[Temperature Check] Modify AURA liquidity strategy

Temperature Check
1

Authors

Maha

Summary

This proposal seeks to re-allocate incentives to boost AURA trading volume and depth.

Proposal

Background

AIP-63 seen a multitude of changes, including the re-allocation of 4% of Aura’s fees (collected in auraBAL) from vlAURA to the AURA/ETH pool. At this time, the fee rates on each AURA pool were increased to 1%. The result of these two changes was a minor increase in TVL on the pool, and significantly less trading volume.

Additionally, since this AIP, Balancer voted to remove the shared POL on Arbitrum, resulting in ~2.3m AURA being returned to the Aura treasury.

Aura used to have very deep liquidity relative to it’s market cap, due to the POL and incentivised AURA pool. As the circulating supply of AURA grew and it’s price relative to ETH declined, this liquidity has been getting relatively smaller.

Depth can deter larger whales from entering. Even though AURA is known to have utility and primarily used in vlAURA, the low trading volume signals a lack of interest and could put off potential users.

Solution

This proposal seeks to address these liquidity issues by:

  • Re-allocating the auraBAL incentives to a new Gyroscope ECLP with a tighter range, paired with USDC
  • Increasing the AURA allocated to the existing AURA/ETH pool from 12.75k to 20k
  • Reducing fee rates on all AURA/ETH pools to 0.3%

These in turn:

  • Support healthy arbitrage paths between the pools (USDC and ETH pairs) as the price of ETH moves, supported by the lower fees leading to higher base volume
  • Create more depth with a new pool and set of incentives, while maintaining the existing pool

This is proposed in combination with a similar set of incentives from [vlAURA on base]

Technical specification

  1. Re-allocation of auraBAL incentives to a new E-CLP
  2. Increase in weekly incentives from 12.75k to 20k
  3. Reduction of all fee rates
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Do you have any specific details on the E-CLP being used? How is it expected to perform with auraBAL so far off peg, and also when AuraBAL returns to peg? Would love to hear more about how this solution helps improve auraBAL liquidty and will help it return to peg.

Also at this point I’d prefer to see the additional AURA going to auraBAL LP. At the moment yields on Aura are much higher than AuraBAL. Aura is a good deal. AuraBAL has meger yields and is far off peg. This is after Aura has created a lot of fuss about other wrappers such as stakeDAO and tetu ending up in the same situatuion.

It’s very expensive to maintain Aura liquidity, because the natural yields on aura are so high. That takes a lot of emissions to compete with. It also creates a strong incentive to buy AURA.

Focusing on improving the auraBAL peg should take prioirty over more dex liqudity for AURA.

I hold significant amounts (for me) of both coins. I’m not worried about my Aura. I’m very worried about my auraBAL.

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I support this modification. As a trader myself, I think there is a clear benefit in providing a friction-free arbitrage path and easing the cost of transacting. This will not only generate increased volume and liquidity depth on DEXs, if Aura can generate enough trading interest overall, it may lead to organic listing interest from CEXs. The increased trading volume should hopefully make up for a significant portion, if not all, of the lost fees.

Additionally the increased volume and interest should lead to additional interest in the Aura platform itself not just the price action of the token, thereby leading to an increase in users wanting the yield from auraBAL. If (via marketing and/or incentives) Aura can drive these users to buy 80bal and swap for auraBAL, we can help the auraBAL/BAL exchange ratio return to a more even balance.

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I support continuing to try reasonable things and this sounds reasonable.

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Can you explain how auraBAL ever repegs in your scenario? as a trader, why you would make a choice to invest in AuraBAL of Aura when both are pegged in volatile pairs, and aura is yielding 60-80% while auraBAL 20-40?

As a trader, wouldn’t you only buy auraBAL as an investment in Aura if you thought it would yeild better or have better price action than Aura? You’d only buy it as an investment in Balancer if you thought it was going to hold peg and offered a better return then veBAL.

AuraBAL only works as an investment if it comes with a clear commitment from the DAO to maintain it as a representation of veBAL and not just a honeypot.

How will this change improve the situation for AuraBAL, or not make it worse?

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Personally, I don’t have a particularly strong opinion on incentivizing AURA vs auraBAL LPs but a couple of small comments.

  • Don’t think we should compare aura’s 60-80% vs auraBAL’s 20-40% yields as needing to be equal(ish) to be equally attractive opportunities. vlAURA does have the 4-month lockup along with other factors to consider when deciding between the two.

  • Should there be an expectation that auraBAL trades 1:1 with BAL? I think there will be times it does and times it doesn’t, but it shouldn’t be assumed that it always will.

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I support this proposal. Every token needs liquidity, no matter how great it is within its ecosystem.

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How much of a premium on yields should you get for locking? What do you think is fair/economically sensible for a robust 2-token economy such as Aura’s?

There should be, and is an expectation that Liquid Lockers in the Balancer ecosystem should find their way back to peg on a regular basis. The DAOs that have failed to do that, we (Aura and Balancer) have in the past labeled them failures and/or grifters. As such, we have avoided giving them much space, time or consideration our ecosystem.
So no, AuraBAL shouldn’t always trade at peg, but it hasn’t in a long time and seems to be worse not better. Further this Temp Check paid like 2 sentences of time to talk about how it would be addressed (moving away from a stableswap) without ever providing any analysis or details, or even an expected result. Do you think this is the appropriate handling for AuraBAL? Why?

This proposal is replacing POL with expensive incentivised liquidity (trying to compete with vlAURA yields). It also seemingly kind of gives up on the idea, or at least the liquidity mechanisms to support it, that auraBAL should trade at around the price of the BPT that people put into it.

I agree more Aura liquidty is needed, but moving from POL to direct incentives on a high yield token is wasteful.

I’ve said what I have to say now, but this is not the way, at least not if the OP cant’ take the time to answer questions/conversation about efficiency and auraBAL peg, and there is not agreement to try something else if it doesn’t meet it’s stated objectives (which are somewhat unclear).

The specific range, reasoning for the proposed AuraBAL E-CLP has still not been defined/is not available for community review.

Had a thought typing this:

The issue with Aura should be that people can’t buy a lot. A portion of that 2 million(maybe half) aura could be put back into POL, in an E-CLP at above the current price so Aura can enter single asset and not have to treasury assets other than AURA to the POL position. Then there will be lots of room for folks to buy Aura, and sell it again, but we’re not just spending tons of AURA on yields so people can dump it. Imagine AURA/USDC ranging from like 75 cents to 5 dollars.

Could use some of the leftover Aura to increase the incentives on auraBAL liquidity and/or maybe stand up this USDC pool next to the stableswap and create some L2 liquidity on base.

This seems to me like it would be much more efficient and effective at improving the liquidty situations for all the Aura tokens.

Moving Aura locking to 80/20 would be another great way to secure deeper liquidty without paying for it with lots of inflation.

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I think we should distinguish the discussion between what this proposal tries to achieve and what we can do with other AURA related tokens like auraBAL. In general, I agree with @Tritium that the auraBAL peg-situation needs to be addressed. We are actually working on solutions to improve auraBAL peg, incl. technical improvements like trade routing (fixes in the smart order router (SOR). However, this proposal talks about AURA liquidity so we should stay on topic here.

I would be interested in what specific trading curve will be used - will it be the same as on the Base temp-check?
E-CLPs can be tricky to be set up. Did you talk to Gyro what setup would be best suited? Also how would trading routes be affected with this new pool? Finally, for LPs, it is not so easy to provide liquidity to those pools as one needs to do proportional joins.

In general, I am in favor although I would like to see a bit more implementation details around the E-CLP use-case.

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Yes the curve would be the same as in the Base temp check. Gyro are the ones that drafted that up, I don’t see how it would affect trading routes, the aggregators and arb bots should just pick it up immediately right? Providing proportional joins is a little annoying but necessary for any platform we want to add tighter liquidity on to (like Uniswap). It’s not ideal obviously since we would need to create a new gauge every time the price moves 30% or so but if we are wanting to add CL and stay in the Balancer eco it’s the best option we have right now. I feel like using a 5050 or 8020 would just be a waste of incentives as the trading depth would be minimal, open to other ideas though

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  • Re-allocating the auraBAL incentives to a new Gyroscope ECLP with a tighter range, paired with USDC

Also just to clarify, there seems to be confusion regarding this line. This is referencing the 4% of protocol fees that used to go to vlAURA and were redirected to the 5050 AURA/ETH pool in AIP-63. This proposal is specifically regarding AURA liquidity and is not at all related with auraBAL liquidity. Worth noting that almost 40% of AURA emission has gone/goes to auraBAL incentives vs 5% to AURA liquidity as per AIP-63

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This is something worth supplementing to the proposal although imo isn’t a catch all solution as liquidity is needed above and below current range atm

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I would be happy to come up with a complete proposal for Aura liquidty, that does one or both of the below:

1: focused on a few pools/ more POL/ some incentives
2: focused on moving aura to ve80/20 so liquidity is free and high brib yields don’t bomb liquidity

It would take me some time to put them together well. Is this something that the contributors and community would be happy to discuss/consider. I have not done so in the past, because it would be quite time consuming, and I fear it will fall on deaf ears.

EthCC is next week, but commit to something in the next couple weeks if there is commitment from the DAO and the contributors to spend at least a fraction of the time I spent working on it discussing, reviewing, working with it.

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I’d emerge from lurking to engage in discussion and encourage others to participate and review the type of proposal you propose to propose.

Lots of excitement and positive energy with Aura. Potential for lockers to soon be Based.

Ideas and efforts to better the auraBAL peg will spark my involvement.

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