Proposal: Orderly Protocol Wind-Down and Treasury Redemption for Aura

[0xMaha]

Authors: 0xMaha, Fry

Summary

Following Balancer’s proposal to sunset the veBAL system, the foundational mechanism that Aura was built on top of is potentially being retired. This was a shock, but things have been moving in this direction for a while, and so we respect this definitive proposal and should it pass, believe it offers an opportunity for Aura stakeholders.

The economic conditions underpinning veBAL have been deteriorating for some time, to a point where future yield for vlAURA is projected to be lower than the cost to operate the Aura protocol. Balancer’s choice to wind it down with some compensation and exit plan for lockers reflects an honest attempt at medium term value creation, it also signals that the internal intention is to continue moving away from this system at a minimum. Without veBAL or with a watered down version, Aura’s core value proposition ceases to function. Rather than prolong operations without a viable underlying mechanism, we believe the optimal course of action would be an orderly wind-down of the Aura protocol and a pro-rata distribution of treasury assets to AURA and auraBAL holders. Specifically:

• Redemption of AURA for treasury assets

• Wind-down of veBAL lock and redemption of auraBAL

• Moving the protocol into withdrawal-only mode & turning off AURA emissions

• Sunsetting the Aura Foundation & subsidiaries

Background

Aura was bootstrapped to optimize participation in the Balancer ecosystem - aggregating veBAL, building a liquidity marketplace, and optimizing how incentives flow across pools. It has always been DAO-led, never took VC funding, and operated lean with minimal overhead throughout.

Since launch, Aura became a core piece of Balancer’s incentive infrastructure, consistently distributing significant sums of incentives to acquire veBAL, and coordinating governance participation and liquidity allocation at scale. The protocol has served as a unique marketplace for projects looking to bootstrap and source liquidity, generated over $50M in cumulative value for vlAURA holders, and held the dominant share of Balancer voting power, playing a key role in protecting the ecosystem and brokering governance proposals along the way.

However, it’s no secret that the numbers have been on the decline, and since the recent Balancer exploit and subsequent ecosystem changes, the economic conditions that previously supported Aura and Balancer have materially deteriorated. With the current numbers and very lean operations, the cost of running the protocol outweighs the value added through voting markets.

To be more explicit, several factors underpinning Aura’s economic model have deteriorated in tandem - BAL emissions have been cut alongside a sharp decline in token price from both projects, depositors have pulled back due to perceived security risk, and the resulting drop in TVL has compressed fee revenue, collectively eroding the incentive flywheel that historically sustained Aura’s growth. Additionally, proposing to turn this veBAL system off signals a strong desire to reduce this further by Balancer in any case.

This proposal recommends shutting down the protocol, and outlines an orderly wind-down and claim process across LPs, auraBAL holders, and AURA holders. This includes unwinding the veBAL position and returning all remaining value directly to stakeholders through a transparent redemption mechanism, moving protocol into withdrawal only mode and turning off any AURA emission.

Treasury Overview

The current Aura treasury contains the following assets:

AURA Supply

Note: Treasury-held tokens, ecosystem allocations, and any unvested AURA are excluded from the redemption calculation and distribution. These tokens are not considered circulating supply and will not participate in the pro-rata distribution of remaining protocol assets.

auraBAL Backing

In addition to the treasury assets, the protocol controls the following liquidity position locked within auraBAL:

AURA emission/week

veBAL Compensation

Balancer OpCo has proposed a $500k payout to veBAL holders to compensate for missed yield from future emissions that would be cut off. This chart compares that compensation against current emission and calculates Aura potential share.

Proposal

Distribution

Summary of redemption:

• 100% of the treasury available to AURA holders pro-rata

• After the veBAL lock has unwound (~12 months):

  • 90% of the auraBAL backing to auraBAL holders

  • 10% of the auraBAL backing to AURA holders + unclaimed treasury assets

  • 100% of the compensation for future yield to AURA holders pro-rata

Under current estimates, this would provide an approximate redemption value of $0.0226 per AURA.

Redemption stage 1

100% of the treasury assets to be distributed to AURA holders. Distributed pro-rata based on AURA balance. When AURA is redeemed, holders will receive their share of the treasury immediately, along with a 1:1 redemption token (auraRedeem) to be redeemed in stage 2.

Redemption stage 2 (12 months later)

The auraBAL-backed portion of the distribution can be claimed after approximately 12 months, once the veBAL position has fully unwound. After which, this position would be withdrawn into the underlying BAL-ETH-80/20 BPT and distributed as follows:

• 90% redeemable to auraBAL redeemers pro-rata

• 10% will be allocated to auraRedeem holders

Given that auraBAL was expected to be permanently locked and now has almost no counter-trade liquidity, this represents a significant recovery for holders.

At this point, the stage 1 auraRedeem supply will be frozen, finalizing the set of eligible AURA holder claims on the auraBAL-backed distribution. When auraRedeem is redeemed, holders will receive this 10% allocation alongside any treasury assets that remain unclaimed from stage 1, plus the accumulated veBAL payout, pro-rata to auraRedeem supply.

Timelines

Provided proposal passes at time (t). NB: Specifics subject to slight changes to accommodate any unforeseen protocol requirements.

Redemption stage 1: t+4 weeks

• Protocol enters withdrawal only mode for LPs

• veBAL begins to unwind

• AURA incentives end across ecosystem

• AURA redemption opens for treasury assets (ETH + AAVE) + auraRedeem token

• Voting markets continue to work for vlAURA holders provided incentives

• auraBAL holders continue to receive fees from veBAL

Redemption stage 2: t+56 weeks

• veBAL unlock happens

• auraBAL redemption opens for underlying

• Second AURA redemption opens

• Foundation sunset

What this would mean for

LPs

Any rewards should be claimed, and deposits in Aura should be withdrawn and moved over to Balancer pools natively.

Projects sponsoring liquidity

Voting market incentives for the pool continue to target the Balancer pool, although calculations should factor out AURA rewards. Direct any depositors to the Balancer UI.

AURA holders/LPs/vlAURA holders

Should redeem their tokens before redemption stage 2. vlAURA holders can continue to lock and participate in voting markets.

auraBAL holders/stakers/LPs

Should await redemption stage 2, at which stage they are able to redeem.

Conclusion

Aura has played an important role in the Balancer ecosystem and helped coordinate liquidity incentives across the protocol. Following the conclusion of the Balancer tokenomics revamp, and as the economic environment around Aura has evolved, we believe it would be the right time to sunset the protocol in a way that prioritizes closure and returning remaining value to AURA holders, auraBAL holders, and LPs. This proposal offers a framework for preserving and returning the protocol’s remaining capital through an orderly wind-down and fair distribution process.

[sagix]

The proposal is evolving from a restructuring into a liquidation.

35% buyback was already generous (and unnecessary). Now delegates are asking for 50-60%. Add $500K veBAL compensation, $1.9M/year operating costs and conference trips, the 9-year runway starts looking like 2-3.

This is a silver parachute for insiders, yet, at a stupid valuation. It’s bad even for aura holders.

Tetu’s permalocked tetuBAL is being offered a ‘steeper discount’ punished for doing exactly what the protocol asked them to do. And StakeDAO’s sdBAL holders, simply forgotten? The partners who committed hardest get the worst exit terms.

The effect on builders, Tetu, and StakeDAO is the same: permanent capital gets the worst terms, liquid capital gets the best exit, and the treasury pays for it.

At this point “restructuring for sustainability” becomes “distributing the treasury to insiders before the lights go off”.

I submitted an alternative proposal that preserves the same runway, the same fee capture, the same operating budget while keeping the only mechanism that creates demand for BAL.

Not supply-side intervention. Demand creation.

The alternative is here: # [BIP-XXX] BAL Tokenomics Revamp: ALTERNATIVE PROPOSAL - Governance - Balancer

Every dollar spent on buybacks before PMF exists is a dollar that can’t fund the discovery of PMF. The treasury should be building, not exiting insiders at preferred deals.

[0xMaha]

What are you talking about

[sagix]

I am talking about

1. my alternate proposal that your response admits you failed to get familiar with after 4 days.

2. all the questions I have asked in the bal forum that remain unanswered

3. the failure to address the risks of unbudgeted regulatory costs on the runway time given the absurd treasury expenses to payout some while others are neglected.

4. the preferencial treatment some vebal holders would get against others. Aura, tetu, stakedao are all vebal holders and MUST be treated equally.

5. the potential fiduciary and due process negligenge risks and concerns for the Treasury Council decision makers, as substantive questions on these impacts remain unaddressed. aggravated by the hiding of my posts in this forum.

happy to discuss specifics on the merits.

[SecondSetMaze]

Thank you for the time and effort you’ve put into framing this proposal @0xMaha and other Aura contributors.

I have been awaiting Aura posting what voters would have to consider should Balancer’s two proposals pass.

@sagix did propose intriguing ideas (as replies in the Balancer proposals) that I’d hoped the Aura community, as majority veBAL holders, would at least consider and open for discussion.

If @sagix reply, flagged and hidden here, violated a rule - is it possible to provide the poster, a member of our Forum, the opportunity to revise?

If no Forum violation occurred, let’s please enable the Aura community to review, discuss, and consider any and all possibilities.

This is, after all, a life-or-death decision for Aura - whose vlAURA voters and delegates will first decide on the Balancer proposals at hand.

Please permit Forum replies that fall within our guidelines to be seen. TY!

[sagix]

thank you. @SecondSetMaze

Let me be crystal clear: I believe I am proposing and enhancement. I´m not pushing my alternate proposal as the final text. I truly believe the community and your insights can improve it. this was hidden. I really do not understand why.

https://forum.aura.finance/t/a-builder-s-response-to-the-tokenomics-revamp/876

the contents are in the balancer forum.

this post was also hidden right now. it´s respectful, encourages discussions and has some points that the aura community may understand are worth considering.

https://forum.aura.finance/t/supply-demand/878

[sagix]

also Aura’s veBAL bloc can single-handedly reject the revamp.

My alternative proposal preserves Aura’s function and can boost balancer´s turnaround…

Why are we voting to die when we hold the weapon that lets us live and balancer find much better days?

[sagix]

FYI…. every voter there should read this and join the conversation. The Risk Premium Problem

https://x.com/sagixapothecary/status/2037532853852836330

The Risk Premium Problem

Balancer’s push to eliminate emissions rests on a simple claim: better technology will attract liquidity.

The market is signaling something else.

Technically superior systems do not always win. Betamax lost despite clear engineering advantages because VHS adoption followed incentives and distribution, not specifications.

DeFi is no different. Capital moves where it is compensated.

Balancer today trades less like a growth protocol and more like a risk asset.

TVL has been falling. A series of exploits and the reCLAMM bug disclosure did something harder to fix than code: they damaged the brand.

Trust reprices quickly and recovers slowly. The market is not debating Balancer’s architecture. It is pricing Balancer’s risk.

That pricing shows up in behavior. When perceived risk rises, required return rises with it. If that return is not available, capital leaves.

This is already visible in the data: declining TVL, a compressed FDV/TVL multiple, and outflows that have not reversed despite assurances around V3 safety.

BAL is trading with FDV at or below NAV. Emissions are immaterial when you look at FDV. The proposal of eliminating emissions had no impact on the BAL price. If anything, it is lower than before the announcement. The market simply shrugged.

In that frame, providing liquidity on Balancer looks closer to buying emerging market debt than allocating to a blue-chip protocol with differentiated tech and a solid technical team.

Consider the Selic rate. Brazil pays double-digit interest not because its bonds are poorly designed, but because the market demands compensation for perceived risk. When that premium narrows without a corresponding reduction in risk, capital exits. The same dynamic applies here.

Investors in emerging markets do not allocate based on narratives about institutional quality or technical capability. They allocate based on spreads. If the spread does not compensate for the risk, they rotate into safer assets and wait. Balancer LPs are making the same calculation.

Capital has alternatives that are perceived as lower risk and offer competitive returns.

Emissions, in this context, are not a subsidy. They are the mechanism that pays the risk premium. Removing them removes that risk premium.

The current Revamp proposal implicitly assumes that something else replaces the risk premium, maybe lower perceived risk, higher organic yield, or demand driven purely by the product.

There is no evidence for any of those in the current market. Technology alone has not reversed outflows. Fee generation has not filled the gap. Risk perception has not reset after the exploits. The token and the brand continues to trade at a massive, maybe unfair discount, not because of the tech, but the market’s perception of risk, warranted or not.

A more defensible approach is to focus emissions on productive V3 pools, BAL flagship product for 2026, particularly those built around ERC-4626 assets that generate protocol revenue. That at least links the premium to a cash-flow base. It does not eliminate the need for the premium. It gives Liquidity Providers an much needed incentive to take the perceived risk.

Eliminating emissions assumes the market will accept lower compensation for the same risk, or that the risk itself has already been repriced away. Neither assumption is supported by current behavior and on-chain metrics.

The question is straightforward: if emissions are removed, what replaces the compensation liquidity providers require for bearing protocol risk, and on what timeline is that expected to work?

Because right now, the proposal removes the coupon and expects the bond to hold its price.

That is not how risk assets trade.