PIP-XX: Utilizing Aura Finance to bootstrap PSP liquidity on Optimism

Governance Proposals
1

Authors

jeffery, json, Oxytocin, aura maxis

Abstract

image
image1280×665 101 KB

Aura Finance is a meta-governance protocol built on top of Balancer. Aura Finance has topped over $700M in TVL on mainnet and has a massive ecosystem of partners that encompasses everything from major lending markets like Aave, to cross-chain infrastructure providers like Stargate, to top LSD providers like Lido and Rocketpool. In total, Aura has obtained and maintained fruitful relationships with over 40 different protocols within DeFi. Based on its success on mainnet, Aura contributors believe in Balancer’s potential to be a first-choice for protocols considering to either seed or grow liquidity.

Aura helps to amplify the effectiveness and growth of Balancer in addition to the protocols within the ecosystem. Aura’s voting incentive markets are one of the most diverse in DeFi, with over 20-30 active participants on any given round. Moreover, Aura has maintained a solid track record in the accumulation of governance influence for veBAL, which has helped to keep markets lively.

It seems beneficial for the protocol to add the extra yield layer that Aura provides on top of the 80/20 Balancer pools to increase the return for the participants and Paraswap DAO.

We propose staking the BPT from the 80/20 PSP/OP Balancer / Beethoven X pool (on optimism) into AURA and introducing a gauge incentive for it using Aura voting incentives markets.
This will generate the following benefits:

  • Increase in pool size (liquidity), by encouraging single-sided stakers to migrate to an LP position, increasing the PSP token liquidity;

  • Make these pools more attractive for market participants;

  • Enhanced yield generation by staking the BPT token on Aura; and

  • Introducing voting incentives with a lower cost;

Liquidity is a major expense for protocols, and often forces farm & dump game theory. Providing better returns on an 80/20 pool than on a single-staking pool means that the protocol can enhance the token liquidity on the market sustainably. Furthermore, staking the POL in Aura will help to increase Paraswap’s influence within the Balancer ecosystem, which can be later used to support cost-effective PSP liquidity and reduce protocol expenses.

Using Aura as an additional yield layer makes these pools more attractive for market participants. Liquidity Providers improve their returns when staking the BPT token in Aura, as the APR is boosted by Aura emissions. This can incentivize market participants to become Liquidity Providers, as they can lock their AURA rewards into vlAURA, and be rewarded by participating in Aura governance.

As these pools are the major liquidity source for PSP in Optimism, improving its yield by providing gauge voting incentives on Balancer makes sense. And doing it using Aura is the most cost-effective way: In the last voting round (2023-08-21), the return was $1.21 per $1 provided. This means that it was 21% more effective to use Aura than to provide incentives directly. In addition, on Optimism, thanks to the OP grant Aura received, the voting incentives provided by Paraswap DAO will be matched 1:0.5 by Aura (with a maximum of 25k OP per week), which would lead to even higher efficiency for using AURA market to incentivize.

Paraswap can also lock farmed AURA rewards as vlAURA to significantly reduce the need for PSP spending in the future while maintaining a robust liquidity layer on Optimism and Ethereum. Thanks to the recently passed AIP-42, AURA incentives will be distributed from the Aura DAO treasury to be allocated pro-rata to pools based on their vlAURA gauge weight; this will further benefit the “better aligned” liquidity provider, such as POL of Paraswap DAO.

In view of this efficiency, we propose Paraswap DAO allocate a voting incentive budget of $20k each voting epoch ($10k weekly) to the vlAURA market to help incentivize the pool and bootstrap liquidity. The budget may be adjusted after further evaluating the efficiency and pool utilization.

Goals & Review

The main goals of the proposal are:

  1. Improve yield generation on the 80/20 pools;
  2. Make these pools more attractive for market participants;

The metrics for evaluating the success of this proposal would include:

TVL increase on the ‘Night at the OPara’ pool on Optimism.

Means

The primary objective of this proposal is to increase the yield generation of these pools and introduce a sustainable flywheel to attract more liquidity to them. Aura contributors are available to help with the setup and deployment of any Balancer proposal needed, without any cost for the Protocol.

Implementation Overview

  1. Creating a Balancer Proposal to create a gauge for the 80/20 pool on OP.

  2. Introducing BPT staking on Aura

  3. Start to incentive gauge voting on Aura

  4. Provide voting incentives to vlAURA market epoch-wise.

Other Considerations

Security: Aura’s smart contracts have multiple audits, information can be found at Security - Aura Finance

Contact

Website — aura.finance

Docs — docs.aura.finance

Twitter — twitter.com/aurafinance

Discord — Aura Discord

9 Likes
2

Hi,

Thanks for the proposal, I think this is a great opportunity for ParaSwap’s DAO to put its treasury at work and increase its liquidity on Optimism.

Some questions that come straight to mind :

Do we want to combine and compound all the returns by locking it to vlAURA to get our own voting power on AURA gauges? If so what’s the ultimate goal (amount and/or duration)? At what point should/would we distribute the returns to the DAO? or to the sePSP Stakers? or both? and if both with what ratio (80% Stakers / 20% DAO) ?

That will also come some recurring management work to be carried out :

  • track returns per dollar invested in voting incentives
  • managing the voting incentives every 2 weeks
  • claiming rewards + locking it into vlAURA
  • doing some multisig actions
  • etc…

Which entity will be in charge of that work? GovCo? A new committee?

Would love to earn @0xYtocin and @agrosso vision on that subject.

8 Likes
3

regarding management (i.e., claim rewards, lock vlAURA / veBAL, providing incentives to voting market), Beethoven X DAO has been doing that for a while, and overall it is an easy process while ofc the operating entity needs to be aware of the timelines of such (in particular the voting cycle of vlAURA is every two weeks).

4

Hey, glad to see activity on liquidity management.
We happen to do exactly this at Paladin, so it would be pretty painless for us to track and report ROI.
As for the other questions, I will prevent from commenting since I sit on the GovCo and would just be speaking for my choir.

2 Likes
5

Hello,
Thanks for this proposal. Overall I think it’s a good idea to make BPT more attractive.

Other than enerow points I’m wondering:

  • What is the reason to start with optimism (Aura is mainly present on mainnet)?
  • The $20k that the DAO will allocate for voting means purchasing $Aura and vote with them right? Do we have any OTC deal available if the liquidity is low? (specially that I didn’t find any pool on optimism, that means token will need to be bridge from mainnet)

Note: a similar proposal is currently on vote on Aave side

6

Hi Xutyr,

  1. We started on Optimism since there is currently an OP matching program active, making the direction more cost effective and enticing than mainnet. However, the Aura contributors are more than happy to expand this to other ecosystems!
  2. No, it would $20k allocated to meta-governance markets. The markets will lead to a premium on a cost basis. Once active and the POL is staked in Aura, the DAO can start to accumulate a vlAURA position that can be used to grow liquidity elsewhere.
  3. Due to the current framework for cross-chain on the Aura dApp, all AURA that is claimed is claimed on mainnet. However, all transactions will occur natively on Optimism. Aura contributors are exploring seeding a liquidity pool on Optimism but that shouldn’t be considered in the context of the above proposal.
1 Like
7

I’m having a few stupid questions here I’d like to clarify first, for me and other DAO users:

  • Will the locked LPs get same rights to participate in the Paraswap votes?
  • You’re talking about 10k $OP of incentives a week, but this doesn’t seem like sustainable incentivisation to me regarding the resources of the Paraswap DAO. Shouldn’t we start lower and increase if the results seem good?

Cheers,
Chab

8

@Bach the community can easily follow along on efficiency of rewards via Aura Analytics

Based on last round + the OP incentive program, efficiency numbers are at approximately $2 of emissions for every $1 provided.

Since the post has been up for a sufficient amount of time we propose to push this to snapshot. I was unaware that the preferred posting date is on Tuesday, apologies on that.

3 Likes
9

I don’t think we can vote yet without more discussions, still waiting for answers from my post please @0xYtocin and @agrosso can you give us more details and clarifications? Which are probably going to lead to more questions.

10

Your post has quite a lot of inputs, most of them requiring a separate proposal I think. The original intent is to compound the amount of AURA that is acquired by the DAO to use for future liquidity growth. The AURA that is acquired by the DAO will be from POL. All other users that provide liquidity will get all the rewards associated with the LP: AURA, BAL, and OP.

  • Returns on dollar invested can be tracked at Aura Analytics. You can add an additional 0.5 efficiency to that number based off of the OP program. Aura intends on generating a Dune dashboard to help track their OP program.
  • This must be decided by the multisig that controls the vlAURA
  • Same as above
  • Same as above
11

Quite the contrary, I think that this must be thought, discussed and decided now.

Apart from the maintenance part and who manages this, the big question is, do we compound forever the rewards with the only goal to just move the already existing POL on Beethoven X to AURA or do we distribute to the sePSP stakers and/or DAO and in what proportion.

Because if the only goal here is acquire AURA token and add another layer of security risk but without distributing anything to the DAO and/or the stakers, I don’t see why we should do it, you get my point here?

Please let me know if I miss anything here.

These questions were not directed at you but to the DAO members, I was also looking at getting insights and the vision from @0xYtocin and @agrosso, without much success at the moment it looks like.

5 Likes
12

I’m surprised to see the rush around the Aura subject when crucial questions are still pending.
I was on the lookout because Enerow’s questions were close to mine. But it seems that many of them are still unanswered.

I look forward to reading the answers.
Stikers

1 Like
13

Hi enerow,
I find your concerns regarding the management of emissions and the logistics of it very valid, but think that all of these questions fall within the DAO’s scope of decisions, such as the split of assets or how to manage them.

As @Figue stated above, we have the potential assistance of Paladin if we wish to use them to manage the emissions, which could be added through a follow-up proposal if this one passes. Alternatively, as @jeffery explained these actions seem to be easy to automate, so could be signed manually in the meantime.

Personally (speaking now as a DAO member) I find it strategically interesting to begin building vlAURA to provide a steady stream of emissions for stakers through gauges, while the BAL could be given to stakers, but that is entirely for the DAO to decide. It’s also worth noting that it might be best to begin accumulating these incentives while Aura is running their OP matching incentives, as that maximises the return for the DAO of the PSP being used for this proposal. This is probably why the proposal wants to be put to a vote now, but if the DAO thinks it’s not worth moving the discussion for later, it’s always possible to pause the publication of the vote until these next steps are cleared.

In summary, I think we can address the following steps for the proposal:

  • Assuming the proposal passes, a follow-up proposal could be drafted by DAO members deciding the next steps, such as incentives handling, potential automations or passing control over to GovCo. In the meantime, the wallet currently owning the PoL can begin the signings to expedite the emissions process. We can start by opening a research thread.
  • Until this next proposal is written, discussed and approved by the DAO, we can use the AURA for locking and directing incentives to maximise gauge emissions, and keep any other incentives received from this initiative as part of the DAO treasury

Let me know what you all think!

2 Likes
14

Good morning,
as it stands, the idea is to sell $PSP to get other tokens (OP/BAL/AURA) at a discount.
The strategy presented would be to lock up the AURAs to gain voting power and keep the OPs and BALs in treasury.

My questions in bulk:

  • Are we committed to a duration for these payments? Can we stop paying at any time? If so, shouldn’t we set a low ROI limit that would trigger the cessation of payments? (e.g after 1 or 2 voting cycle with less than 1.1 for 1).
  • Do we have any idea how our payments will evolve with the growth of our vlAURA? What target do we have for the quantity of AURA to be locked up?
  • The simplistic and short-termist choice would be to sell all the tokens earned to buy back $PSP with the discount. Is the DAO interested in diversifying its cash position? If so, for what purpose? To pay sePSP stakers? Lock up the DAO’s BALs (or $BAL swapped to AURA increasing the amount locked) to direct incentives to our pools?

I understand that some of the questions are directed at DAO members rather than AURA, but it’s important to have an idea of the direction we’d be taking to know if we want to go down that route. Even if the final decision on this direction would be taken in a later vote.

3 Likes
15

Do you think (your personal opinion) it’s better to maximize in the first weeks/month our vlAURA exposure to quickly gain a big voting power quicker, in that case we could convert all incentives in the direction until we meet a predetermined goal, and only then distribute part of the rewards to the stakers? If so, what could be the goal (vlAURA) and how long would it take to get it?

Why not going bigger than $10K/week at the beginning to take maximum advantage of the OP 1:0.5 match and lower afterward? If so, we should write down that schedule right now on that proposal.

A projecting table with all the data for the different scenarios would help a lot the DAO to choose.

I understand that this is a great opportunity for ParaSwap DAO and that we have to move quick but I also think we should come with the best optimized scenario right from the start.

1 Like
16

Really glad to see all this discussion around vote incentives on Aura and this many fair points.
We can help around automation if needed, but in general, the process is pretty straight forward, the only constraint are in efficiency management.

This is a great way to frame it. The way I see it, the goal would be to increase sePSP2 yield in such fashion that the potential price pressure would be totally offset by users coming in the system.

I’m in favour of selecting specific control parameters enabling us to to pause / stop the process if not necessary.

The efficiency rate is reflexive of how crowded the incentives will be for Balancer OP gauges. The higher it is, the more we dilute it. This means these strategy are capped at a certain amount of incentives.

17

In addition we could also buyback PSP with the part of the rewards that belongs to the sePSP Stakers and distribute in sePSP1 to mitigate the price pressure even more what do you think?

2 Likes
18

That’s actually a pretty powerful atlernative, would just need to scope the work needed to make it happen.
Another method I liked a lot is Maker buying back, pairing and burning the LP, thus growing liquidity. Not sure if Paraswap needs more liquidity, but always good to see what others do: makerburn.com

19

Another question/idea for you, we have about $200K in $ARB token sleeping doing nothing, If I’m not mistaken there is no specific guideline on how we have to use the ARB airdrop.

Wouldn’t it be better to use it to bootstrap the vlAURA voting power instead of burning 500 000 PSP/week (at today price), what do you think?

source : https://arbiscan.io/address/0xfe98240ddAEDF78E278C28F1EdD690ee1a774e66

4 Likes
20

I support @enerow idea, I think it’s a good idea to use a part of $ARB token for that.

2 Likes