[Temperature Check] Aura <> OlympusDAO Partnership

Temperature Check
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Authors: 0xFelix (Olympus), 0xLamentations (Aura)

Summary

Over the past months Aura and OlympusDAO have been exploring mutually beneficial ways to grow both protocols. Both parties want to formally commit to co-developing and working closely together in the future. This AIP is the first memorialization of that partnership. It aims to do multiple things: 1) Conduct a DAO-to-DAO treasury swap, 2) Whitelist Aura as an Olympus Flex partner, and 3) Start assessment to use Aura for Olympus’s treasury deployments.

Background

OlympusDAO has made initial forays into the Balancer ecosystem with the creation of an OHM-DAI-ETH pool, an LBP funding budget for OHM raises, and by seeding liquidity for partner protocols. More recently, Olympus has made a proposal to move the majority of OHM liquidity to Balancer and to start using Balancer as Olympus’ main liquidity hub. This would bring an additional $40-50m in TVL and would add significant volume and trading fees to veBAL/auraBAL holders. (The OHM/DAI and OHM/ETH pools on Sushiswap that will be migrated are consistently in the highest earning pools on their AMM.)

In the future, Olympus also plans on whitelisting Balancer pools for the “mint and sync” functionality which allows for minting the normal OHM staking rewards directly into liquidity pools, effectively removing the opportunity cost of providing OHM liquidity. This will open up the possibility to create more arbitrary OHM pairs and would enable the partner protocols in Olympus’ network to create new pools in the Balancer/Aura ecosystem.

In this context, Aura and OlympusDAO have been in contact to explore ways of co-developing in the future and have concluded that there are significant partnership and growth opportunities. This is why both parties want to take a first step to formalize this partnership through:

  1. Conducting a $100,000 treasury swap in order to align incentives and to provide both parties with governance power in each other’s protocols.
  2. Whitelisting Aura for Olympus Flex Loans.
  3. Olympus to start internal assessment to whitelist Aura for treasury deployments.

Olympus Flex Loans

Olympus Flex Loans is a new (whitelisted) product offering for partner protocols that allows for liquidation-free borrowing of OHM against gOHM collateral. Done through a specific smart contract, the borrowed OHM is then paired with another token (i.e. AURA), and supplied to an AMM to create an LP token that is owned by the borrower.

This, in effect, gives the partner protocol the opportunity to unlock substantial value from their gOHM treasury holdings through dilution-resistant liquidity creation. At the same time, the partner protocol still has the benefits of treasury diversification, maintaining the upside of the growth of gOHM and the Olympus network, and their governance rights within this system.

For Aura specifically, the combination of a treasury swap with a whitelisting would allow for bootstrapping a new liquidity pool for the AURA token while integrating into the existing OHM liquidity rails and favorable routing.

Aura currently has no immediate plans to propose the use of this debt facility but the option will remain open and could be enabled by the community, pending future governance discussions.

Proposed terms

Treasury swap:

  • Conduct a $100,000 DAO-to-DAO gOHM to AURA swap at a historical 14 day TWAP upon the passing of this proposal by governance.
  • Aura to use the acquired gOHM for treasury diversification, with the option of using Olympus Flex in order to bootstrap an AURA/OHM Balancer pool.
  • OlympusDAO to lock the acquired AURA into vlAURA to support Balancer/Aura ecosystem development and the Aura and Olympus partner networks through the proxy allocation of veBAL voting power.
  • Both parties commit to hold the swapped assets for at least one year.
  • Both DAOs remain open to explore future treasury swaps as the Aura ecosystem develops.

AURA for this token allocation will come from the “treasury” bucket. More information about Aura’s tokenomics can be found at this link.

Olympus Flex Loans:

  • Whitelist Aura for usage of Olympus Flex Loans with the following conditions:
    • LTV: 100%.
    • Global debt limit (max borrowable amount): 200k OHM.
    • Interest rate: 0%.
  • Aura has the option to use Olympus Flex to bootstrap a future AURA/OHM pool on Balancer.

Others:

  • Olympus to start internal assessment and governance vote to whitelist Aura for treasury deployments. This is a standard practice and necessary for deploying any funds. Aura core will work closely with Olympus and its community to help them understand both the benefits and security practices of Aura.
  • Both parties are currently also exploring a bond programme for Aura through Olympus Pro (or Bond Protocol, should Olympus Pro be spun out) to diversify their treasury and to extend their operational runway. These details are yet to be finalized and will be posted as a separate AIP in the future.

Both parties also commit to continue to explore other areas of collaboration in this partnership.

Voting

This forum post will be live for approximately a week before the Snapshot proposal goes live. 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 DAO-to-DAO swap and the whitelisting of Aura for Olympus Flex Loans in accordance with the specification set out in this proposal.

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Wow I so much love this…

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Against this treasury swap. Strongly in favor of an Olympus/Aura/Balancer partnership and collaboration.

A $100k treasury swap doesn’t align incentives to any meaningful degree. Aura gets gOHM which it may or may not use to take out a loan to create OHM/AURA liquidity in the future. Olympus gets vlAURA and can direct BAL emissions towards pools they farm with their treasury, or any other of a number of highly valuable activities they could engage in.

Participation in bonding and Olympus moving their PCV to Aura are great things I fully support but these are not part of this proposal and just future things that might happen if votes pass or discussion continues favorably.

I see why this is great for Olympus - just missing the part about how having gOHM brings value to Aura. The precedent that projects can come here for a treasury swap instead of buying on the open market could seriously damage the value proposition of vlAURA. I would only be in favor of taking this risk if there was a very clear benefit to be had - which I don’t see atm.

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Agree. This looks like a great deal for Olympus and a mediocre deal for Aura.

14 day twap alone makes the swap heavily in Olympus favor.

First thing I thought seeing this was, dang I want this deal! Holding vlAURA for a year has a lot of upside especially at these price levels.

Seems like Olympus would get all the same benefits of this deal just buying OTC and lose out on a better price.

We’ve had no problem at Badger accumulating $100k+ in AURA and Olympus treasury is massive compared to ours.

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The swap is mutually beneficial for several reasons. For Aura it helps to diversify the treasury, Messari - Bitcoin & crypto price, news, charts, and research. With OHM, Aura can now use it to leverage via Flex Loans in OHM denominated debt making it ideal collateral to bring greater TVL to Balancer through expanding the growing liquidity rails. With AURA, Olympus plans on using it to vote on LPs created with Flex Loans which actually drives rewards toward partners. In the future Flex Loans can be used for alternate use cases outside of LPs.

If you consider the value proposition of Flex Loans, its a much more capital efficient way of obtaining liquidity, expanding liquidity network and when the loan is complete the treasury will then have both POL and the original amount of OHM.

If you combine Olympus-owned pairs and the to-come Flex Loan partners it will multiply TVL, fees and volume which drive value directly to vlAURA and veBAL holders. For example, with fragmented liquidity the OHM-ETH-DAI pair was in the top 10-15 pairs on Balancer in volume, with Balancer as primary liquidity hub plus Flex Loans plus incentivizing OHM pairs through rewards it will drive immense amount of value to Balancer/Aura.

*Olympus obtains AURA and locks it in perpetuity to vote on OHM pairs (Flex Loans, 3rd party liq providers, etc.) which helps bring clear value to Balancer and Aura ecosystem
*Aura diversifies its treasury, gains POL with ideal collateral that pays itself off through OHM network growth and grows its treasury through ultimately owning the original amount of OHM from loan repayment.

In this context Aura is benefitting greatly where Olympus can help drive activity to its new primary liquidity hub.

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Well ideally we would like for Aura to hold OHM and use Flex Loans. This proposal is separate from Olympus considering purchasing AURA on the open market.

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I tend to agree. Maybe at some point a treasury swap makes sense, but AURA is still extremely undervalued based on its current value vs the amount of veBAL it directs. A treasury swap shouldn’t be made until Aura is significantly further along in price discovery.

Further, I’d like to see a plan for what the DAO would do with this gOHM and how it aligns with other objectives. It’s quite clear what Ohm gets from the deal.

The partnership seems nice, but it’s not the right time for a treasury swap.

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The DAO can use the gOHM for Flex Loans and then create liquidity or eventually use the borrowed OHM in other capacities.

For Example:

  • Aura gets 100k OHM which turns into 200k OHM (100k in Flex Loan contract repaying itself off, 100k in OHM for an LP)
  • Olympus gets AURA and locks it to vote on OHM-paired or partner (FiatDAO) gauges

So Olympus’ primary benefit is expansion of liquidity pairs whereas Aura gets an extremely productive and versatile asset in which they can use in a multitude of ways and expand their treasury with POL and more OHM which can be utilized again.

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Have to agree with the above comments. I think treasury swaps are a dangerous precedent to set, especially this early on before the ‘flywheel’ has begun spinning. 100k of aura directs a substantial amount of BAL emissions for the indefinite future, while it seems the only utility we are getting out of gohm is being able to borrow against it, which produces no yield on its own.

I’m not a particularly big fan of sourcing the twap prices from a market where 100k will significantly move the price. A 100k USDC buy right now in the main Aura/eth pool will result in over 6% price impact.

Under these guidelines, neither party will be able to provide liquidity for either asset since providing liquidity in a constant product amm functionally swaps assets for each other. I assume locking still counts as holding?

I’m not particularly sure I see Olympus flex loans being of much use for the time being as <100k is not really even enough to bootstrap a liquidity pool.

I am a big fan of the Olympus Bonding program and have seen many projects have great success with it. I am excited to pursue that opportunity further.

Olympus is a great team full of really forward thinking people but I’m afraid i’m going to have to be against a treasury swap at this time. I look forward to seeing other ways Aura and Olympus can collaborate.

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All of this is true, but with AURA being so severally undervalued they could just wait 2 weeks and get the same amount of OHM for half the cost.

AURA would be better off TWAPing the gOHM on the market versus this OTC deal. And if Flex Loans are being gate kept by the swap that gives me mixed feelings about Olympus’ desires to participate in the ecosystem.

Moving OHM to Balancer pools vs Sushi is a no brainer. Why is this deal required.

The OHM treasury is huge. You can easily accumulate these tokens with out bringing OTC or Flex Loans into the deal. Since there is natural market forces steering OHM towards Balancer then let them do just that.

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Interested to understand how you’re valuing AURA, OHM right now is also undervalued.

Any protocol can use Flex Loans if they apply for them and hold OHM. A swap or purchase is the first step in obtaining OHM. Flex Loans are an extremely cost effective way of diversifying a treasury and ending up with POL.

Moving to Balancer is not contingent on this proposal.

OHM treasury is used to support the OHM market and to provide backing to the token which reinforces the value when other protocols or DAOs hold it. Doing an OTC trade allows for Olympus to be able to provide utility/value to partners who we encourage to come to Balancer and Aura while also allowing Aura to diversify its treasury by using their native governance token vs stables or ETH.

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A native token treasury swap is a different type of precedent. Olympus will be able to grow the Balancer and Aura ecosystem by equitable distributions of rewards and locks the AURA in perpetuity. Where gOHM is producing yield from network growth. OHM has proven itself over the past 3-4 months as an ideal asset to be exposed to. This is partially due to the treasury stepping in to support the OHM markets, which very few if any protocols do.

With Flex Loans, Aura is getting OHM denominated debt position with a self repaying loan and POL. Eventually the Flex Loan use case can be expanded to other endeavors such as capital deployment in a “yield” generating protocol like yearn.

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Happy to consult for y’all :slight_smile:

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Note: Although I am a core contributor to Aura, these views are my own and not representative of the rest of the core contributors. These views also do not constitute investment advice or anything close to that nature.

Json shared a good response, which I agree with. Also wanted to share my own views.

I see the treasury swap, despite its relative size, as beneficial to Aura from a number of perspectives. Laying out some thoughts here:

  1. Flex Loans (FL): Olympus’ new Flex Loans program is an attractive program for DAOs looking to source liquidity. FL allows for whitelisted protocols to access liquidation-free loans denominated in OHM against their gOHM.
  2. Potential AURA/OHM pool: The token swap gives Aura a good starting point for a potential AURA/OHM pool. Pairing with OHM wasn’t productive prior due to the rebasing yields that largely caused contagion with assets that had a large portion or even a majority of their native token liquidity against OHM. OHM’s dynamics have now changed where emissions have dropped considerably, and the opportunity for OHM itself to grow (instead of fall) is relatively strong. Having OHM as a paired asset also allows AURA to benefit from routing through the growing OHM liquidity on Balancer. Shout out Small Cap Scientist, who shared great commentary on the utility of OHM as a pair asset in one of his recent “Market Capping” episodes with DCFGod.
  3. Diversifying the treasury: Aura’s treasury, counting vesting supply (17.5% of AURA is allocated to the treasury, over 4 years) consists almost entirely of AURA, 8020 AURA/ETH BPT, and Balancer. The ETH that exists in the treasury today is primarily allocated to our ImmuneFi bounty, which means that it cannot be used for other operational expenses (legal, audits, etc.). As seen in the collapse of treasury values across DeFi (see this link for more information), diversification into reserve assets (assets with meaningful backing, liquidity, and lindy) is of essence in uncertain market conditions. It is better to diversify the treasury when the market looks favorably upon Aura, as it is now.
  4. Positioning and alignment with Olympus: The swap is also a way to express a positive view on the Olympus ecosystem. After trading at a premium to protocol-controlled value (PCV), OHM’s market capitalization is basically at par with the liquid treasury assets, which primarily consists of stablecoins, ETH, and other useful assets. Based on the future valuations of projects that allocated tokens to OHM (Olympus Incubator, looking to build alignment with the Olympus community, etc.), OHM may in fact be trading meaningfully under its treasury value. Olympus is also working on a number of products that will drive meaningful demand for OHM, and ultimately value to the treasury through the accumulation of both reserve and volatile assets.

All in all, Olympus remains one of the strongest communities in DeFi and is home to some great contributors. Building alignment would be aided by a treasury swap, which represents just 0.7% of liquid AURA supply, but is enough to give Olympus a taste of the benefits of locking AURA, while also allowing them to diversify their treasury as well.

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OHM is correlated with the market sell off. If BTC and ETH were to draw down again do you think it would hold its current value? As everyone says in the Olympus ecosystem. Market cap not price. Well the OHM marketcap peaked on November 7th just like every other risk asset in the world and the market cap is down -93% from ATH.

Diversification into non-correlated assets is what AURA treasury needs. Stablecoins like USDC, DAI or USDT.

The mistakes made by Celsius, 3AC and other tradfi companies was believing they held a diversified portfolio when in fact they were holding highly correlated assets.

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The composition of treasury assets for OHM has changed considerably. That combined with the inclusion of inverse bonds has created a dynamic where the price of OHM should be much less correlated with BTC, ETH, etc. into the future.

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Then you would be willing to take the risk of “it’ll be different this time” versus just diversifying into a stablecoin that has $60+ billion in liquidity, $50 billion in daily volume and have been active for 6+ years of various market conditions?

Seems like the simpliest and best move for AURA treasury is to simply sell AURA on the market for USDT (my personal preference based on volume and market size) or at least USDC or DAI.

In 2years from now if OHM truly is “different this time” then you could consider it for non correlated value. Until it’s correlation with risk assets breaks and it remains uncorrelated using it as a way to diversify the treasury seems risky.

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Consider the 14 day TWAP is at $1.48. This means you could get $100k OHM or you could swap on the market 67567AURA tokens for $148,647 USDC. After slippage this would be $142,612.35. A gain of 42% over this Olympus deal. Even using the OHM to farm you would need to then sell farm returns into stable coin to achieve this.

Far superior deal for the DAO is to just swap on the market for stable coins.

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Olympus was in a volatile growth state and is now moving toward stabilization phase. This was communicated originally and still is to this day. With the several protocol upgrades it makes OHM an even more desirable asset to hold for protocols. Flex Loans allows for protocols to hold an asset that is supported by the treasury via inverse bonds (Dune). With Flex Loans and the soon-to-launch internal bonds plus range stability, OHM will be an ideal asset to hold or pair with.

It has always been communicated that OHM was over valued. The current market value is more in line with backing per OHM and the treasury has proven more than capable in defending it. If Aura was to sell AURA they would be dumping on their holders and receive only stables with no liquidity. With Flex Loans, Aura grows its treasury, neither protocol is dumping and they grow their liquidity network in one of the most capital efficient ways.

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Not dumping on holders. The market would be excited for the opportunity to buy cheap tokens and everyone understands the DAO needs stablecoins in its treasury just like Olympus has stablecoins in its treasury to support operations and maintain runway.

I like Olympus. I just don’t like this deal.

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