👻Aave: Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield
Voting Recommendation by (Discord: Raho#0007)
Summary:
This proposal is a multi-step strategical proposal, that will (in theory) allow the Aave DAO’s treasury to generate increased revenue.
Aave Reserve Factors:
Aave’s reserve factors allocate a share of the ‘protocols interests’ and is made up of multiple assets. Typically, the reserve factors are used to sustain the DAO, as well as paying contributors to the protocol. At the time of the proposals writing, these reserve factors held over $28M.
Proposal:
This proposal involves pretty complex defi strategies, and multiple steps.
Step one: Combine the reserve factors from Aave V1, Aave V2, and Aave AMM.
Aave V1 is still being used, but the usage seems to be declining. With only $219M TVL on Aave V1, and future decline in usage anticipated (due to migration to Aave V2/Aave AMM), this proposal would combine the three reserves into one central reserve. At the time of this proposals writing - the Aave v1 reserve held a little over $820K, while Aave V2 and Aave AMM reserve held around $27.45M. Step Two: Retain TVL and increase returns.
TLDR: This proposal states that - While holding aTokens (tokens received after funds are deposited into Aave - these tokens earn interest) is one of the lowest risk yield strategies in all of defi, but that the reserve assets that are not aTokens could be more productive (by ‘buying Convex’ and ‘deploying to earn yield’).
Convex:
Convex is a protocol that allows users to deposit their Curve LP tokens, and receive rewards paid in CRV, Boosted CRV, and Convex’s native token CVX. Convex is a part of the ongoing ‘curve-wars’ which see many protocols attempting to accumulate CRV in an effort to have more say in Curve governance.
Strategy:
By depositing aTokens into Curve, the DAO would be able to earn interest on these tokens for the treasury.
After deposited, the treasury would be given Curve Liquidity Pool tokens, which essentially act as a proof of deposit, and can be redeemed at any time for the original amount of tokens deposited.
After receiving Curve LP tokens, these LP tokens can be deposited into Convex, which would earn additional APY (around 48% after locked int cvxCRV). Specifications:
This proposal proposes diversifying around 96% ($26.67M) of the combined treasury balance ($28.27M), across three positions (Curve, Convex, and Balancer).
Full details on the exact implementations of these strategies can be found here:https://governance.aave.com/t/arc-consolidate-aave-v1-v2-amm-reserve-factors-purchase-cvx-and-deploy-to-earn-yield/6797
Recommendation:
I recommend that the Rabbithole Metagovernance voting pod vote ‘No’ to this. While it may be an appealing proposal (due to high variable interest rates), I feel like it comes with additional risks that would put 96% of Aave’s Reserve Factors at risk. I personally believe that the capital requested is incredibly way too much. Also, these funds could be used for other purposes within the DAO that may bring value, even if it is not monetary value. I also could not find a Rabbithole value that this aligned well with, which is another reason for my decision to recommend voting no
Open Questions:
Feedback:
There’s a couple elements on the actual strategies id need to dig into further, but I think the high level question is what is the purpose of “reserves.” I feel like the original framing was reserves are a buffer against unexpected protocol shortfalls. In reality (particularly for AAVE which has the safety module), reserves are just protocol revenue that sits dormant. Fwiw, Compound is also entertaining a proposal to start to use reserve funds to pay for development, and I think the idea of using these funds is worthwhile. So high level I’m in favor, not sure if I’d vote for the specific implementation without digging in further.
I agree mostly though, but requesting 96% of the reserves is a big ask
Some of those strategies seem pretty far out on the risk and illiquidity spectrum.
fwiw, my biggest concern is the 96% allocation. seems the reason for doing that is to be able to meet minimum amount of CVX required to be impactful. While i think treasuries being put to more active use will be a big trend over the next few years, I'd like to see a smaller portion of the treasury allocated as a first foray into active management of reserves
The amount requested was a huge factor in my decision
It's also unclear to me how this would be implemented practically, I'm not as familiar with Aave governance. Is there a multi-sig that would direct the funds from the reserves to the strategies?
Just voted no on all wallets. The lack of any metagov strategy is a long-tail risk IMO, but this idea is frankly reckless and hair-brained. They also have no plan to coordinate metagovernance decision-making efforts, which creates vulnerability to abuse (read: Governance Attacks). Seems too risky and highly sus.
Execution Status: Executed
Vote: No
Community vote
23 Y
2 N
Pod vote
1 Y
16 N
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