[AIP-63] Tokenomics Optimisation and Emission Reduction

Proposals
1

Abstract

This proposal re-ratifies AIP-42 for a further 6 months and maps out a number of optimisations to Aura’s tokenomics to reduce overall emission without impacting core functions.

The AURA emission is the backbone of the Aura Protocol, providing fuel to keep auraBAL healthy, boosting yields for LPs, and contributing to the silently consistent 50%+ APR of vlAURA holders. While emission to these pieces is necessary, this AIP begins to transition Aura into long term health by a scheduled reduction in overall token emission. This proposal should reduce the pressure from newly emitted units and allow AURA to return to a more reasonable valuation.
The changes proposed here have a net effect of reducing overall emission by 12% immediately, with further reductions scheduled every 6 months, slowly moving emission to sustainable levels over the next few years, while keeping APRs steady and prioritising auraBAL LP & AURA.

Overview

There are many factors/variables involved when looking at the efficacy and health of the overall Aura token emission, and there are also a number of goals that need to be considered when deciding to make any changes. As mentioned above, the Aura emission is critical for maintaining health of the ecosystem and there is a balance that needs to be struck between short and long term health when the community is deciding which levers to pull. This post intends to outline all the current data, define a number of key goals, and propose some tweaks and reductions to the current emission.

It has been 6 months since AIP-42 was implemented, a landmark proposal that aligned voting rounds more closely with Aura stakeholders by concentrating AURA emissions to Aura snapshot vote results. It was stipulated that it is required to re-ratify the 90k units/w that are going out as part of this emission (around 17th February). In order to align this with voting rounds, changes from the re-ratification would take effect on round 44. This is thus a good opportunity to review the wider emission numbers and look to optimise wherever possible to ensure Aura has a smooth transition into the long term.

Current data

:warning: Disclaimer: this data was compiled on 28/01, there are many internal and external variables involved which may be subject to change

Sources:

Key takeaways from the current data (Figure 1):

  • BAL being farmed by Aura contributes to around 60% of the overall revenue, due to Aura’s consistent success in attracting Balancer LPs, where Aura farms over 70% of the BAL emission, and controls over 53% of the veBAL votes.
  • Current emission is around ~350k AURA per week, roughly contributing to around 40% of Aura’s overall revenue across LPs, vlAURA, auraBAL and AURA/ETH. Each of these serves an important piece.
  • vlAURA currently valued at a discount vs vlCVX in both P/E (1.65 vs 3.12) and against holdings (0.5x vs 0.74x) (Figures 1.1 and 1.2)
  • Fees going to auraBAL from veBAL are reasonably substantial at $30k/w now that Aura’s veBAL share has grown.

Other observations:

Current APRs
Value flows BAL ($USD) AURA ($USD) ETC Current Sum Current TVL Current APR%
vlAURA $12,366 - $212,936.05 $225,302 $19,320,000 60.64%
LPs $231,866 $114,250 - $346,116 $315,000,000 5.71%
auraBAL Pounder $69,217 $35,416 $25,950 $130,582 $31,500,000 28.02%
auraBAL LP - $33,120 - $33,120 $8,500,000 20.26%
AURA/ETH LP - $10,350 - $10,350 $2,400,000 22.43%

Previous optimisations

There are a number of levers to pull: fee rates/destinations, mint rates (i.e. how much AURA minted per BAL) per pool/auraBAL, LP Incentives amounts/strategies & AIP-42 emission amount.

There have been a number of relevant proposals/changes over the past 12 months:

Proposal

Reduce overall emission and extend the lifespan of the Aura emission whilst optimising for impact on core functions and users. Core functions include:

  • LP capacity & competitiveness
  • vlAURA yield & voting incentive capacity
  • auraBAL staking & LP yields
  • AURA liquidity

When taking the current data into account, each of the above functions is being catered to reasonably well proportionally. Thus, the proposal is to make a decrease across the board, with a few exceptions:

  • AURA/ETH liquidity should be given a relative boost
  • auraBAL LP incentives should be prioritised over time to protect the peg

Changes

See Figure 2 on the sheet to understand how these changes affect the emission.

A) Redirect vlAURA fees (auraBAL) to AURA/ETH liquidity

This change takes the 4% fee currently attributed to vlAURA holders and redirects it to be used as extra incentives on the AURA/ETH pool. This change results in an almost doubling of the AURA/ETH LP APRs while removing the base yield on vlAURA. Proposed by a large vlAURA holder on Discord who feels that the auraBAL yield is wasted yield/dust for most actors in the locker.

B) AURA reduction

This change is a relative reduction in AURA distributed to each function. Given the Balancer emission decreases yearly in March, this naturally reduces Aura minted on “LP Rewards - mintRate” and “auraBAL - mintRate”. Additionally, for the “Other” allocation, this naturally decays over time. Thus, the reduction affects the following:

  • “LP Rewards - AIP42” & “AURA/ETH - LP”: 15% initially, and 8% every 6 months
  • “auraBAL - LP”: 9% initially, and 4.8% every 6 months

C) Remove 2% fee going to the auraBAL pounder

This change has the effect of marginally reducing the overall fees to auraBAL to the benefit of LPs and also reduced net AURA mints.

Dest Before After
Fee rate - auraBAL [Pounder] 2.00% 0.00%
Fee rate - auraBAL 18.50% 18.00%
Fee rate - vlAURA > AURA/ETH 4.00% 4.00%
Fee rate - harvester 0.50% 0.50%
Total fees 25.00% 22.50%

Effects

As shown in Figure 2 & 2.1, these changes have a net effect of reducing overall emission by 12% immediately, with further reductions scheduled every 6 months, slowly moving emission to sustainable levels over the next few years, while prioritising auraBAL LP and AURA.

Changes would happen on round 44.

Technical specification

  • A
    • call setExtraReward on 0xdd8ab2eaf5487fab70c36f6997afb1d5d743e516 to add auraBAL as an extra reward
    • call setCrvDepositorWrapper on 0xd9e863B7317a66fe0a4d2834910f604Fd6F89C6c with a custom ICrvDepositorWrapper that mints auraBAL and queues up as an extra reward
  • B
    • call setRewardPerEpoch(76500000000000000000000) on 0x54231C588b698dc9B91303C95c85F050DA35189B
    • add a new ChefForwarder to the Masterchef by calling add with on 0x1ab80F7Fb46B25b7e0B2cfAC23Fc88AC37aaf4e9 with 20 allocPoints
  • C
    • call setFees(1800, 400, 50, 0) on 0xCe96e48A2893C599fe2601Cc1918882e1D001EaD
6 Likes
2

This looks like a well thought-out and balanced proposal that takes into account recent community feedback.

From a narrative/comms point of view, it may make sense to do the emissions reductions at the same time as veBAL and focus on joint comms to help people understand that inflation is lower/less sell pressure. I think it may be harder to understand as 2 separate events that happen a month or two apart. Not critical by any means though.

3 Likes
3

I second @Tritium feedback and see great alignment in this proposal with the overall community sentiment we experienced on Discord discussions.

From my perspective it makes sense to

  • reduce vlAura fee emissions as the HiddenHand market already emits very attractive rewards
  • the auraBAL pounder already benefiting from great veBAL fee capture which will only increase in the future with boosted pools for v3 on the horizen

Overall from what I can gather from the proposal, emissions are reduced at the right targets which makes sense so dilution is less severe. Furthermore, an increase in rewards for the base pool will make it attractive to provide liquidity / trade AURA which benefits both protocols.

One small suggestion though. I see swap fees are set to 0.3% on the AURA:WETH pool. I would be as bold as increasing fees back to 1% in anticipation of the bull market.

The timing is right - let’s do it!

I am in full support of this proposal!

4 Likes
4

Full support. Making moves. Thanks for penning this.

3 Likes
5

I support this proposal. It is good to see that the contributors are constantly on the look to make the protocol healthier and to add value to the stakeholders. What caught my attention is the AURA emissions reduction, as it lowers the inflation rate. This is good for vlAURA holders, for example, as less new vlAURA is entering the voting incentives markers. It also allows the emissions to run for a longer period, keeping the protocol attractive for partners.

3 Likes
6

Thanks for all the comments everyone. All positive feedback so I will just reply to the suggestions made.

That is a good idea. The thing is that they are 2 seperate events, and I wonder if it might be a softer transition to have them done in 2 batches so i’m tempted to just keep as is. With that being said, doing joint comms around this time would be good.

Good idea, and as pointed out, most of the trading there is coming from LPs selling so it does make sense to have a fee capture there. IMO in the bull market, having an incentivised CL position on Uniswap/etc would also be good for volume.

The fees on these pools have just been set to 1%

4 Likes
7

Comms is the key point. Deflationary events work a lot better when everyone is aware that they are happening, not just those who see less yields on LP positions.

Balancer and Aura are part of a single tokenomic ecosystem, and so anything we can do to help “everyone” understand how deflation works in our economy and what it means is great.

3 Likes
8

Looking at the community discussions and market sentiment, I realize that this proposal was created at exactly the right time.

I’m excited about the proposal and bullish about Aura.

3 Likes
9

Thanks for putting together and an exciting proposal. I have concern on the boosted liquidity in the weth/aura pool incentivizing lockers to migrate to staking aura. TVL will of course fluctuate and all comments are assumptive but it appears that staking APR will be similar to locking APR post BAL emission reduction this spring. Locking is an integral part of price stability and the foundation of our protocol. I would recommend we present some revenue to long term lockers/relockers. Is this a percent of the pools rewards or a certain % of the aurbal rewards, i am not sure but worry that this proposal will actual create an adverse scenario that further emboldens aura as a true farming and dump coin

1 Like
10

https://vote.aura.finance/#/proposal/0x4a66a740617cd44671353053e5856f68903bc7caa0c6b96f54c63bcaaedaf457

11

I am mostly curious to understand the motive for continuing to preserve and prioritize so many of the inflationary emissions toward general LPs as part of this proposal. The top-line issue this proposal is seeking to address is optimizing the tokenomics to reduce [pricing] pressure working against AURA. I believe that taking a significantly large cut against newly emitted tokens allocated to general LPs while being more aggressive in allocating toward vlAURA and AURA/ETH LP stakers would be more effective and better for the ecosystem holistically.

Importantly, this would cut emissions much more aggressively than the original proposal in parallel to incentivizing significantly more liquidity into holding AURA via AURA/ETH and vlAURA. This would be more effective and produce a better overall result by tipping the scales to drive organic demand for AURA. The outcome from all of this will be more conducive to supporting a stronger AURA and the net effect should actually produce similar APRs to general LP capacity by having a higher price to offset the reduced allocation.

12

The expected outcome here is that vlAURA holders do not notice any decrease in their APR (as it is tiny in comparison to the voting incentives) and only new demand is created for new staking in the weth/aura pool, so hopefully that pool sees some new deposits. I don’t see how this could lead to the outcome you mentioned

I understand what you are saying but it is fundamentally not possible since LP incentives and vlAURA incentives are tied to the same emission. How does the vlAURA voting incentive work? It allows projects to incentivise vlAURA holders to direct LP emissions to a certain pool, if you cut the LP emissions you cut the amount of incentives that can be generated to vlAURA holders

3 Likes