on completion of 70% or less of deliverables
  • $250k on completion of 71-90% of deliverables
  • $500k on completion of 91-100% of deliverables

The bonus payment portion in AAVE will be calculated based on a 30-day TWAP at the end of the 12-month period.

Besides milestone completion, general KPIs we focus on include:

  • Revenue growth
  • Treasury growth
  • Minimize loss of funds
  • Deployment of DAI, USDC, USDT, and ETH from the Ethereum Reserve Factor

Note that Aave DAO has the ability to cancel Llama’s contract and stream after a 6-month period. We will provide a detailed report on our progress that should give the community sufficient information to make that decision.

Engagement Expectations

  • The duration of the engagement will be ongoing, with the initial proposal spanning 12 months. Towards the end of the 12-month period, a new proposal will be drafted and shared on the governance forum.
  • With rare exceptions, payloads will be shared with BGD or Aave Companies before being submitted as AIPs for on-chain voting.
  • We will provide regular updates on the forum with details on our work and will solicit feedback from the community to ensure we continue to uphold the commitments outlined above.
15 Likes

I’d like to voice my support for this proposal after revisions were made based on community feedback. :white_check_mark::+1: The exclusion of the GHO scope, the KPI-based compensation, and the ability to cancel the contract after 6mos are all thoughtful additions that address a lot of the commentary on the original proposal.

I know some folks might have “sticker shock” at the pricing but remember that DAOs don’t run magically…they need real people doing real work…executing at a high level. Especially +$1B DeFi protocol DAO like Aave. Many DeFi protocols would just perform these duties as part of the attached corporate company, and this cost would be in line with those functions. Instead, Aave is one of the more decentralized protocols in the space (maybe only topped by Maker?) with many independent groups like Gauntlet, BGD, and others contributing to core functions.

Llama offering its services as another provider in the Aave ecosystem should be welcomed since there are very few orgs with these capabilities in the space…and certainly no orgs with Llama’s track record. So I voice my support for this revised proposal. And we can take a look in a couple quarters and make sure it’s a win-win for all stakeholders and revise as necessary. Let’s get to work, learn, iterate, and keep growing! :muscle::ghost:

6 Likes

I think the proposal is more reasonable and transparent at the moment, with a slightly reduced budget and clarity on the personnel involved, given the heterogeneous nature of the work.
Considering that Llama always did quality contributions to the community and the partial variable budget with quite strict KPIs evaluation, I support the proposal to pass to a voting phase by the community.

P.S. it is getting clear that on so heterogeneous scopes (treasury management, growth, data, etc), will get more and more difficult to make an educated opinion/vote. This gets accentuated by the fact that multiple entities on the previous thread present limited-scope “counter-offers” (which I think is healthy). In my opinion, something needs to change on this, because I believe that even for people really active in governance in this forum, it is really difficult to do evaluations.
At the moment I’m not sure which is the best solution, but think that soon will be unavoidable to define better the needs of the DAO in certain fields, more abstract in nature than others. And from there, request “quotes” or proposals from reputable firms in the specific field.
Llama has a clear history with Aave, so I think a vote of trust is deserved. But still certain procedures should change.

5 Likes

I similarly support this revised proposal:

Llama team and @HelloShreyas invested time to incorporate feedback from multiple stakeholders: delegates, BGD, Aave Co, myself, and others. They have been long-standing contributors to Aave.

The amended scope is reasonable and further aligns the DAO and Llama team through KPIs, while driving valuable insight and services over 12 months.

I am grateful for Llama’s willingness to incorporate community feedback to form a fair and more streamlined proposal. This version helps answers uncertainty from before.

5 Likes

We are extremely grateful for the support on our proposal! We have made a minor change to the compensation structure. All the $ amounts stay exactly the same; we’ve just applied a 70%-30% USDC-AAVE split to all payments. The AAVE held in Llama’s treasury will be used to participate in governance. We have run this by community members and stakeholders and they’ve been supportive.

4 Likes

With this proposal and its progression, we continue to be excited by the evolving contributor landscape within the DAO. We are pleased the governance process continues to be meaningful and that Llama has taken into account community feedback in evolving this proposal.

Having been funded by GrantsDAO, Llama has been extremely engaged with Aave governance; this proposal and Llama’s work demonstrates that grants go a long way in supporting contributors in the ecosystem.

Overall, it is noticeable how involved Llama has been in the DAO for an extended period of time, and we look forward to seeing this go to a vote.

7 Likes

Update: we have posted a Snapshot proposal that will be live till September 28. We would love to have the community participate!

3 Likes

The Index Coop community, including myself and the Index Coop Council, supports this proposal.

Llama is one of the most experienced and professional teams in the ecosystem and their impact on the Aave community speaks for itself. We fully trust Llama when it comes to treasury management and we’re excited to see the increased scope of work that will help to grow the Aave ecosystem. The Llama team has some of the best and most diverse contributors in DeFi and we have no doubt they’ll be able to exceed the expectations listed. Index Coop looks forward to continued work with both Aave and Llama.

With our Aave metagovernance power within DPI, Index Coop has voted YES to this proposal.

6 Likes

I think the team at Llama is fantastic, and this is an excellent investment. But I am curious how the Index Coop Metagovernance AAVE vote appears to have been cast before the internal Index Coop vote on the proposal has closed?

Here @funkmasterflex indicates it is a done deal at about ~11am EST on 9.26

And we appear to see the results of the vote:


0x55B16934C3661E1990939bC57322554d9B09f262

Yet the actual internal Index metagovernance vote does not close until 3:45 pm EST on Sept 27th?
image
https://snapshot.org/#/index-coop.eth/proposal/0xea9468d5d62b22218dad0de09287742395950655e684b88625303e95e8a08342

To be clear, the internal Index vote does not appear to be at risk of failing, and given it has passed quorum, it should not be referred to the Metagovernance committee for decision.

Possible explanations:

  • The INDEX process is somehow different between ARCs & AIPs
  • The AAVE vote cast above is not the official INDEX vote - it will happen post INDEX vote
  • The INDEX vote is almost assuredly going to pass - so someone decided to cast the vote early

For background, the metagovernance vote wielded by $INDEX via DPI for AAVE is exceptionally powerful - regularly in the top 1 or 2 voting blocks in the AAVE snapshot. Given its outsized influence, I advocate that it is in everyone’s best interest the Index metagovernance process is pretty darn bulletproof.

1 Like

Firstly, @Llamaxyz congratulations on the proposal passing the snapshot vote!

Two items that your response would be appreciated:

1:Can you clarify @shawn16400 observation above?

2: Conflict of Interest within the Aave Community

Llama is co-founded by @HelloShreyas. Shreyas is also listed as the lead of the Aave Grants DAO funded via the following proposal: Aave Grants DAO Update and Renewal

It would be good to understand what the following:

  • What role Shreyas still has in the Aave Grants DAO and if he is still being compensated via the Grants DAO funding?
  • Is Shreyas involved in any of the Aave Grants submissions? If so, will Shreyas be independent in the review process when reviewing grant applications similar to Llama? The main concern here is that if competitors to Llama apply for Aave Grants, if there will be bias in the decision making process?

Thanks @G-Blockchain!

  1. Re. Index Coop’s metagovernance process, it’s probably best for Funk or others in Index Coop to comment. It looks like Index Coop’s metagovernance Snapshot overwhelmingly passed (99.99% votes for, worth 455k INDEX), so, of course, Index Coop was right about voting for Llama’s Snapshot. The question is more about when they voted and whether they should’ve waited a few hours, but I am not sure since I don’t have clarity on that process.

  2. I currently do not review individual grant applications. We have a team of 9 independent reviewers. I help set the process and ensure it’s running smoothly (Airtable forms, Notion page, multisigs, marketing), recruit and onboard the the team, assess the effectiveness of our grants, coordinate with Aave stakeholders on strategic priorities for Aave Grants to fund, and provide periodic updates to the Aave community. I take any conflict between Llama and Aave Grants very seriously. I have never been involved in any reviews of grants that Llama has applied for - never even involved in conversations about these grants, let alone reviewing or deciding on whether to approve these grants. @fig, @corbpage, and others part of Aave Grants can attest to this. I also make it extremely clear when I have a conflict on another applicant’s grant application - and having said that, I do not review and approve individual grant applications currently anyway.

7 Likes

Thank you to everyone who voted in our Snapshot this week. The vote passed with an overwhelming majority (99.64% / 290k AAVE) in support. We will update the forum once our on-chain proposal is live.

4 Likes

I can confirm Shreyas doesn’t review grants and has no hand in pushing Llama-related grants. I’ve been in the Aave Grants DAO since it was created and have no skin in the game here so just passing along info.

I’ve reviewed Llama DAO grants in the past and use the same diligence as other applicants. In fact, we’ve funded competitive service providers in the past and I encourage other service DAOs to apply given we need more folks doing this work for the space!

For what it’s worth, I’ve only seen highly ethical behavior from the whole Llama community since I’ve worked with them for the past few years, which we need to encourage in the crypto space. :slightly_smiling_face:

6 Likes

Thank you for the response and the clarification of your responsibilities at Aave DAO.

Also thanks for @corbpage for following up and providing the feedback.

I would like to just make it clear, that my post is just to ensure that there is no conflict going forward. The work the Aave Grants DAO has done for the community has been while being led by @HelloShreyas and the rest of the team can be seen across the Aave Ecosystem. So thank you for you contribution.

As it’s been clarified, I don’t think any further activity is required.

3 Likes

I agree this deviation has little to do with the llama proposal given I don’t know that Llama has any role in Index Metagovernanace process. But yes, the question is more for those responsible for the Index process to describe how the AAVe vote was cast +24 hours in advance of the Index voter decision.

2 Likes

This is clearly a non-issue. Index voted overwhelmingly in favor of this vote.

The Index voting block is made up of INDEX voting power from DPI as well others who delegate to that address allowing the address to submit AIPs. This is written out on Snapshot. I recommend reading that instead of casting doubt on the voting process

2 Likes

Thanks for the response @funkmasterflex. I do not quite follow how additional non-index delegates to an common address negates the index metagovernance voting process. My apologies for casting doubt, I just want confirmation that my vote for this (and other metagovernance votes) mean something and there is not some other decision process.
The fact the index voters ended up approving this proposal (after the fact) is good news, but the question is more about the legitimacy of the 67k Aave cast in this vote. Metagovernance is powerful - protocols impacted by it should have confidence that metagov votes cast are above reproach, and if questions are raised, clear and cogent answers are provided.