Authors: Small Cap Scientist, Tritium (BadgerDAO)
Aura’s initial liquidity bootstrapping pool (LBP) raised 1,078 ETH, approximately $1.3 million at the pool’s closing. Initial funds were used to repay operational loans (audits, contract deployment costs, etc.) made by contributors, fund a protocol-owned liquidity pool, and for a bounty program with ImmuneFi. To increase the security budget, compensate contributors and to fund operational expenses, the Aura treasury should diversify further into reserve assets through the distribution of AURA left over from the airdrop.
Poor Launch Conditions
Aura’s initial LBP took place right in the midst of the worst market conditions seen since at least May 2021. Most projects looking to launch tokens during this time delayed deployment. YGG SEA, a branch of Yield Guild, delayed its LBP after 20 hours of trading. During a time in which ETH dropped 38%, Aura raised 1,078 ETH, worth approximately $1.3 million when the LBP closed.
Liabilities in the form of loans made by contributors pre-LBP, combined with the use of raised ETH in a protocol-owned Balancer 80/20 AURA/ETH pool, has brought the treasury down to 322 ETH, worth $370,000, along with 22,000 BAL.
With Aura’s current ImmuneFi max bounty of $400,000, at least $200,000 will be paid out in stables, that means the treasury really only has $170,000 of reserve assets for all expenses. This assumes the treasury only needs to earmark bounty funds for one maximum-severity bug.
Another issue currently facing the Aura community is the lack of liquid AURA in the market. AURA’s main source of liquidity right now is the aforementioned 80/20 AURA/ETH pool on Balancer. Due to it being an 80/20 pool, trading with size becomes difficult. As this is being written, purchasing 1% of the circulating supply ($170,000 worth of AURA) has a 9% price impact.
With only ~1,000,000 AURA of the 2,500,000 AURA earmarked for airdrop recipients claimed, ~3,685,000 AURA locked, and another ~1,600,000 AURA in the Balancer pool, there is little AURA left circulating.
The introduction of the 50/50 AURA/ETH gauge on Balancer may cause liquidity to get further squeezed as large amounts of BAL and AURA emissions are routed to liquidity providers, incentivizing buying in the low-liquidity market.
In speaking with a number of DAOs and investors, an oft-mentioned issue is the lack of market depth needed to scale into AURA and participate meaningfully in the ecosystem by vote-locking or providing liquidity. For AURA to succeed in the long run, it is important that a healthy competitive dynamic to accumulate it develops, similar to how Convex succeeded due to the “Curve Wars” between players like Frax, Badger, and Terra. There should be a way for DAOs that are looking to make a foray into Aura to begin to dip their toe into the ecosystem without causing an outsized, unsustainable impact on price action.
Aura’s operation will continue to incur costs, including but not limited to regular security audits, contributor compensation, legal expenses, and the expansion of the bug bounty to match that of other top-tier protocols.
$170,000 in liquid capital is simply not enough nor sustainable for to operate, even discounting contributor compensation.
Aura should seek to at minimum increase its bug bounty and maintain a buffer for future legal and audit costs. Say Aura raises its bug bounty to $1,000,000 (in line with protocols like SushiSwap, THORChain, Euler, and LooksRare) and needs at minimum $500,000 in assorted operational expenses for the next two years, that will require accumulating an additional $1,330,000 in reserve assets. Under these assumptions, Aura currently only has ~11% of the capital it needs to operate with the aforementioned needs (which are likely an underestimate of true needs).
Aura’s treasury should allocate 350,000 AURA from the ~1,500,000 AURA left in the airdrop distributor (initially held 2,500,000 AURA) to a set of three sell limit orders on CowSwap at 5% above, 10% above, and 15% above the market price at the time of their creation, with a lower floor of $2.50 for the orders.
To visualize this, let’s lay out how the orders will look if the proposal is executed when AURA is $3.00.
The limit orders will be reset once per week in accordance with the rules until they are filled.
The limit orders ensure that if the market has no appetite for this additional supply at the moment, there won’t be any impact on the underlying market. Users can trade directly on Balancer, with gas-less fee trading enabled, to interface with these limit orders as Balancer supports CowSwap.
To accomplish this, the treasury multisig will execute a script provided by CowSwap that will allow for the execution of AURA distribution for USDC directly from the multisig setup.
Because AURA’s liquid supply is set to increase with this distribution, further discussions should begin regarding maintaining liquidity in the AURA/ETH pair beyond purely veBAL vote share, and thus BAL emissions. AURA/ETH’s share of vlAURA votes may decrease over time since competition for vlAURA voting power is rapidly increasing. This is due to: 1) the passing of the Balancer Core Pools proposal; 2) the development of a bribing ecosystem; and 3), the accumulation of AURA by actors aligned with DAOs seeking liquidity.
A potential solution to this solution long term may be to allocate more of the leftover AURA from the launch airdrop to Hidden Hand bribes for AURA/ETH, as bribing efficiency is extremely high right now as per Alunara’s dashboard. Additional AURA can be dripped out to the market to greatly magnify yields and encourage as much liquidity as possible to move into LP.
This will be left in “temperature check” to receive some community feedback, then brought into formal AIP status, and left up for at least three days before moving to Snapshot for next Thursday’s voting cycle.
We appreciate and encourage an open discussion on the subject should there be any qualms or questions.
This vote will be a single-choice vote. You may vote “For” or “Against” this proposal, or choose to abstain from the vote. By voting “For” this proposal, you are voting in favor of the reallocation of AURA in accordance with the specification set out in this proposal.