[AIP-3] Increasing AURA Float and Liquidity, while Building DAO Runway

Proposals
1

Authors: Small Cap Scientist, Tritium (BadgerDAO)

Summary

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.

Background

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.

Liquidity Crisis

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.

Treasury Needs

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).

Terms

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.

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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.

Additional Discussion

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.

Voting

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.

10 Likes
2

I think a better approach here is to simply do another LBP or perhaps series of LBP’s. This would immediately add more AURA liquidity on-chain, guarantee the sale of AURA for stables in any market conditions, and you’d spread the selling out over the duration of the LBP.

For example, instead of three limit orders simply do three LBP’s for 116,667 AURA each. Duration is 30 days per LBP. If AURA moons to $5+ this approach leads to way more USDC collected. If AURA collapses to sub $2.50 (below the floor price) you’re still selling for USDC, compared to these limit orders which may not fill for months in a bearish scenario. Team still needs operating expenses even if price stays below the floor for the rest of the year. Finally, this proposal only adds to on-chain liquidity if these orders are hit. LBP would immediately add on-chain liquidity no matter what the price was at.

Both approaches certainly have their advantages or disadvantages. On balance I think an LBP makes a lot more sense but that is a subjective opinion to be fair. I’d vote in favor of this as written though - better than doing nothing.

5 Likes
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Posted this in the discord, but worth sharing here as well.

I tend to agree, and think conceptually this is a good move. But it seems like it’s giving DAOs an advantage in accumulating Aura by allowing them to sidestep the market at the expense of the early Aura lockers. Effectively the “problem” seems to be that there isn’t enough liquidity which is due to early buyers/lockers following the guidance/incentives designed around launch. I understand making some concessions to allow DAOs to participate and accumulate is a good move and will raise funds for the project, but maybe including matching concessions to early lockers would make this a win/win both for current and prospective stakeholders in the Aura ecosystem.

Basically, early lockers shouldn’t be “diluted” because the encouraged locking activity has resulted in low liquidity. Allowing the limit sales makes sense, but also distributing more Aura to lockers simultaneously would counteract the dilution while increasing float. I think this would make all parties happy while solving the underlying issues that need a solution.

1 Like
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The community would also have access to purchase if they chose to do so at the same exact rate as the DAO’s. In my opinion, individual investors have had a massive advantage over DAO’s early on to accumulate due to low liquidity.

These tokens were part of the airdrop and meant to be in circulation. This is taking tokens that should have been distributed anyway, repurposing to allow anyone to buy into liquidity (DAOs included), and helping the team secure the future funding they need to concentrate on the project/community. I think this also gives all DAO’s who are competing to enter AURA an equal opportunity to accumulate at the same time/price.

1 Like
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Is there a way with a LBP to ensure that AURA is not sold below a specific price? IN thinking about this from a HODLer point of view, I think it’s nice to try to not sell tokens in a way that pushes the price below that which most people have entered.

This achieves this. IMO a 3 dollar min floor would be better, but I think 2.50 is fine and we’ll end up selling most of the tokens for more than 3 anyway.

IF there are leftover tokens or this doesn’t work, an LBP could be interesting. Also if it can respect a limit.

AURA should just take the money it needs in the short term now, and wait for a not-so-bearish scenario to raise long term capital.

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I kind of agree more AURA should go to lockers. I think it makes more sense to focus on paying more BRIBs to aura lockers though in AIP-2. Just giving more AURA out for free isn’t the goal here. The goal is to raise some capital for the DAO after a LBP that ended up happening at the worst possible time, and create float in the market.

It is structured to ensure AURA is not sold at a low price, and that the event doesn’t push the market price below what almost anyone bought at, as long as it happens soon.

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LBP cannot respect a limit, no. if that’s a deal breaker then LBP won’t work.

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Voting YES for this proposal would align greatly with sound business principals - one of the most important being that a secure runway allows for long term sustainability and a focus on building rather than surviving.

I want this team focused on creating value not where their next contribution will come from. These are humans and deserve some certainty in building.

4 Likes
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Couldn’t we also use a bonding program to achieve the same objective?

Personally, I think a bonding program gives much better optics. It also allows more of a “slow drip” rather than being perceived as dumping on current aura holders/participants. Building/diversifying the treasury this way makes the most sense.

I will vote “no” to a limit sell order or another LBP.

4 Likes
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The current assumption here is that there’s a large untapped market that can’t accumulate AURA due to low liquidity, and these limits orders will be quickly eaten up by hungry whales that can’t wait to buy in. However, it could conversely be argued that the current price action is due in part to low liquidity, and that the true price of AURA, given sufficient liquidity, where real demand is, is something far below current price. The market might also nuke again tomorrow, all demand everywhere evaporates, in which case these sell walls may then up being true walls, suppressing price while never being touched. And if they aren’t hit, then you end up with the same liquidity and expense issues as before.

Market forces are pretty hard to model, and it’s generally not a great idea to mess with price discovery. The pricing of the limit orders may also signal to the market that we believe X to be a fair price for AURA, whether that’s true or not, and cause price to be rangebound in that area for some time.

If immediate cash in hand is the goal, you can just sell at the current market price, rather than at some sort of upper cap. However, tanking the market with a large sale isn’t ideal either, of course. I personally think it’s much cleaner to have a gradual sell program, where X number of tokens are sold continuously, at market price, at known dates and times. Or alternatively, grant these tokens to certain departments, X for engineering, X for BD, etc., and sell as needed, at market price, once the expenses are incurred, similar to what we’ve been doing for AIP-1.

While the ideal solution would optimize for both liquidity and value, the two goals may not necessarily be complementary. In my opinion, liquidity doesn’t need to be rushed. There’s no guarantee that more tokens on markets released in one block will improve liquidity. One whale might just accumulate the entire limit order and sit on it. I believe liquidity will naturally improve over time, through emissions programs, sales, or otherwise. And early AURA believers will be the beneficiaries of this.

All that being said, haha, I’m still in favor of the proposal even if it stands as is. It’s simply better than doing nothing, and I don’t see any other proposals upcoming that are tackling this issue.

3 Likes
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In terms of the Additional Discussion and general thoughts on all of this:

I don’t think AURA should bribe a LOT more until the yields go down.

I like the idea of flushing this 500k out to increase liquidity, but I don’t think 100% yields on aura token LP in the long run are sustainable, so I suggest not spending more of the stash on bribs until the liquidity on the market allows for decent yields with current bribing after AIP-2.

The market may not just be able to expand that fast due to current conditions. Taking it slow is good.

This allows tokens to get out on the market without putting significant downward price pressure on the token.

It allows new DAOs and whales to buy into AURA at steady price that at least in the first limit order seems reasonably SAFUesque-kinda-for-something-like this.

I don’t think we should get deep into allocating the rest of the tokens until this is done and we see where the market is at.

If AURA/ETH or AURA/BAL LP has under like 50-60% ROI while everything else is yielding a lot then I support quickly allocating more to bribs.

Especially if this gauge gets killed, let’s not be like the cream whale and also generate super high emissions on our token that is very hard for others to buy and farm without massive slippage and high fees.

Everything must be in balance for this to become sustainable, and our economic policy with free tokens should seek to help it move in that direction, not to create a bubble in a bear market.

Also remember that in about 2-3 months all the airdrop AURA unlocks. This will create a flush of liquidity that needs somewhere to go or risk being dumped, it would be good to amp up bribes and turn on the tap then.

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I think this proposal couldn’t come fast enough - it’s clear we have a liquidity issue. Without deep enough liquidity, DAOs can’t acquire Aura and price is crazy volatile. That said as a long term hodler am less worried about immediate price and more focused on getting Aura into DAOs hands that want it

That said I second doing an LBP so we get immediate liquidity + can sell Aura whether price goes up or down. Given how thin liquidity is and this crazy market, I wouldn’t be surprised if it moon’s to like $5 or potentially lower than $2.50. Even at $2.5, I would argue getting liquidity out there is worth the “dilution” at that price.

Who knows if something super bearish happens and we’re trading at $1.50 for 6+ months. We’re kind of screwed if the market turns for the worse again with no liquidity and limited runway. That said, I bet an LBP yields a better price than setting limit orders bc there’s a bunch of DAOs who should buy that can’t do that right now.

Also agree on allocating some of the airdropped AURA to hidden hand to bribe the 50/50 AURA /ETH LP.

If proposal went up as drafted, I would vote yes

3 Likes
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Olympus Pro currently isn’t available due to the move to deploy the product as a separate protocol, so this is an interim solution as OP gets up and running.

OHM is also one of the protocols that we would like to partner with that the community had mixed opinions on OTC deals. This should help combat some of those issues.

Relevant -Snapshot

2 Likes
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why dont we put those AURA to incentive to the 50:50 AURA/ETH pool!? First it helps increase interest for buyers also it could help for increasing liquidity! Secondly it sounds more fair than hold a sale to DAO’s who wanna join us! If they want, why dont buy eariler? or just constantly accumulate now in small portions? Why do they have a right to buy now in discount + seeing the thing more clearly than earlier supporters?

Since currently many people are just looking for quick liquidity, any big allocations will just end up getting dumped fast on people that have accumulated AURA slowly, and are long term supporting it.

The low supply is exactly what a protocol with such high emissions needs, DAO’s that accumulate slowly and farm can be sure the total circulating supply never suddenly increases by 90%

if more supply is so dearly needed, we should still only increase it by a small amount through an LBP for example.

Aura doing exactly what was intended and thats a good thing. i fear some DAOs are just trying to get huge discounts for quick liquidity. what ensures that they will continue help the price increase, and not mass dumping their holdings for a short profit?

1 Like
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Great Proposal @SmallCapScience

I think the use of limit orders are neat and there is definitely a need for more liquidity & runway.

:white_check_mark: in favour

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I agree with a few of the points made here.

Really, it doesn’t make sense at this time to manipulate liquidity and put more $aura into the market artificially. These things are meant to simply build over time as aura is farmed/earned via bribes etc.

If a DAO wants to acquire aura they can bribe for our votes.

I understand the concern but I believe many of us have been in defi a long time. Doesn’t make sense for us to do something like this, so early.

Use the left over aura to begin a bonding program when the time comes.

1 Like
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https://vote.aura.finance/#/proposal/0x73b7f718424804e60e193df665de30a16026f315756dd7c687305a34edb5835e

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The Treasury multisig has opened the limit orders for the diversification, with the following details:

116,667 at $3.265, 116,667 at $3.421, and 116,666 at $3.576, for a total of $1,197,348 in USDC. This is based on a snapshot taken at the first block on 28 July 2:00 PM GMT, which resulted in a Snapshot price of $3.11.

Track the status of the orders at the following links:

https://explorer.cow.fi/orders/0x56664645e66881c2f8bd80170fa5607f5ec8505b9719707a20eb5a1f5e4934c4fc78f8e1af80a3bf5a1783bb59ed2d1b10f78ca962ebc313

https://explorer.cow.fi/orders/0x1951771cb9fd669ecf912d25b81fb628502f5f1b1e829f538764e80f6100d10efc78f8e1af80a3bf5a1783bb59ed2d1b10f78ca962ebc313

https://explorer.cow.fi/orders/0xb4035e804542799743cdaecfcf4fb39d96afa69c178ed76718b2f884fa7150fdfc78f8e1af80a3bf5a1783bb59ed2d1b10f78ca962ebc313

These orders can only be accessed from Cowswap.

The orders will be replaced if not filled on August 4th after 2:00 PM GMT per the original proposal spec.

4 Likes
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Round 1
Limit orders for the first round were completed on 4 August with 64,542.5878 AURA filled for a total of $210,763.771 USD.

Round 2
The second round of limit orders was opened on 5 August and will close on 12 August. Round 2 commenced with a snapshot price of $3.070 USD per Aura with a total of 285,456.99 remaining Aura tokens available. The limit orders are set at:

  1. 95,152.33 Aura tokens at $3.223 per token (5% above snapshot price FILLED)

  2. 95,152.33 Aura tokens at $3.377 per token (10% above snapshot price), and

  3. 95,152.33 Aura tokens at $3.530 per token (15% above snapshot price).

To track the progress of these limit orders for Round 2 head over to CoW swap at CoW Protocol Explorer

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Just as expected price stagnates because every DAO now got their hands on enough Aura and will just farm and dump it to the ground from now on.

AIP 3 was a huge mistake that killed the tokens longevity, and aura becomes a short lived high apy dump fest