[Proposal] Strategic Partnership with Aave DAO

Governance General Proposal
1

title: [Proposal] Strategic Partnership with Aave DAO
status: Proposed
author: Llama Community - @MatthewGraham
created: 20-04-2022

Simple Summary

Aave DAO would like to present the Balancer community the opportunity to swap 200,000 BAL for AAVE. The price is to be determined by the 90-day moving average when an AIP is presented for voting via Aave’s governance process, [1].

Abstract

With a successful Balancer Snapshot vote, an AIP will be presented for the Aave community to vote on. If passed, the contracts will be deployed enabling 200,000 BAL tokens to be deposited and the AAVE held within withdrawn. After the tokens are withdrawn, each community is able to use the newly acquired tokens without restriction.

Aave intends to deposit BAL, with matching ETH, into the 80/20 BAL/ETH pool and then deposit the receipt token into the vested escrow contract, locking them for 1 year. The veBAL voting influence is to be used for directing BAL incentives to liquidity pools that create TVL or provide a backstop for Aave markets, [2].

A separate forum post will emerge requesting the Aave Reserve Factor address be added to the Voting Escrow contract whitelist.

Motivation

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 drives TVL to Aave V2 market, [3]. In time, Aave intends to upgrade the Safety Module from 80/20 AAVE/ETH pool on Balancer V2. There are many more opportunities for both communities to work together and a tokenswap only further strengthens this relationship.

Aave’s veBAL voting influence 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, [4]. 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. Bootstrapping these pools benefits both communities and only strengthens the already strong relationship.

By exchanging AAVE for BAL, the tokenswap reflects the ongoing collaboration and shared vision through governance in each other’s community. Using data from Etherscan, the tokenswap is significant enough for Aave to become just outside of the Top 50 BAL tokens holder and for Balancer to become a Top 80 AAVE holder, [5,6]. Both communities will have influence in the other’s governance process and be aligned through ownership to collaborate in growing the adoption of both protocols.

The initial sizing of 200,000 BAL was reached by attaining input from some members of the Balancer community. The tokenswap is also the same size as the recent Tribe DAO and Balancer DAO token swap, [7]. In addition to the tokenswap outlined here, the Aave community is also considering purchasing an additional 100,000 BAL via a bonding curve on market, [8]. This is a separate proposal and is still in the discussion phase on Aave’s governance forum.

Implementation

The tokenswap is to be performed by both Balancer and Aave by depositing tokens into a contract like how Tribe DAO swapped TRIBE for INDEX, [9].

Upon withdrawing AAVE from the contract, the Balancer community can deploy the holding without restriction from this proposal.

Both organisations can at any moment terminate the agreement through their respective governance systems.

References:

[1] ARC - Strategic Partnership with Balancer Part #1 - General - Aave
[2] Introducing veBAL tokenomics
[3] Pool management - Balancer
[4] Balancer
[5] $15.79 | Balancer (BAL) Token Tracker | Etherscan
[6] $186.13 | Aave Token (AAVE) Token Tracker | Etherscan
[7] FIP-90: Fuse-boosted USD Balancer pool (bb-f-usd) - Proposals - Tribe
[8] ARC - Strategic Partnership with Balancer Part #2 - Governance - Aave
[9] https://app.aave.com/reserve-overview/?underlyingAsset=0xae7ab96520de3a18e5e111b5eaab095312d7fe84&marketName=proto_mainnet

Copyright

Copyright and related rights waived via CC0.

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While I do think this proposal is a net benefit to both BAL and AAVE, as well as having strong ‘launch’ partners utilizing the new gauge system and increasing liquidity. Continuous treasury swaps with protocols is not optimal, especially in the case where the counterparty to BAL gets a token that ultimately controls the emissions and receives protocol fees, while BAL simply receives a governance token with very limited utility/ benefit. It also begins to create an extremely high barrier to entry for smaller participants as they typically have to acquire these tokens on secondary markets and don’t have the luxury of a treasury swap.

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Balancer & Aave Partnership Agreement

Authors: @Matthew_Graham (Llama) & @LuukDAO (Balancer)

Between BalancerDAO & Aave DAO

This partnership agreement comes into effect on the th of April 2022, by and between:

BalancerDAO, a DAO governing the Balancer Protocol, automated portfolio manager, and trading platform, governed through the Balancer Snapshot following the Balancer Governance Process.

and

Aave, a decentralized non-custodial liquidity protocol where users can participate as depositors or borrowers, governed through the Aave Governance following the Aave governance framework.

Partnership Purpose

The partnership aims to align the interest of the parties to intensify the collaboration between both organizations.

Background on the Partnership

BalancerDAO & Aave have a long collaboration history.

Some of the most noteworthy collaborations include

  • The AAVE risk module using BPT tokens instead of plain AAVE
  • Balancer Boosted pools using linear pools with aTokens (aUSDC, aDAI, aUSDT)

Commitment of the Organizations

Both parties agreed that they intend to contribute the following towards this partnership:

Marketing

To ensure both entities will profit from each other’s reach and marketing or sales activities, we will do co-branded communication & services where useful.

  1. Token Transaction

To align governance interests, a Token Swap between the two organizations is initiated as part of this agreement.

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.

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Source: Calculation

Management of the Partnership

Partnership Term

The Partnership is open-ended and does not have an expiry date.

Partnership Governance

The partnership is supported by representatives of the organizations directed by the respective governance processes of the organizations. The representatives are just to participate in coordination events, but do not carry any legal power or responsibility regarding the DAOs.

Exit Clause

Both organizations can at any moment terminate the agreement through their respective governance systems.

Communications around the Partnership

  • A Partnership announcement blog will be published within a few days of when the AIP is implemented and the token swap occurs. .

  • To ensure operational effectiveness, a monthly call will be set up with at least one representative of each entity

Both DAOs acknowledge that DAO agreements are inherently unpredictable and irreversible and agree to this initial partnership agreement.

Screenshot 2022-04-23 at 14.02.10
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The above has been shared on Aave’s Governance forum, link here.

Supporting snapshot vote can be found here.

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I strongly agree with this. AAVE would be able to use the BAL to direct emissions and extract a lot more value from the protocol than we would be able to with AAVE tokens. It seems like a very lopsided deal if there are no restrictions on what AAVE can do with the BAL.

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it is clearly a good deal for them due to utility of veBAL. Main thing we gain is some exposure to AAVE token which is nice but not very meaningful. Of course one could have made the same argument for prime dao swap, gnosis swap, tribe swap (MTA at least we can vote on MTA emissions). All those passed pretty easily.

veBAL does change the equation but change it enough to reject this deal?

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I think veBAL changes things a lot, especially with a 20 year emission schedule. These treasury swaps should have more consideration go into them, with a baseline benefit cost analysis. In my eyes, AAVE should just offer a bonds system where the public can swap BPT/ BAL for AAVE (I understand there is a proposal for this but why only offer 100K? Because they know its beneficial to do a treasury swap with 200k). I understand it is nice to gain exposure to AAVE but, if we really wanted exposure we can simply start acquiring it through protocol revenue and treasury operations. I think we should vote against this current proposal until more thought has gone in it from both the proposer and the team at Balancer. What are we really getting out of this?

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I agree, he hasn’t even bothered to reply either lol.

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I think those are in the past, not much we can do about it know. Probably a mistake on the community/ team’s part. Can only learn and mdove forward, this ‘protocol alignment’ bs that is spun up everywhere has no merit unless there is clear defined partnership where both protocols are rewarded fairly equally by social and private benefits. Glad to seem some discussion, I thought this thread was going to go dead :slight_smile:

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it’ll still go to a vote I’m sure. token holders will decide, we see :slight_smile:

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I think this specific point has been covered ad nauseam at this point, however the environment under which the previous treasury swaps took place was very different from today. Back then the DAO was trying to build strong partnerships with other protocols by locking into a mutually beneficial deal which was only appreciation in each others token prices and using the treasury swaps as a signal that the two protocols hoped to work together on projects on a go-forward basis. As mentioned veBAL and the ability to lock BAL now adds an additional layer to be considered that didn’t exist before.

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I agree with the sentiment above. Holding AAVE brings us little other than a top 80 say in their DAO, which is certainly not to be scoffed at, but given the arrival of veBAL this is not a like-for-like agreement anymore.

I think this needs a lot more consideration. As a product, Balancer appears to be approaching it’s stride now, I certainly support ever-improved integration & partnership with AAVE, but this proposal looks like too much of a concession to me, one that Balancer certainly does not need to consider at this stage.

The deepest liquidity provision has been the stated aim of Balancer for as far back as I can tell, veBAL has finally implemented a mechanic for those who have LP’d for years and HODL’d those sweet BAL tokens to generate real protocol emissions. Loyalty like this is something that should be considered.

Presently it looks to me like AAVE get to trade a rather unimpressive Governance Token that’s used to fund it’s own insurance policy for one that generates real revenues, partially in USD, as I understand. Again, put bluntly, not like-for-like.

I’m not necessarily asking for a like-for-like agreement, but there certainly needs to be more on offer from AAVE’s side for me to consider voting Yes on this.

  • What do we gain from holding a top 80 voting position in AAVE?
    → If Balancer & AAVE are committed to cooperation, why do they need a say in each other’s DAOs?

  • How does Balancer’s AAVE vote get handled?
    → Do we have to Snapshot every Balancer: AAVE Gov vote that comes along?
    → It’s not a lot of vote weighting for a whole lot of additional Community consideration / work

  • It largely seems like a way for AAVE to generate more fees and draw BAL distribution away from other tokens that may be better reserved for smaller projects that wish to use Balancer as a launch pad.

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Hi everyone,

Thank you so much for all the feedback and discussion on the proposal.

I’m going to prepare a response that address the concerns raised here. Sharing some insight into the future of the relationship is a good idea. Hopefully I have a response on the forum soon.

In the mean time, please do continue the discussion. I am actively following along. :slight_smile:

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  • How does Balancer’s AAVE vote get handled?
    → Do we have to Snapshot every Balancer: AAVE Gov vote that comes along?
    → It’s not a lot of vote weighting for a whole lot of additional Community consideration / work

It would almost certainly be delegated to the Ballers, like Tribe and MTA voting power is. But we have not voted a single time with those tokens. A vote that we actually care about that happens to be contentious is a very unlikely situation. Doesn’t hurt to have the voting power of course but not on the same level as being able to direct token emissions.

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Hello everyone :wave:

Thank you for taking the time to comment and provide feedback on the forum.

In response, after discussing with various people, I would like to provide some insights into the future of the Aave and Balancer relationship. The Balance V2 BPTs can be integrated as collateral into the Aave markets, but more exciting there is the multichain future ahead of us and the new Aave tokenomics.

The potential for integrating various BPT into the Aave markets is significant for both communities. The Aave and Balancer teams are working together to enable Balancer Protocol Tokens (BPT) to be used as collateral, with the full support of boosting and automatic locking of BAL/AURA tokens. This new type of collateral on Aave and new use case for BPT shares, is expected to unlock Billions in Total Vale Locked (TVL) for both communities. By having an AAVE holding, the Balancer community is better placed to manage the risks and asset configurations of the newly listed collateral type. Management of this new type of collateral falls outside the current relationship with Gauntlet.

There is an opportunity for both communities to work together on multiple networks. With the multichain deployment of both Balancer and Aave V3 there are many strategies that can be employed to ensure an healthy growth of both Aave and Balancer. One of which is bringing boosted pools to other networks, that would be even more beneficial than on ethereum, as most of the other networks where Aave V3 is deployed don’t suffer from high transaction costs.

During the discussion on the Aave governance forum, the original proposal evolved from just depositing BAL into the b-80BAL-20WETH pool to where Aave also provides sufficient WETH when depositing into the b-80BAL-20WETH pool and locking for one year duration. This represents an increase in the initial capital outlay. It is also noted that Aave DAO is also considering an additional on-market purchase of BAL to accompany this tokenswap. However, this is still subject to discussion, snapshot and its own AIP proposal should the snapshot be well supported.

The new Aave tokenomics design is currently still in the ideation phase and yet to make its way onto the Aave DAO’s governance forum. It is reasonably fair to expect that AAVE holders will gain more influence via the new tokenomics model than what is currently available to AAVE and stkAAVE holders. The discussion around tokenomics is still very early, it is hard to say what will emerge from the discussion, but looking around DeFi there has been various models which involve directing incentives to promote growth. It may be worth noting that Aave’s Liquidity Mining emissions are coming to an end, which creates the opportunity to move towards a new model.

Having provided some insight into the future of the Balancer and Aave relationship, I would again like to thank everyone for reading, commenting and being active in the conversation relating to this proposal. There is a lot to be excited about when it comes to the future of these two fantastic communities.

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Hi Matthew,

Appreciate the response. I would say I’m definitely more receptive to the idea given your mentioned future plans, I just hope it comes to fruition!

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Thanks for the detailed update @Matthew_Graham! Having worked for a long time with the AAVE core team and community and can’t help but say this is a very promising proposal for both AAVE and Balancer.

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@Matthew_Graham, curious to hear your own honest thoughts as a BAL holder (hope you are one).

Do you think it’s long terms sustainable for Balancer to do sizable treasury swap with every partner that does an integration? Mind you:

  • Balancer is a D2D platform, the only users are other DAOs that do these type of integrations
  • Assumption behind the veBAL system is that at some point, some of these integrating DAOs would purchase off of the market

For clarifications, I’m not necessarily against this TS or categorically against TSs. But, there are some valid concerns around the sustainability and criteria for TSs and I want to hear what @Matthew_Graham, as a BAL holder thinks about these concerns.

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Thanks everyone for your comments.

Sufficient debate has happened around this topic.

Eventually this decision stands in the hand of BAL token holders as anything else.

I propose to bring this proposal to a snapshot vote at the earlier occasion.

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Thanks, @Matthew_Graham, for the detailed input and the BAL community for sharing your perspective.

Good points for and against this Strategic Partnership have been brought up. Overall there seems to be support for a Strategic Partnership between BAL and AAVE - with the main concern being the potential undervaluation of the BAL token given the recent veBAL changes and the productivity that comes with it. A market buy of 100,000 BAL by AAVE will be proposed to increase the commitment from AAVE to Balancer and bring value to the BAL economy.

Swap Methodology
The proposed swap methodology of a 90-day moving average taken when an AIP is presented for voting via Aave’s governance seems to be a correct and fair methodology.

At today’s exchange rate: 1 AAVE = 11.1 BAL
At 30d moving average: 1 AAVE = 11.7 BAL
At 90d moving average: 1 AAVE = 11.2 BAL

The 90d moving average seems to reflect the asset value overtime correctly.

I agree with @Andrea81 and propose moving this vote to snapshot and having the veBAL holders decide.

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https://snapshot.org/#/balancer.eth/proposal/0xcfc6a0a2ecb9bf8a3cb0ed7a2617093b0aba14a4a43f81044dc726ce040cb07f

1 Like