<p>Authors from Llama: <a href="/u/matthewgraham">@MatthewGraham</a>, <a href="/u/dydymoon">@Dydymoon</a> and <a href="/u/acceleratedcapital">@AcceleratedCapital</a>.</p>
<h1>
<a name="introduction-1" href="#introduction-1"></a>Introduction</h1>
<p>Llama would like to present the Aave community an opportunity to deploy the Reserve Factor (RF) to earn additional yield by acquiring BAL rewards on Balancer V2. The balance of the RF and Ecosystem Reserve (ER) are shown below:</p>
<div>
<table>
<thead>
<tr>
<th>Wallet</th>
<th>USD</th>
<th>Notes</th>
</tr>
</thead>
<tbody>
<tr>
<td>Ecosystem Reserve</td>
<td><a href="https://etherscan.io/address/0x25f2226b597e8f9514b3f68f00f494cf4f286491">$821M <span>38</span></a></td>
<td>100% AAVE</td>
</tr>
<tr>
<td>Reserve Factor V1</td>
<td><a href="https://etherscan.io/address/0xe3d9988f676457123c5fd01297605efdd0cba1ae">$0.42M <span>22</span></a></td>
<td>$224K aDAI, $176K aUSDC, $340K ETH</td>
</tr>
<tr>
<td>Reserve Factor V2</td>
<td><a href="https://etherscan.io/address/0xe3d9988f676457123c5fd01297605efdd0cba1ae">$13.88M <span>22</span></a></td>
<td>$7.44M aUSDC, $2.4M aUSDT, $2.3M aDAI, $0.15M awETH</td>
</tr>
<tr>
<td>Reserve Factor Polygon</td>
<td><a href="https://polygonscan.com/address/0x7734280a4337f37fbf4651073db7c28c80b339e9">$5.06M <span>7</span></a></td>
<td>$1.2M amUSDC, $1.2M amDAI, $0.6M amUSDT, $0.5M amWETH, $0.76M amWBTC</td>
</tr>
</tbody>
</table>
</div><p>This strategy has two goals:</p>
<ul>
<li>Earn additional yield with the aTokens from the treasury</li>
<li>Accumulate governance influence with protocols that interact with Aave</li>
</ul>
<p>Llama proposes depositing a portion of the aTokens held in the RF into Balancer V2 pools to earn BAL rewards. The aTokens are wrapped, creating a waToken, and the yield generated from holding the aToken accumulates within the wrapper. Aave is still earning yield from the aToken as if it was held within the RF wallet, but will also accrue trading fees and BAL rewards by providing liquidity on Balancer V2.</p>
<p>An alternative strategy is to use AAVE from the ER as collateral in order to borrow stables to fund the yield generating strategy. The cost of capital is reduced by the borrowing incentives on V2, the fee income that flows to the RF, and the interest received by the aTokens. Provided the loan is sufficiently overcollateralized and managed, the risk to the Aave treasury is largely derived from Balancer V2 Smart Contract risk. This risk seems very low, at the time of writing Balancer V2 has more than $1.6b TVL (mainnet and polygon combined) and offers the largest, unclaimed bug bounty (1000 ETH) in the industry. The investment generates a positive ROI due to the low cost of capital, Balancer trading fees, and BAL incentivises.</p>
<p>Further to the above, there exists the potential for the Balancer V2 liquidity provider (LP) token to be integrated into Aave’s AMM platform. This creates a further use case and presents an opportunity for Aave to provide liquidity to the underlying pools.</p>
<h1>
<a name="utilising-reserve-factor-to-earn-yield-2" href="#utilising-reserve-factor-to-earn-yield-2"></a>Utilising Reserve Factor to Earn Yield</h1>
<p>The general strategy is to deploy DAI, USDC, USDT equivalents held within the RF into Balancer V2 pools to earn yield from Aave V2, trading fees and BAL rewards. ETH and BTC equivalent assets are to be deposited into Balancer V2 to earn trading fee income and BAL rewards. The BAL rewards are to be accumulated over time and held as a strategic asset. Other governance tokes, like LDO are to be sold for ETH and reinvested into the ETH strategy.</p>
<h2>
<a name="stable-coins-dai-usdc-usdt-3" href="#stable-coins-dai-usdc-usdt-3"></a>Stable Coins (DAI, USDC, USDT)</h2>
<p>Llama has been discussing with Balancer a yield strategy that involves depositing Aave’s aDAI, aUSD, and aUSDT holdings into the next iteration of the metastable pool on V2. The staBAL3 pool deposits around 90% of the stables back into Aave V2 making them productive whilst also receiving additional BAL incentives.</p>
<p>In addition to the yield from Aave accruing for liquidity providers, Balancer is expected to offer incentives. The staBAL3 <a href="https://medium.com/balancer-protocol/balancer-launches-metastable-pools-to-further-pool-liquidity-9eade44d73d8">metastable pool <span>16</span></a> will boost productivity as the yield from the 10% of stables not deposited in Aave is more than offset by the entire stable balance earning BAL rewards plus trading fee income. The stables are now earning yield from Aave and BAL rewards, this is expected to roughly double the overall yield generated by these assets.</p>
<p>For example, the <a href="https://app.balancer.fi/#/">Balancer V2 DAI / USDC / USDT pool <span>2</span></a> is $163M in size and generates 12.21% APR, comprising 0.03% in swap fees and 12.18% in BAL rewards. This pool still doesn’t lend its underlying stable coins to AAVE, which will be the case with the new version of the staBAL3 pool.</p>
<p>We expect the pool to be launched in the coming months, potentially early Q4, 2021. When the full details are released, we will be able to refine the strategy further and present an ARC to the community. At this point in time we are considering depositing around half of Aave V2’s DAI, USDC and USDT equivalent into the pool which is a bit over $6M. The final amount will be defined in the ARC and will depend on feedback received from this post.</p>
<p>The overview for deploying the stable coins is summarised below:</p>
<ul>
<li>Deposit half of Aave V2 RF’s aDAI, aUSDC, and aUSDT holdings on Balancer V2 to earn BAL rewards</li>
<li>Expected APR is difficult to predict, but is anticipated to be greater than 10% in addition to the aToken yield</li>
<li>BAL rewards are to be held as a strategic asset and not sold</li>
</ul>
<p>Acquiring the BAL tokens whilst only forgoing a fraction of the yield otherwise earned is a near-zero cost way of acquiring a Balancer holding. Given the relationship between Balancer and Aave, the BAL holding becomes a strategic asset that further aligns the two communities through ownership.</p>
<h2>
<a name="ethereum-eth-and-bitcoin-btc-4" href="#ethereum-eth-and-bitcoin-btc-4"></a>Ethereum (ETH) and Bitcoin (BTC)</h2>
<p>For the ETH and BTC allocation, we’ve identified two potential strategies to generate additional yield.</p>
<p>The first strategy is to take advantage of the recently <a href="https://medium.com/balancer-protocol/balancer-launches-metastable-pools-to-further-pool-liquidity-9eade44d73d8">launched metastable pools <span>16</span></a> from Balancer. The first pool Balancer has launched is wstETH / wETH. The stETH yield accumulates within the wstETH token. Currently, the pool is yielding 18.73% APR, comprising 0.46% swap fee, 3.07% stETH staking rewards, and 15.20% from liquidity mining (2.10% BAL and 13.1% LDO).</p>
<p>The alternative strategy is to deposit ETH into the Curve stETH / ETH pool and earn CRV and LDO rewards. The yield is currently around 6.7%, comprising 6.36% LDO and 0.27%-0.68% CRV.</p>
<p>When comparing these strategies, the rewards on Balancer are greater than Curve, with both Lido and Balancer offering relatively higher rewards than available on Curve. Due to this, Llama’s preference is to earn BAL rewards and concentrate on acquiring Balancer protocol governance influence.</p>
<p>ETH is typically deposited into Aave as collateral and the utilisation rate is less than 5% on V2, so the the yield generated from holding aETH is low relative to other productive use cases.</p>
<ul>
<li>Aave currently holds the equivalent of 391 ETH across the RFs and have a current market value of $1.3M (0.11% of the total treasury; comprising 156 amwETH, 44 awETH and 101 ETH)</li>
<li>Deposit 90% of the ETH into the wstETH / wETH pool on Balancer V2</li>
<li>Retain 10% for gas costs</li>
<li>BAL rewards are to be acquired as a strategic asset and not sold</li>
</ul>
<p>Similar to the ETH strategy, Balancer offers 7.15% APR on the stable pool wBTC / renBTC / sBTC of which 6.98% comes from BAL incentives. By comparison, Aave offers less than 1% on BTC assets.</p>
<ul>
<li>Aave holds the equivalent of 18.18 aBTC across the RFs with a current market value of $850K (0.1% of the total treasury; comprising 16.25maBTC, 1.93 aBTC)</li>
<li>Deposit all of the BTC-equivalent holdings into the Balancer pool to earn BAL rewards</li>
<li>BAL rewards are to be acquired as a strategic asset and not sold</li>
</ul>
<h1>
<a name="conclusion-5" href="#conclusion-5"></a>Conclusion</h1>
<p>This forum post introduces the concept of deploying the Reserve Factor to earn additional yield through BAL rewards by providing liquidity on Balancer V2. There will be a Snapshot vote to gauge community sentiment towards this proposal. If the sentiment and feedback in the comments below is favourable, then this strategy will be developed further and presented to the community at a later date when the details around the pools are known.</p>

Aave - Initial Treasury Strategy Authors from Llama:  @MatthewGraham ,  @Dydymoon  and  @AcceleratedCapital . 
 
  Introduction 
 Llama would like

Aave - Initial Treasury Strategy

<p>Authors from Llama: <a href="/u/matthewgraham">@MatthewGraham</a>, <a href="/u/acceleratedcapital">@AcceleratedCapital</a>, <a href="/u/ahuja">@ahuja</a>  and <a href="/u/gmoney">@gmoney</a></p>
<h1>
<a name="introduction-1" href="#introduction-1"></a>Introduction</h1>
<p>This document is intended to outline objectives, constraints, and governance mechanisms for the Aave treasury. It will serve as a strategic guide that:</p>
<ul>
<li>Plans for appropriate asset allocation and implementation (e.g. governance, constraints, manager selection).</li>
<li>Establishes accountability.</li>
<li>Offers an objective course of action to be followed during periods of market disruption when instinctive responses might lead to less prudent actions.</li>
</ul>
<p>Having a governance document like this is vital to the success of the capital management program of a DAO. Since they are typically less structured and decision-making is community-driven, having guidelines can help the community assess new strategic decisions based on already agreed upon terms. This proposal will serve as the initial draft, but it should be noted that it is a living document, subject to change with the circumstances of the Aave treasury. It should be viewed as a guide of best practices, and amendments should be adopted by the community prior to making a capital decision in order to ensure the framework is properly considered.</p>
<h1>
<a name="definition-and-structure-2" href="#definition-and-structure-2"></a>Definition and Structure</h1>
<p>These guidelines govern the investments associated with the Aave Protocol. It shall apply to the assets tracked by the Dune Dashboard <a href="https://dune.xyz/llama/Aave-Treasury-Finances-by-Llama?Time-Series%20Granularity=month&amp;Trailing%20Num%20Time-Series=12">here <span>15</span></a>.</p>
<p>The Aave community is responsible for approval of and updates to this forum post. It is recommended that the Aave community maintain a DAO/Working Group/Committee dedicated to issues related to these guidelines, including identifying the need for updates and monitoring the portfolio of assets/strategies for compliance with these guidelines.</p>
<h1>
<a name="governance-3" href="#governance-3"></a>Governance</h1>
<p>The Aave Treasury Management Committee (TMC) should meet quarterly to review these guidelines in light of prevailing circumstances. At these quarterly meetings, an opportunity should be made for the community to propose changes to these guidelines.</p>
<p>The TMC will be responsible for proposing policies to the Aave community that are suitable for achieving the strategic objectives listed below. When necessary, the TMC can identify and engage with outside advisors to help on strategic proposals, review the investment policies, and make recommendations to the community.</p>
<p>In order to keep the community apprised of the performance of the TMC, regular reporting on the investments held by the treasury will be provided. A monthly accounting of positions, calculation of performance relative to any applicable benchmarks, and any additional information necessary to inform the community members of the treasury’s progress will be made.</p>
<h1>
<a name="investment-objective-4" href="#investment-objective-4"></a>Investment Objective</h1>
<p>The investment assets of the Aave Treasury are intended to:</p>
<ul>
<li>Preserve capital and fund ecosystem growth.</li>
<li>Generate a total return sufficient to preserve the protocol in any market environment.</li>
<li>Reduce the idiosyncratic risk of the concentrated AAVE position while maintaining exposure to the upside of the protocol.</li>
</ul>
<p>To fulfill these objectives over the long term, the investment portfolio should seek to achieve a total rate of return in excess of operational expenses. This will ensure protocol longevity, provide flexibility on operations, and protect the purchasing power of the Protocol’s assets.</p>
<h1>
<a name="time-horizon-5" href="#time-horizon-5"></a>Time Horizon</h1>
<p>The Aave Protocol, like other institutional investors (e.g. pension funds, sovereign wealth funds, endowments, foundations), has an infinite time horizon. The Treasury exists to serve the Aave ecosystem in perpetuity.</p>
<p>The investments held by the Aave Treasury should be made with a long-term perspective. As such, short-term investment performance shortfalls are not necessarily of critical interest unless they suggest failures in strategy execution.</p>
<h1>
<a name="liquidity-constraints-6" href="#liquidity-constraints-6"></a>Liquidity Constraints</h1>
<p>The Aave Treasury’s liquidity constraints will be subject to ongoing operational expenses. As a best practice, it is recommended that the total allocation to illiquid investments (e.g. token lock-ups) remain below 50% of the investment portfolio, in line with the average endowment allocation to illiquid alternative investments. We would expect illiquidity to remain much lower than this maximum given the nature of DeFi.</p>
<p>In addition, we would recommend that at least 10% of the value of the treasury should be invested in assets that can be quickly liquidated without any significant adverse impact in value as a result of the liquidation (e.g. stablecoins).</p>
<h1>
<a name="leverage-constraints-7" href="#leverage-constraints-7"></a>Leverage Constraints</h1>
<p>Since one of the goals of the Aave treasury is to maintain concentration in the native governance token, strategies will likely employ debt by borrowing stablecoins and other assets against AAVE. For this reason, it is necessary to identify specific metrics for managing risk when deploying leverage.</p>
<ul>
<li>
<strong>Health Factor</strong> - Health Factor is crucial when determining liquidation risk. The Aave treasury should elect to manage any investment with a conservative Health Factor that has a very low chance of liquidation during periods of market volatility. A target health factor band will be presented with each investment proposal along with specific capital management practices necessary to ensure the Health Factor is maintained during a range of market conditions.</li>
<li>
<strong>Interest Coverage Ratio</strong> - Ideally all strategies are positive carry. However, each strategy will be considered both in isolation and holistically within a broader portfolio.</li>
<li>
<strong>Derivatives</strong> - The use of derivatives is intended to balance out the overall risk exposure of the portfolio. For example, hedging the downside risk of the Aave position with a put option could lower liquidation risk in the event of a severe downturn.</li>
</ul>
<h1>
<a name="metagovernance-8" href="#metagovernance-8"></a>Metagovernance</h1>
<p>Where possible, the Aave Treasury should exert the right to contribute to the value of Aave’s investments by participating in constituent protocol governance. The TMC will advise the community on metagovernance proposals when particularly applicable to the value of the Treasury’s investments.</p>
<h1>
<a name="risk-management-9" href="#risk-management-9"></a>Risk Management</h1>
<p>The risk management framework for the Aave treasury will be considered holistically. Capital management decisions will take into consideration various external risks that any treasury faces, along with those external risks specific to the crypto ecosystem. In this section, a risk overview is provided along with a framework for managing both DeFi-specific and portfolio management related risks.</p>
<h1>
<a name="risk-overview-10" href="#risk-overview-10"></a>Risk Overview</h1>
<ul>
<li>
<strong>Credit Risk</strong> - This type of risk is specific to off-chain collateralized stablecoins but can also be present anytime there are assets being delegated to or managed by a counterparty. We intend to perform internal monitoring specific to any credit risks that may arise during the treasury management process.</li>
<li>
<strong>Market Risk</strong> - Market risk is inherent in any investment that trades freely on secondary markets. As discussed in the portfolio construction section, market risk will be managed within the portfolio construction framework with the goal of working toward the strategic asset allocation outlined below.</li>
<li>
<strong>Liquidity Risk</strong> - Liquidity can be a risk during periods of network congestion or in the event liquidity is needed but not available for operational expenses. Thorough liquidity analysis will be performed when determining if a strategy is suitable for the Aave treasury.</li>
<li>
<strong>Infrastructural Risk</strong> - Crypto assets have varying levels of infrastructural risks related to the Ethereum network and smart contracts. When the Ethereum network is clogged during periods of volatility or use, an asset may lose its liquidity since transactions cannot be processed in a timely manner or may be cost-prohibitive. Smart contract exploits (e.g., inflation of the stablecoin via exploitation of a minting function), use of admin keys, oracle risk, and more can all destroy the value of an asset.</li>
</ul>
<h1>
<a name="identifying-and-managing-defi-specific-risk-11" href="#identifying-and-managing-defi-specific-risk-11"></a>Identifying and Managing DeFi-Specific Risk</h1>
<p>In addition to the broad risks outlined above, there are also DeFi-specific risks to assess and manage when deciding on allocating capital to a particular strategy. Below are some DeFi-specific risks along with recommendations on handling them:</p>
<ul>
<li>
<strong>Smart Contract</strong> - This risk is well known within crypto and the most widely accepted measure for measuring this risk is the combination of a high Total Value Locked (TVL) in the contract for an extended duration of time. This acts much like a bounty as a reward for anyone who can drain the funds. Past performance of similar contracts can be used as a proxy for assessing risk. Audits mitigate some risks and insurance can offset financial loss at a price.</li>
<li>
<strong>Admin Keys by protocols</strong> - Ideally, the treasury should steer clear of any protocol with admin keys. The only time it’s really acceptable is early on in a protocol’s life. If a protocol has admin keys, there should be a timelock in place before changes made by admins go into effect to limit potential risks.</li>
<li>
<strong>Oracle Risk</strong> - Widely trusted and proven oracle feeds are strongly preferred. Oracle exploit is one of the most frequent exploits within DeFi. We would want to ensure any investment that utilizes (particularly derivatives) oracles are set up with secure price feeds/data. For example, an options protocol using an ETH price feed for options pricing needs to use an oracle pulling ETH pricing from multiple exchanges; otherwise a bad actor could manipulate ETH price on one source exchange and impact the entire options market.</li>
<li>
<strong>Closed source protocols</strong> - Ensure that protocols we utilize are open source so that contract code can be easily inspected.</li>
</ul>
<p>All investments and strategies are to undergo a risk assessment whereby each of the above risks are investigated and taken into consideration. Any known risk is to be clearly articulated in any proposal to the Aave community.</p>
<h1>
<a name="portfolio-construction-framework-12" href="#portfolio-construction-framework-12"></a>Portfolio Construction Framework</h1>
<p>The goal of the asset allocation is to maximize the portfolio return relative to a predetermined level of risk with consideration given to the following core functions:</p>
<ul>
<li>Offset the risk profile of the existing Aave position by reinvesting generated capital into a diversified portfolio of less correlated and less volatile assets.</li>
<li>Maximize total return relative to volatility of the return. This is done through diversification and also deployment of capital into productive assets (e.g., aTokens).</li>
<li>Utilize derivatives where applicable to modify risk exposures to suit the needs of the Aave Treasury.</li>
<li>When deploying assets productively, each additional layer of smart contract risk will be examined in an attempt to minimize contagion within the portfolio of assets.</li>
</ul>
<p>Individual investments will be assessed for their impact on the total portfolio’s risk/return characteristics, rather than on the individual investment’s specific characteristics in line with Modern Portfolio Theory. For example, a high-risk investment isn’t necessarily precluded from a conservative, low-risk portfolio as long as it is properly within the total portfolio’s risk budgeting constraints. Oftentimes, assets of varying risk when combined actually reduce overall risk.</p>
<p>Since it is likely Aave will be implementing a strategy of borrowing against the native AAVE token to build a productive and diversified portfolio, it is helpful to understand the correlation of assets relative to the AAVE token. Below is the correlation of return from the assets currently supported on Aave. These correlation values are determined based on daily returns in the past 3 months. We use all of the price history available since the launch of the shortest lived token i.e. KNC. Monthly returns may be used to suppress daily fluctuation-related noise and better isolate the signal of interest i.e. correlation of returns. However, we are limited by the small amount of price/return history currently available. Note that DAI is used as a proxy for all stable coin assets supported on Aave (DAI, GUSD, USDC, USDT, BUSD, SUSD, TUSD).<br />
<strong></strong><br />
<strong>Figure</strong> - Correlation matrix to capture correlation of returns of all assets supported on Aave. Historical returns used in analysis are limited by the project with the shortest history.</p>
<h1>
<a name="strategic-asset-allocation-13" href="#strategic-asset-allocation-13"></a>Strategic Asset Allocation</h1>
<p>The asset allocation will be determined by considering where individual assets fall into a risk spectrum as identified here:</p>
<p></p><div><a href="https://europe1.discourse-cdn.com/business20/uploads/aave/original/2X/f/f8ecef5f25240ac2b75cd05752fcbba5ab9222d5.png"><div>
<span>Screenshot 2021-09-15 at 22.28.36</span><span>1248×718 66.7 KB</span>
</div></a></div><p></p>
<p>Using the framework above, we propose the following long-term strategic targets for the diversified portfolio separate from the concentrated AAVE position:</p>
<ul>
<li>Low Risk (50%)
<ul>
<li>Per the correlation matrix above, the most immediate benefit to the Aave treasury is the introduction of a stablecoin allocation.</li>
<li>The stablecoin allocation can be productively deployed throughout DeFi to generate a yield.</li>
<li>If Aave elects to borrow against the AAVE token, it makes sense to primarily borrow stablecoins due to their lower risk profile. If these stablecoins are then deployed throughout DeFi, the Aave treasury would essentially be creating a collateralized debt position.</li>
</ul>
</li>
<li>Medium Risk (30%)
<ul>
<li>The medium risk bucket is composed of assets that will typically be highly correlated to the AAVE token given the high correlations of assets in the crypto ecosystem.</li>
<li>The goal of the medium risk bucket is to gain exposure to large-cap, high-quality crypto assets while helping to diversify some of the specific idiosyncratic risks of the AAVE token.</li>
</ul>
</li>
<li>High Risk (20%)
<ul>
<li>This bucket will mainly include allocations to strategic partnerships and investments, and therefore may be relatively illiquid.</li>
<li>The primary focus of this bucket will be to support the ecosystem.</li>
</ul>
</li>
</ul>
<p>We understand that building a diversified portfolio takes time, so instead these targets are provided as a framework for long-term allocations.</p>
<h1>
<a name="rebalancing-guidelines-14" href="#rebalancing-guidelines-14"></a>Rebalancing Guidelines</h1>
<p>The TMC will periodically review the asset allocation of the portfolio to determine if any adjustments are necessary based on material changes to market conditions or Aave’s unique circumstances. Given the inherent volatility of crypto, the TMC will be active in rebalancing when necessary during periods of market stress to ensure constraints remain in effect (e.g. actively adjusting collateral to reduce risk of liquidation).</p>

Aave - Asset Management Guidelines Authors from Llama:  @MatthewGraham ,  @AcceleratedCapital ,  @ahuja   and  @gmoney  
 
  Introduction 
 This document

Aave - Asset Management Guidelines

<hr />
<p>title: ARC - Strategic Partnership with Balancer<br />
status: Proposed<br />
author: Llama Community - <a href="/u/matthewgraham">@MatthewGraham</a><br />
created: 21-03-2022</p>
<hr />
<h1>
<a name="simple-summary-1" href="#simple-summary-1"></a>Simple Summary</h1>
<p>Acquire 300,000 BAL tokens via a combination of performing a BAL for AAVE token swap and via deploying a Bonding Curve contract. The BAL tokens are to be deployed to earn yield and used to direct incentives to new aToken Boosted Pools when Balancer’s new tokenomics system is launched, [1].</p>
<h1>
<a name="abstract-2" href="#abstract-2"></a>Abstract</h1>
<p>Perform a token swap with Balancer by exchanging 14,666.67 AAVE from the Economic Reserve for 200,000 BAL token. Exchange rate $AAVE $150 and $BAL $11. Deploy a Bonding Curve to acquire an additional 100,000 BAL tokens on market at the chainlink oracle price +50 bps, for a cost $1,105,500 with BAL at $11. This is in addition to the existing 1,604 BAL in the Reserve Factor.</p>
<p>Aave will become one of eight token holders with 300,000 BAL tokens. All 300,000 BAL tokens are to be deposited into the Balancer V2 BAL:ETH (80:20) pool and participate in Balancer’s revised tokenomics come 28th March. This is equivalent to approximately 3.80% of the BAL:ETH pool at the time of writing.</p>
<p>Initially, the veBAL will be used to vote BAL rewards to pools which support aTokens that create TVL for Aave and/or AAVE liquidity pools.</p>
<h1>
<a name="motivation-3" href="#motivation-3"></a>Motivation</h1>
<p>Aave and Balance have a long history of working together. The AAVE : ETH (80/20) Balancer V1 pool BPT is accepted within the Aave Safe Module and the newly created Balancer Boosted Pools drive TVL to Aave markets, [2].</p>
<p>When the AAVE : ETH (80/20) Balancer V1 pool is moved to Balancer V2 and integrated into Aave’s Safety Module, the veBAL tokens can be used to vote BAL rewards to the newly created AAVE : ETH (80/20) Balancer V2 pool.</p>
<p>In addition, the veBAL can be used to vote BAL rewards to Balancer Boosted Pools which utilise Aave markets in the background to create yield for passively held liquidity, [3]. There are likely to be many more Balancer Boosted Pools that utilise aTokens in the future and the veBAL votes can be used to help bootstrap these pools by directing BAL rewards to those pools. Using veBAL to vote for BAL rewards to pools that strengthen Aave is a strategic advantage of deploying the BAL tokens into the BAL:ETH pool.</p>
<p>By exchanging AAVE for BAL, the tokenswap reflects the ongoing collaboration and shared vision through governance in each other’s community. The token exchange, plus additional acquisition, is significant enough for Aave to become a Top 30 holder of BAL tokens, based on etherscan BAL holder rankings, [4]. Balancer will become a Top 80 AAVE holder, [5]. Each community will have influence in the other’s governance process, enabling them to best represent their interests and to collaborate.</p>
<p>Aave will likely be one of the first movers in the upcoming BAL wars and will gain a strategic advantage to bootstrap new Balancer Boosted Pools which lead to tokens being deposited in Aave markets to earn yield. This has the benefit of creating TVL and Revenue for Aave.</p>
<p>The initial sizing to acquire 200,000 BAL was something that was reached via discussions with the Balancer community and happens to be the same size as the recent Tribe DAO and Balancer token swap, [6]. The additional 100,000 BAL purchase is something that could be extended in the future.</p>
<p>The initial cost from the Economic Reserve is 14,666.67 AAVE and $1,105,500 from the Reserve Factor with BAL at $11. This places Aave inside the Top 30 BAL holders which is an important consideration. If an additional 75,000 BAL was acquired then Aave would become a Top 20 holder and this includes three community wallets, one Polygon bridge pool and the main BAL liquidity pool. So really it would be more like the Top 15 holders if another 75,000 BAL was acquired.</p>
<p>The initial sizing was also determined by the ability to influence how the BAL emissions are to be distributed. If all BPT from the BAL : ETH pool are converted to veBAL, Aave will receive 3.8% of the 14,500 BAL emission schedule which is equivalent to 551 BAL weekly, or $6,061/week at $11/BAL or $315,172/year. This is approximately 9.5% ROI in Year 1 based on 3.8% of the veBAL supply. This is direct yield for supply BAL : ETH liquidity. Other deployments from the Reserve Factor will also earn BAL rewards over time, [7].</p>
<p>With 3.8% of veBAL supply, Aave will determine where 3,085 of the 81,200 BAL tokens are to be distributed each week via the Ethereum mainnet pool gauge. This is equivalent to 5% APR on a $35.30M pool without any compounding or other yield sources like swap fees or yield from Aave markets. This is sufficient to support bootstrapping new liquidity pools that support growing TVL for the Aave community. Given the size of the Aave community investment in the Balancer community, it is reasonable to think that Liquidity Mining Committee may also be voting to allocate a portion of there 14,500 weekly BAL emission to support Balancer Boosted Pools which drive TVL to Aave markets.</p>
<h1>
<a name="implementation-4" href="#implementation-4"></a>Implementation</h1>
<p>The token swap is to be performed by both Balancer and Aave by depositing tokens into a contract like how Tribe DAO swapped TRIBE for INDEX, [8].</p>
<p>A Bonding Curve deployment utilising Chainlink’s BAL/USD oracle feed with a 50 bps incentive for arbitrage trades to acquire BAL on market and deposit into the contract. Aave will provide USDC to fund the Bonding Curve contract. An example of this type of transaction occurred when Tribe purchased $10M of DPI on market, [9].</p>
<p>The 50 bps fee is to provide an economic incentive for arbitrage traders to attain BAL on market and deposit BAL into the contract profitably by more than offsetting gas costs. This mechanism enables everyone within defi to participate and essentially crowdsources the BAL tokens on Aave’s behalf. Once the BAL has been received it will be transferred to the Reserve Factor from there it will be deployed into the BAL : ETH pool on Balancer V2 and then into the veBAL contract.</p>
<h1>
<a name="references-5" href="#references-5"></a>References:</h1>
<p>[1] <a href="https://forum.balancer.fi/t/introducing-vebal-tokenomics/2512">Introducing veBAL tokenomics - Proposals - Balancer <span>10</span></a><br />
[2] <a href="https://pools.balancer.exchange/#/pool/0xc697051d1c6296c24ae3bcef39aca743861d9a81/">Pool management - Balancer <span>5</span></a><br />
[3] <a href="https://app.balancer.fi/#/pool/0x7b50775383d3d6f0215a8f290f2c9e2eebbeceb20000000000000000000000fe">Balancer</a><br />
[4] <a href="https://etherscan.io/token/0xba100000625a3754423978a60c9317c58a424e3d#balances">$17.88 | Balancer (BAL) Token Tracker | Etherscan <span>2</span></a><br />
[5] <a href="https://etherscan.io/token/0x7fc66500c84a76ad7e9c93437bfc5ac33e2ddae9#balances">$186.55 | Aave Token (AAVE) Token Tracker | Etherscan <span>5</span></a><br />
[6] <a href="https://tribe.fei.money/t/fip-33-swap-between-balancer-dao-and-fei-dao/3555">FIP 33: Swap between Balancer DAO and Fei DAO - Proposals - Tribe <span>3</span></a><br />
[7] <a href="https://governance.aave.com/t/arc-consolidate-aave-v1-v2-amm-reserve-factors-purchase-cvx-and-deploy-to-earn-yield/6797">ARC - Consolidate Aave V1, V2 &amp; AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield <span>5</span></a><br />
[8] <a href="https://eur03.safelinks.protection.outlook.com/?url=https%3A%2F%2Fgithub.com%2Ffei-protocol%2Ffei-protocol-core%2Fblob%2Fdevelop%2Fcontracts%2Futils%2FOtcEscrow.sol&amp;data=04%7C01%7Cmatthew.graham2%40technipfmc.com%7Cfcf199dfb3f64bb3b4ca08da0b1a125b%7C0804c95193a0405d80e4fa87c7551d6a%7C0%7C0%7C637834504350429866%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C2000&amp;sdata=wnFuy5LgP7IJ2G7A4%2B1x%2FBMp1k1bbqw9%2Bk6jkuimd0E%3D&amp;reserved=0">https://github.com/fei-protocol/fei-protocol-core/blob/develop/contracts/utils/OtcEscrow.sol <span>6</span></a><br />
[9] <a href="https://etherscan.io/address/0xbf5721c5e1c370f6f1a3e21b3972e0ace93a1e84">BondingCurve | Address 0xbf5721c5e1c370f6f1a3e21b3972e0ace93a1e84 | Etherscan <span>5</span></a></p>
<h1>
<a name="copyright-6" href="#copyright-6"></a>Copyright</h1>
<p>Copyright and related rights waived via <a href="https://creativecommons.org/publicdomain/zero/1.0/">CC0 <span>3</span></a>.</p>
<h1>
<a name="amendments-7" href="#amendments-7"></a>Amendments:</h1>
<p>Change Token Swap Terms:</p>
<ul>
<li>From “exchanging 14,666.67 AAVE from the Economic Reserve for 200,000 BAL token. Exchange rate $AAVE $150 and $BAL $11.”  to “200,000 BAL from the Ecosystem Fund would be exchanged for the equivalent USD value of AAVE in equal proportions from DAO Treasury, using the 90-day moving average price when the votes pass on both sides.”</li>
</ul>
<p>Providing Liquidity for veBAL:</p>
<ul>
<li>Aave is to provide ETH when depositing BAL as to prevent significant negative price impact that coudl occur adding all that BAL as single sided liquidity in the 80/20. At the time of writing Aave holds around $336K in <a href="https://etherscan.io/address/0xe3d9988f676457123c5fd01297605efdd0cba1ae">V1</a> and $258K in <a href="https://etherscan.io/address/0x464c71f6c2f760dda6093dcb91c24c39e5d6e18c">V2</a> Reserve Factors which is more than enough to meet the 80/20 BAL/ETH requirements.</li>
</ul>

ARC - Strategic Partnership with Balancer Part #1 
 title: ARC - Strategic Partnership with Balancer 
status: Proposed

ARC - Strategic Partnership with Balancer Part #1

<hr />
<p>title: ARC - Strategic Partnership with Balancer Part <span>#2</span><br />
status: Discussion<br />
author: Llama Community - <a href="/u/matthewgraham">@MatthewGraham</a><br />
created: 10-04-2022</p>
<hr />
<h1>
<a name="simple-summary-1" href="#simple-summary-1"></a>Simple Summary</h1>
<p>Acquire 100,000 BAL tokens by deploying a Bonding Curve contract. The BAL tokens are to be held in the Reserve Factor until further details relating to Aura emerges and then the Aave community can determine if to deploy BAL to receive veBAL or auraBAL, [1].</p>
<h1>
<a name="abstract-2" href="#abstract-2"></a>Abstract</h1>
<p>Deploy a Bonding Curve to acquire an additional 100,000 BAL tokens on market at the chainlink oracle price +50 bps, for a cost $1,708,500 with BAL at $17. This is an additional purchase to the 200,000 BAL token swap being considered.</p>
<p>Aave will become one of eight token holders with 300,000 BAL tokens. All 100,000 BAL tokens are to be retained in the Reserve Factor until such time as further information on auraBAL emerges.</p>
<h1>
<a name="motivation-3" href="#motivation-3"></a>Motivation</h1>
<p>The original motivation for performing a token swap with Balancer can be found on the ARC - Strategic Investment BAL Token, [2].</p>
<p>With the additional 100,000 BAL acquisition, Aave would transition from just outside the Top 50 BAL holder to inside the Top 30 holders, [3]. If an additional 75,000 BAL was acquired, totalling 375,000 BAL, then Aave would become a Top 20 holder and this includes three community wallets, one Polygon bridge pool and the main BAL liquidity pool. So really it would be more like the Top 15 holders if another 75,000 BAL was acquired.</p>
<p>With 300,000 BAL tokens, Aave would have the largest BAL holding of any strategic partner Balancer has partnered with. The largest strategic partnership holding to date is the 270,000 BAL position held by Tribe DAO, [4,5]. Having a larger BAL holding relative to Tribe DAO may become a competitive advantage as Tribe DAO seeks to direct TVL to Rari Fuse pools with the use of the new ERC-4626 vault, [6].</p>
<p>With the emergence of ERC-4626, a new type of vault, whereby Liquidity Providers (LP) can deposit their stakes BPT tokens into lending pools and earn BAL rewards whilst using staked BPT as collateral, [7]. This is particularly appealing for staked BPT holdings which have minimal Impermanent loss risk. An example would be to use the staked BPT token for the stable coin Balancer Boosted Pool which uses Aave V2 to generate yield and receives BAL rewards, [8]. Based upon the success of wstETH being listed on Aave V2, this may lead to significant Total Value Locked (TVL) growth for Aave which makes up more than 13% of Aave’s mainnet V2 market TVL, [9].</p>
<p>Having not yet entered in the Curve / Convex tokenomics play, Aave has an opportunity to be an early leader in the veBAL wars. With the emergence of Aura, the Aave community has a choice to determine if the 100,000 BAL to be acquired are to be deployed for veBAL or auraBAL. If Aura is like Convex, then being early and building an Aura holding is worth considering. The first step in both strategies is to acquire a sizable BAL position and as the initial 200,000 BAL is proposed to be deposited into the veBAL contract and locked for 1 year, the 100,000 BAL detailed within this proposal can be deployed into either veBAL or auraBAL contracts.</p>
<p>There are likely to be many more Balancer Boosted Pools that utilise aTokens in the future and the veBAL votes can be used to help bootstrap these pools by directing BAL rewards to those pools. Using either veBAL or auraBAL to vote for BAL rewards towards pools that create TVL for Aave is a strategic advantage. If Aura evolves like Convex did, then the voter locked AURA token will have more voting influence over BAL rewards than one veBAL token. Being prepared and ready for the Aura token launch is going to position Aave to maximise the upside from its investments as rewards often favour early movers.</p>
<h1>
<a name="implementation-4" href="#implementation-4"></a>Implementation</h1>
<p>A Bonding Curve deployment utilising Chainlink’s BAL/USD oracle feed with a 50 bps incentive for arbitrage trades to acquire BAL on market and deposit into the contract. Aave will provide USDC to fund the Bonding Curve contract. An example of this type of transaction occurred when Tribe purchased $10M of DPI on market, [10].</p>
<p>The 50 bps fee is to provide an economic incentive for arbitrage traders to attain BAL on market and deposit BAL into the contract profitably by more than offsetting gas costs. This mechanism enables everyone within defi to participate and essentially crowdsources the BAL tokens on Aave’s behalf. Once the BAL has been received it will be transferred to the Reserve Factor.</p>
<h1>
<a name="references-5" href="#references-5"></a>References:</h1>
<p>[1] <a href="https://forum.balancer.fi/t/proposal-allowlist-aura-finance-in-balancer-votingescrow/2708">[Proposal] Allowlist Aura Finance in Balancer VotingEscrow - Proposals - Balancer <span>12</span></a><br />
[2] <a href="https://governance.aave.com/t/arc-strategic-partnership-with-balancer/7617/15">ARC - Strategic Partnership with Balancer Part #1 - #15 by MatthewGraham</a><br />
[3] <a href="https://etherscan.io/token/0xba100000625a3754423978a60c9317c58a424e3d#balances">$17.84 | Balancer (BAL) Token Tracker | Etherscan <span>3</span></a><br />
[4] <a href="https://forum.balancer.fi/t/proposal-allow-tribe-dao-to-lock-vebal/2888">[Proposal] Allow Tribe DAO to lock veBAL - Governance - Balancer <span>1</span></a><br />
[5] <a href="https://snapshot.org/#/balancer.eth/proposal/0x7972e1700ac30495ad936038b66055b1e6420c3de5ed1fec963abe5faa2d16a3">Snapshot <span>1</span></a><br />
[6] <a href="https://tribe.fei.money/t/fip-90-fuse-boosted-usd-balancer-pool-bb-f-usd/4023">FIP-90: Fuse-boosted USD Balancer pool (bb-f-usd) - Proposals - Tribe <span>1</span></a><br />
[7] <a href="https://eips.ethereum.org/EIPS/eip-4626">EIP-4626: Tokenized Vault Standard</a><br />
[8] <a href="https://app.balancer.fi/#/pool/0x7b50775383d3d6f0215a8f290f2c9e2eebbeceb20000000000000000000000fe">Balancer <span>2</span></a><br />
[9] <a href="https://app.aave.com/reserve-overview/?underlyingAsset=0xae7ab96520de3a18e5e111b5eaab095312d7fe84&amp;marketName=proto_mainnet">Aave - Open Source Liquidity Protocol <span>1</span></a><br />
[10] <a href="https://etherscan.io/address/0x464c71f6c2f760dda6093dcb91c24c39e5d6e18c">Aave: Aave Collector V2 | Address 0x464c71f6c2f760dda6093dcb91c24c39e5d6e18c | Etherscan <span>4</span></a></p>
<h1>
<a name="copyright-6" href="#copyright-6"></a>Copyright</h1>
<p>Copyright and related rights waived via <a href="https://creativecommons.org/publicdomain/zero/1.0/">CC0</a>.</p>

Aave - Initial Treasury Strategy

Aave - Asset Management Guidelines

ARC - Strategic Partnership with Balancer Part #1

ARC - Strategic Partnership with Balancer Part #2

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