Addressing the current issues regarding AuraBal
Hi everyone, There has been some discussion in the Discord, and I thought it would be a good thing to start a thread here to better keep track of the ideas and the different points made. As most of you may already know, AuraBal, Aura’s liquid wrapper of the BAL token, has been off-peg for quite some time, meaning a slower AuraBal accumulation and stagnation of Aura’s dominance.
Solutions to regain the peg
There has been already a few ideas that emerged. Regarding the peg:
- @Solarcurve proposed to redirect more AuraBal farmed to AuraBal stackers to increase the incentives.
- @Tritium proposed a buyback mechanism: “If AuraBAL is more than 2.5% off Peg (Or some other number) then all BAL earned by the farms should be used to purchase auraBAL on the open market and this auraBAL should be paid out as a reward instead of BAL. If AuraBAL is not off peg, emit nakid BAL so there is some exit potential“
How about solving the underlying problem?
Currently, we’re giving a lot of $Aura to acquire Bal. At the rate of 3 Aura/Bal farmed, 25% fees, 1.5$/Aura, this means that 3.6 Aura gets us 0.25 BAL. In dollar terms, to get 1$ of BAL, we pay 4$ of Aura. This is not sustainable, and poor financial management for the DAO. Getting more TVL through bizdev, while good, won’t solve this race to the bottom for Aura.
Given that the yield boost provided by Aura is still substantial (+75% of the initial yield at the time of writing, fees included), I believe an alternative (but not excluding) solution could be to further increase the fees taken.
Having 2x the fees (so 50% fee on the $BAL yield) would give us much more breathing room, and wouldn’t affect the yield LPs get: the boost would be of 50% (instead of 75% before). So, an LP getting a yield of 17.5% on Aura, and 10% on Balancer would see it reduced to 15% on Aura. Given the current general yield environment for Defi, it won’t reduce drastically Aura’s attractiveness.
Other players allow users to farm through their liquid lockers (StakeDAO and Tetu). Right now Aura is competitive regarding their proposal, mainly because they have very low TVL, which maxes their Bal boost. However, this won’t last is they get liquidity, and they don’t distribute incentives as high as Aura, so we have maneuvering room for the moment.
We can then use the fees collected to apply the solutions proposed by Solarcurve or Tritium.