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.
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 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.
- 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:
- Comprehensive treasury management vision for Aave outlining a governance structure, a philosophy around risk management, and key reporting objectives.
Asset Management Guidelines
- Objectives, constraints, and risk management guidelines for Aave’s treasury.
Initial Treasury Strategy
- Proposal to deploy a portion of the Reserve Factor to earn additional yield by acquiring BAL rewards on Balancer V2.
Updated Treasury Strategy
- Proposal to consolidate Aave’s Reserve Factors and deploy the capital to BAL, CRV, CVX, stkAAVE, and LDO to earn yield and direct CRV rewards.
Treasury Analytics Dashboard
- Easy-to-use resource for diving into Aave’s treasury balances and growth, revenue and expenses, token holdings, and fund flows.
- Monthly financial reports containing treasury balance and contract information, income statements across all markets, token flow statements, and assets by chain.
V2 Liquidity Mining Program (90 days at 30% reduced rate)
- Note that Index Coop worked on this but Llama put up the on-chain proposal.
Strategic Partnership with Balancer
- Proposal to acquire 300,000 BAL tokens via a combination of a token swap with Balancer and a Bonding Curve contract.
Consolidate Reserve Factors and Enable DPI Borrowing
- Consolidate revenue earned on all Aave markets on mainnet into one Reserve Factor.
- Re-enable borrowing of DPI after it was disabled with AIP-44.
- Risk analysis and on-chain proposal to list CVX on Aave.
Aave Governance Proposal Payload Template
- Open-source template for creating Aave governance proposal payload contracts.
- Risk analysis and on-chain proposal to list 1Inch on Aave V2.
FEI Risk Parameter Updates for Ethereum Aave V2 Market
- Proposal to disable borrowing and deposits on FEI markets and route 100% of the interest paid by FEI borrowers to the Reserve Factor.
Add stMATIC on Aave V3 Pool on Polygon
- Proposal to list stMATIC on Aave V3’s Polygon pool.
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
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.
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.|
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.|
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.
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.|
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.
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).
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.
- 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.