[Temperature Check] Proposal: Save. Earn. Borrow w/Aura FinanceP2P (includes: licensing fees, increased LP activity, new product, more engagement)

[Aura_unFed]

TL;DR

• Residual Token, Inc. proposes to build, launch and maintain Aura FinanceP2PTM, a savings, lending and borrowing tool that will integrate into the existing Aura FinanceTM ecosystem.
• Residual Token, Inc. will not charge Aura Finance development or maintenance fees, and Aura Finance will not incur any out-of-pocket licensing or whitelisting fees.
• Residual Token, Inc. requests that Aura Finance - at its own expense - adds hyperlinks to its website that point to Aura FinanceP2P, and advertises Aura FinanceP2P to its users.
• Liquidations, a common function required to keep a P2P platform healthy, are managed by outside bots with no economic benefit to Residual Token nor Aura Finance.

Summary

Residual Token, Inc. (dba unFederalReserve) proposes to offer Aura Finance a license to Aura FinanceP2P, a front-end interface to the ReserveLending Core.

The ReserveLending Core (hereafter, the ‘Core’) is an overcollateralized Pool-to-Peer1 lending protocol that brings together savers, lenders and borrowers from a variety of cryptocurrency ecosystems, platforms and brands. This global connectivity is facilitated by the use of multiple front-ends that each provide access to the Core’s single set of liquidity pools.

The Licensor, Residual Token, Inc. (hereafter, ‘Residual’), will build and maintain the Aura FinanceP2P front-end, and will not charge the Licensee, Aura Finance, development or maintenance fees (development is estimated to cost around $50,000 of Residual’s own capital, and maintenance is approximately $3,000/mos). Aura Finance will not incur any out-of-pocket licensing or whitelisting fees for hosting Aura FinanceP2P.

Aura Finance’s treasury will earn 10% of the reserves generated from borrowers connecting through Aura FinanceP2P. In other words, it will earn a portion of the APY that Aura FinanceP2P borrowers pay on loans, and in the case of loan defaults, it will earn a portion of the recovered collateral.

Additionally, revenues from existing Aura Finance trading tools are projected to increase due to higher trading volume. Residual projects a 30-40% increase in Aura Finance’s trading volume as users take advantage of interest paying deposit accounts and affordable loans available through Aura FinanceP2P. Detailed projections are available in the Forecast section below.

Note, the extent of work requested to be undertaken by Aura Finance - at its own expense - will be:

• Adding hyperlinks to the Aura Finance website that point to Aura FinanceP2P.
• Advertising Aura FinanceP2P to both existing and future Aura Finance users.

At the user level, Aura FinanceP2P will:

• Empower Metamask, Wallet Connect and Coinbase Wallet users to earn APY - without relinquishing custody of their cryptocurrency to a third-party - via Aura FinanceP2P‘s Supply or Deposit function;
• Allow users to borrow a select set of cryptocurrency types on an overcollateralized basis at reasonable APYs; and
• Provide users the ability to leverage up, short sell certain assets, or increase purchasing power using safe, reliable and easy-to-use features.

Aura Finance’s users will also have the added bonus of combining the above benefits with the robust trading tools already offered by Aura Finance, thus spending more time in the Aura Finance ecosystem, and increasing overall engagement with the Aura Finance product suite.

The Aura FinanceP2P user interface will be custom designed to fit Aura Finance’s existing brand style. Below are sample images of Residual’s own front-end, ReserveLendingTM. The Aura FinanceP2P front-end will share a similar overall layout, along with custom Aura Finance theming across multiple webpages. (See also: https://app.unfederalreserve.com/markets)

Example I: User View of Current Deposits and Loans Outstanding

Example II: Market Overview

Example III: Liquidations

Example IV: Education Center

Also included with Aura FinanceP2P will be a range of “how-to” videos, along with user access to experts in the DeFi community. These experts will provide knowledge to the Aura Finance community on strategies to employ depending on Aura Finance’s users’ wishes and market conditions.

For

Onboard Aura Finance as a Licensee to Aura FinanceP2P, a front-end of the ReserveLending Core. Residual will build the customized front-end for Aura Finance at no cost to Aura Finance. Aura FinanceP2P will provide Aura Finance users access to the ReserveLending Core in an experience simpatico with the Aura Finance platform today, and will earn Aura Finance 10% of reserves generated through Aura FinanceP2P. Aura Finance - at its own expense - will add hyperlinks to its website that point to Aura FinanceP2P, and will advertise Aura FinanceP2P to its users.

Against

Do not onboard Aura Finance as a Licensee to Aura FinanceP2P.

Context

In business since 2017, Residual Token, Inc. is a Fintech SaaS company specializing in banking, Web3 and DeFi software development. Licensing software is Residual’s primary source of revenue, and a live utility token, eRSDL, is used as part of its Licensing-as-a-Service (LaaS) model, which is explained in detail here: Licensing as a Service (LaaS) for blockchain enterprise solutions | by unFederalReserve | Medium

The ReserveLending Core is a retail DeFi protocol for overcollateralized Pool-to-Peer1 lending and borrowing that is owned by Residual. The Core is based on the Compound® Protocol, which is non-custodial, meaning that Residual does not have control over supplied assets, and users are not exposed to the typical risks inherent in centralized custodial lending. The Core is also permissionless, meaning that any address is free to access the Core’s liquidity pools. A review of the Core’s activity can be found here: unFederalReserve - Key Metrics

Front-ends (interfaces) to the Core allow users to supply assets to earn APY, and optionally use their supplied assets as collateral to borrow on margin. Users across all Core front-ends share access to the same Core liquidity pools. This means that a user accessing the Core from one front-end can supply assets to a liquidity pool; while a user accessing the Core from another front-end can borrow those assets from the same liquidity pool (assuming the borrower has supplied enough collateral to satisfy this key condition to the loan).

Residual hosts a front-end to the Core, branded ReserveLending™. Residual also offers front-end licenses to third parties (Licensees). Front-ends are custom-themed for Licensees, allowing for seamless integration with existing branded ecosystems.

Residual will build and maintain a customized front-end for Licensees, and will not charge Licensees development or maintenance fees. Furthermore, Licensees will not incur any out-of-pocket licensing or whitelisting fees for hosting a front-end.

The extent of work required to be undertaken by a Licensee - at its own expense - will be:

• Adding hyperlinks to its website that point to the front-end.
• Advertising the front-end to both existing and future users.

Allocation of Reserves

The reserves accumulated by the Core are allocated to:

1. Rewards paid to Licensees
2. License fees collected by Residual Token, Inc. (aka unFederalReserve)

Rewards paid to Licensees

The total allocation of Licensee rewards is divided amongst Licensees in amounts reflecting the percentage of the total TVL that is borrowed from the Core through each Licensee’s front-end. Residual tracks and reports on these amounts using URL-related analytics and activity mapping. In this case, Residual will track Core activity tied to the Aura FinanceP2P front-end - using its URL - when estimating the licensing fee. Please refer to the Forecast section for detailed reward projections.

License fees collected by Residual Token, Inc. (aka unFederalReserve)

Given that Licensees do not pay any out-of-pocket licensing fees, Residual collects licensing fees from the Core reserves. In line with the Licensing-as-a-Service (LaaS) model, part of the licensing fees will be directed to reimburse Residual for its costs and profit expectations, and part will be used to conduct open market purchases of eRSDL tokens (eRSDL tokens are digital markers representing license state, and are burned as licenses are consumed).

Licensee benefits of hosting a Core front-end:

• Rewards. Licensees are rewarded part of the Core reserves. A Licensee’s rewards reflect the TVL that is borrowed from the Core through its front-end. The greater the amount borrowed, the greater the rewards.
• No out-of-pocket licensing or whitelisting fees.
• Residual will not charge development or maintenance fees.
• Expansion of product offerings to both existing and potential users.
• Removal of the need to build, test, maintain and audit a similar platform in-house.
• The Core has undergone extensive security tests and audits; most notably Trail of Bits successfully completed an audit just a few months ago.
• In-house Core access means that a Licensee’s users no longer have to visit potentially risky third-party lending services.

User benefits of accessing the Core via a front-end:

• Users can access global liquidity pools that are also accessed by users of other front-ends. As more users are introduced through new front-ends, the size of these liquidity pools is expected to grow significantly.
• Users can earn APY by supplying assets.
• Users can earn profits by shorting assets:

1. Supply asset
2. Borrow asset to be shorted
3. Swap out of borrowed asset into a stable coin on a DEX/CEX
4. Swap back into borrowed asset at a lower price
5. Pay off borrowed asset

• Users can take advantage of arbitrage opportunities:

1. Supply asset
2. Borrow asset
3. Use borrowed asset to invest elsewhere. Profits or APY earned elsewhere should be greater than the Core spread (spread = borrow APY less supply APY, which is the effective cost of borrowing in the Core).

• The Core has undergone extensive security tests and audits.
• The front-end templates used to access the Core are designed for optimal user experience and ease-of-use.

Diagram I: Global Liquidity Pool “Core” Schematic

Forecast

There are a variety of key performance indicators (KPIs) to consider when measuring the success of the Aura Finance-Residual collaboration. The key driver of value for Aura Finance will be the Total Value Locked (TVL) borrowed from the platform. Residual expects approximately a third of Aura Finance’s users to be interested in using Aura FinanceP2P’s deposit capabilities alone, without necessarily leveraging themselves or executing one of the shorting strategies discussed earlier. Given where Residual has seen market rates for borrowing, Residual expects Aura Finance’s treasury to earn a 10% royalty on the estimated 3% reserve fee revenue (refer: Table 1). This 30bps is almost double to triple the standard 0.125% broker fee other borrowing lead-generation platforms receive.

Table 1: Pro Forma Licensing Revenue for Aura Finance Treasury

The figures above represent estimates made by the management of Residual for the purposes of illustrating the potential revenue stream for Aura Finance’s treasury. These estimates should not be relied upon as anything more than Residual’s best guess as to the volume the Aura Finance user base would generate. Residual started with an aggressive growth curve for 2023, assuming a general market turn-around and increased adoption of Aura Finance as Aura FinanceP2P and other products are added to Aura Finance’s offering.

In this model, for instance, Residual assumes that average borrows can reach $200 million by the end of year 2, and continue experiencing significant growth in the following years. One way to verify or validate this assumption is by extrapolating from current usage trends. If just a tenth of the current daily trade volume went into deposits and was held there, then by year-end, the outstanding borrow balance would be around $50 million.

Additional to the above projections, Aura FinanceP2P saving, lending and borrowing activity is estimated to result in a 30-40% increase in Aura Finance’s trading volume, thus resulting in an increase in its trading-derived revenues. The basis of this estimate is as follows:

Cointelegraph reports that, “… utilization rates, or the percentage of stablecoins taken out as loans versus total supplied, have also fallen to around 30% to 40%… “. Considering that the main use cases for borrowing off Pool-to-Peer lending platforms at present are for shorting from one of the liquidity pools and/or for leveraging into another purchase (note: debt consolidation, one-time purchases, “quiet selling”, etc., are all considered, but are not the main drivers behind margin borrowing in crypto), Residual foresees similar metrics for Aura Finance; whereby its users will supply onto Aura FinanceP2P, borrow stables, wBTC or ETH, and use those funds to swap into new tokens through Aura Finance.

Interest Rate Models and Pricing Oracle

The Core’s current APY model for USDC, DAI, and USDT is a JumpRate Version 2 model described in detail here: Interest Rate Model - C.R.E.A.M. Finance

The model calls for the following inputs when calculating an APY:

Base Rate (Borrow) that includes a floor borrow rate, and logic to increase the borrow rate depending on utilization. At a certain utilization, or percentage of borrows vs total supply, the rate “jumps” to provide a repayment and supplying incentive.

The jump rate for borrowing includes factors such as:

• A multiplier based on utilization;
• A JumpMultiplier when utilization exceeds a “Kink” amount; and
• A Kink amount or utilization rate above which triggers the JumpMultiplier.

The existing factors for each pool that determine its utility include:

• Collateral Factor: The Collateral Factor is the percentage of value that one is able to borrow against their total supply value. Looking at historical price data, Residual found a 90% collateral factor on stables to be a sensible choice. This higher collateral factor helps protect accounts’ positions from volatility of asset prices, and from liquidations. This assumption is based on Gauntlet’s simulation risk report done on the Compound protocol. (Gauntlet).

• Reserve Factor: The Reserve Factor is the percentage revenue the platform earns from its borrowers based on current borrow APYs and outstanding balances. Residual has lowered reserve factors to 15% to align with and beat other market participant’s settings. (The reserve factor is used to calculate the reserves collected, aka the Reserve Fee, whereby the Reserve Fee = Borrow APY * Reserve Factor).

The Core relies on an accurate token price oracle to constantly confirm margin balances versus borrowing limits (i.e. token price values in USD are also used for reporting purposes). Token prices in the Core are derived from a Chainlink® oracle. The Chainlink oracle was chosen for its accuracy and reliability - to avoid sudden hiccups in value accidentally triggering liquidations. As part of this proposal, Residual will bear the cost of maintaining the oracle as well as other elements of the infrastructure requiring regular maintenance and payments.

Here is an example of the USDC interest rate model:

Diagram II: Interest Rate Model (Example)

Changes to the interest model are controlled via Residual’s policies and procedures. These procedures include internal governance meetings to review the overall performance of the Core. Residual compares its rates and utilization to its competitors, along with the other factors mentioned above. It is Residual’s goal to maintain a leading position in terms of the highest supply APYs and the lowest borrow APYs available. Residual does not control all the market conditions required to meet those goals, but Residual does monitor and market the Core and its front-ends accordingly.

If through the governance process, a decision is reached regarding a factor adjustment, then the impact of the change is socialized across a variety of channels. If the impact of the change will result in an inattentive user being negatively impacted, then the change is voted on by members of the eRSDL (unFederalReserve) community. As a software provider, Residual strives to abstain from making changes to the Core’s parameters, in favor of letting market conditions play out.

Security

Residual considers user and product security a top priority. The implementation team, in collaboration with third-party auditors and experts, has worked hard to build a Core that is secure and dependable.

The Core is managed in-house by Residual and has governance and security protocols in place that prevent corruption of its contracts. From a process perspective, changes to the Core’s key terms and provisions require management review, approval, and robust testing before publishing. Most changes fall into the category of adding tokens to the platform or adjusting interest rate pricing factors to optimize utilization.

Furthermore, the Core shares the same codebase used by unFederalReserve’s institutional permissioned and overcollateralized Pool-to-Peer platform, ReserveLending+, which has also undergone multiple rounds of security testing including an audit by Trail of Bits.

List of audits

The addresses for the Core’s contracts are listed below:

Name	Initializations	Address
unFederal eRSDL	uneRSDL	0xE4cC5A22B39fFB0A56d67F94f9300db20D786a5F
unFederal ETH	unETH	0xFaCecE87e14B50eafc85C44C01702F5f485CA460
unFederal USDC	unUSDC	0x6b576972de33BebDe3A703BfF52a091e79f8c87A
unFederal DAI	unDAI	0x2dbA05B51eF5A7DE3E7c3327201CA2F8a25C2414
unFederal USDT	unUSDT	0x6e2aA5bB90ac37D9006685AFc651ef067E1c7b44
unFederal WBTC	unWBTC	0x5D446FC8DBd10EBAcfE9A427aB5402586af98cD4
unFederal AAVE	unAAVE	0xD837eCa6C91c67D98461A411BA2f00bdA9960a9D
unFederal YFI	unYFI	0x9e29Ce9cD25F4141dF6BB85b27Ef6933a16A5824
unFederal LINK	unLINK	0x031002d15B0D0Cd7c9129d6F644446368deaE391

The following were security audits performed over these contracts. Please note that these audits do not include the 5,000+ hours of Q&A performed by an internal, independent team dedicated to that function.

• Trail of Bits (ReserveLending+, which includes white-listing) - unFederalReserve - Final Report (4.19.22).pdf - Google Drive
• Coinspect 2021 - Coinspect-UnFederalReserve Smart Contract Audit v210413.pdf - Google Drive
• All Compound® audits completed prior to April 2021

Regulatory Compliance

Residual maintains a robust AML policy consistent with its role as software provider for a self-custodial product. Residual is FinCEN registered as a general entity; meaning that it is not obligated to report suspicious activity, however it chooses to do so in order for the unFederalReserve ecosystem to present to regulators in a manner consistent with expectations. Residual maintains consumer lending counsel among other attorney groups for this such purpose, and users of Aura FinanceP2P should expect to checkbox their understanding and agreement to end user terms of use. Users are also subject to the platform’s privacy policy which may change from time to time to align with evolving regulations.

Bad Borrowers and Recourse

Over-collateralized borrowing and lending reduces concerns around an individual’s willingness and ability to pay, and instead focuses on the use of collateral as the security interest against borrower default. The technology of the Core allows for liquidation bots to pay off loans whose outstanding balance as a percentage of its related collateral exceeds the collateral factor. However, there are instances where highly volatile collateral will drop too quickly for the bots to liquidate the loan. In those instances, vast amounts of loans may become unsecured. Worse still, as the value of the collateral rises, bots may re-engage and liquidate default loans as the price of the collateral rises; thus, putting sell pressure on the collateral token until all the liquidations have been cleared.

Options are limited here, but thankfully, the instances where enforcing recourse are few. One concept toyed around with by permissionless lenders is the dropping of forgiveness letter NFTs into the offender’s wallet, informing the borrower of the tax implications of a forgiven loan in an effort to encourage paying back the loan. In general, the best way to limit these occurrences is to only allow stable collateral at reasonable borrow caps in those wallets. Residual does not currently cap the amount of a given token that can be borrowed, but this might be a feature to consider leveraging if utilization reached and held a rate untenable for long-term platform viability.

A development for which Residual advocates includes “Supplier’s Rights”, where supplier’s en masse can vote to: impair bad debts on the platform, encourage an offending party to repay its loans, or split the collateral that remains on a pro rata basis.

Risks and mitigation strategies

Risk Category	Specific Risk	Mitigation Strategy
Technology Risk	A failure of the Aura FinanceP2P front-end to accept wallet connections, supplied assets, borrows, and/or reflect true and accurate information regarding interest rates, amounts, prices, etc.	Residual’s smart contract Core and front-ends have undergone multiple security audits and QA testing rounds. Residual will continue periodic review and testing, and address customer issues as they arise.
Reputation Risk	A Aura FinanceP2P issue (real or perceived) causes people to associate that failure with the broader Aura Finance platform.	We are all in this together. An issue related to a specific user’s experience affects the entire product line and will be addressed immediately. We (Residual) have undergone crisis management training, and during the volatility of 2021/2022, have experienced handling FUD (real or perceived) across multiple channels. Transparency is the key to folks having confidence in a product. Residual will also support Aura Finance’s larger publicity strategy in the event of a disruption that affects both platforms.
Financial Risk	Cascading liquidations due to massive market price corrections	We cannot control borrowers over-exposing themselves relative to the riskiness of their collateral. Liquidations are a healthy and natural part of any P2P platform. (Consider the analogy of the little bird that cleans alligator teeth). The Core uses a Chainlink pricing oracle to avoid pricing spikes of any of the listed tokens accidently booting borrowers off the platform. This is the best anyone in the industry can do right now to prevent sporadic liquidations. Cascading liquidations might affect collateral price and impact individual borrowers, but would not pose a risk to either company.
Political Risk	Custody rules change or regulatory rules around custody change.	Compound is self-custodial. The DAO, Residual, etc. have no control over the users’ assets at any time. As a technology enabler, Residual is facilitating people transacting with one another and does not see any current pipeline legislation here or abroad that would impact its ability to operate the Aura FinanceP2P in a regulatory compliant manner.
Legal Risk	Suppliers or borrowers disagree with the terms and conditions of the loans after they have entered into these agreements and choose to litigate.	Residual has invested tens of thousands of dollars in legal fees designing and implementing the first P2P lending and borrowing agreement that accounts for the nuances of self-custody, changing lenders, changing borrowers, collateral and interest rates. We at Residual are extremely proud of this document that NO OTHER COMPOUND FORK employs to protect users, sponsors, affiliates and supporters of both unFederalReserve and all front-end Licensees. (Note: Residual engages with three law firms - a general counsel (outsourced), consumer lending counsel, patent and trademark counsel).

Conclusion

Residual is excited to offer this opportunity to the Aura Finance community. Residual believes that the increased utility of Aura Finance’s tools via Aura FinanceP2P will make it a leader amongst its peers. Thank you for taking the time to read through this proposal, asking questions and allowing us to address any concerns you may have.

—------------------------------------------------------------------------------------------------------------------------

1 Overcollateralized Pool-to-Peer (P2P) Lending vs Centralized Alternatives

In Overcollateralized P2P Lending, users (lenders) supply assets to a liquidity pool. The lenders can also use their supplied assets as collateral to borrow assets from the pool (thus becoming borrowers). The borrowers are overcollateralized, meaning the value of their collateral exceeds the value of their borrow. The Collateral Factor determines how much a borrower can borrow relative to their supplied collateral. The borrowers are charged interest (borrow APY), and the Reserve Factor determines how much of this interest is awarded to lenders (supply APY), and how much is collected by the operators of the protocol (in the protocol’s ‘reserves’).

Although the material contained in this website was prepared based on information from public and private sources that Residual Token, Inc. d/b/a unFederalReserve believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and Residual Token, Inc. expressly disclaims any liability for the accuracy and completeness of information contained in this or any article.

This article, our website, social media posts and other public forum materials are distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. The information, opinions and views contained herein have not been tailored to the objectives of any one individual, are current only as of the date hereof and may be subject to change at any time without prior notice. Residual Token, Inc. does not have any obligation to provide revised opinions in the event of changed circumstances.

All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.

Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a finance, tax or legal professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal objectives, needs and risk tolerance. Residual Token, Inc. expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.

[Contributor]

Welcome to the forum, brother. I changed the heading of your post from AIP to Temperature Check to align with forum rules.

Regarding your proposal, this appears identical to:
[BIP-XXX]: Save. Earn. Borrow w/BalancerP2P (includes: licensing fees, increased LP activity, new product, more engagement) - General Proposal - Balancer;
Proposal: Save. Earn. Borrow w/BancorP2P (includes: licensing fees, increased LP activity, new product, more engagement) - DAO Archive (SUBMITTED) - Bancor Governance Forum; and
Commonwealth – dYdX,
but w/ the words Balancer/Bancor/DYDX replaced with Aura. What specific, differentiated value are proposing to offer to the Aura community?

[Aura_unFed]

Thank you for making those edits!

Just like CocaCola is sold on the shelves of many grocery stores, or perhaps more aptly, ConAgra makes corn-based products under multiple brands, our global liquidity contracts can provide the same benefit to multiple entities without diluting the positives for the licensor (Aura, Bancor, Uniswap, etc.)

In fact, some of the strengths of having multiple front-ends wrapped around common liquidity cores is:

• the visual appeal of liquidity from jump; meaning, Aura would not need to provide an incentive to users to supply and borrow
• alternative access points for users should any one of the other front-ends not be accessible
• lower customer acquisition cost for Aura from folks using other global liquidity core front-ends, but prefer your experience to others
• more market data for improved pricing strategies and behavior monitoring

Thank you for your comments and for, potentially, this exciting opportunity to collaborate.

-howard

[punkgod]

I echo the statements by Xeonus in the Balancer thread: [BIP-XXX]: Save. Earn. Borrow w/BalancerP2P (includes: licensing fees, increased LP activity, new product, more engagement) - General Proposal - Balancer I’m not seeing how this brings any value to the Aura ecosystem…

[Xeonus]

Just the fact that this proposal is posted / copy pasted to several forums without any context speaks for itself. I also suggest Aura to not consider this nonsense.

[Aura_unFed]

Thank you for your feedback, but this is far from nonsense!

We seek to become the global liquidity provider for applications across the non-custodial ecosystem. Much like visa or mastercard is behind myriad credit products, the flexibility of our rails provides and IDEAL framework for permissionless products to expand their utility!

Here’s our original Bancor proposal video where we speak to the pros and cons of such a strategy: Bancor & unFederalReserve: Global Liquidity Pool Proposal - YouTube

Our team is comprised of some of the greatest consumer lending minds in the States and our over 200yrs+ experience speak to our ability to deliver on our statements.

As to the question v/v value… Aura will 1) benefit from a tried-and-true pool-to-peer lending platform administered by an experienced lending and fintech team 2) have greater brand stickiness due to folks being able to save, borrow, short and increase purchasing power and 3) the ability to quickly add three test products within 90-days whereas building/testing and getting a team together to run the thing would take years!

Let’s do this together. -howard

[defi_bandit]

Greetings all.

As someone who has been following Residual / unFederalReserve’s product development over the last couple of years, I wanted to offer my take on their P2P lending proposal, how their licensing works, and how it could benefit potential partners including Aura and Balancer.

To my understanding, Residual is one of the first (if not the first?) to implement a US regulatory compliant DeFi as a Service model (basically SaaS for DeFi). They are licensing out a non-custodial lending solution to potential partners who would like to provide such a product, but don’t want to build and maintain it themselves (since it is costly to implement properly). Note that partners are not required to pay out of pocket license fees for this solution.

Residual is outlying $50k to build each partner-branded front-end (that can access a P2P lending back-end called the Core). This arrangement is risky for them given that a DAO/community could vote to terminate an agreement shortly after they spend the $50k.

Residual aims to make that $50k back and then some by collecting license fees from the Core’s reserves, and they will also pay rewards out of the reserves to the partner’s treasury wallet. If you have heard Howard say that Residual will pay a royalty fee in return for using a partner’s branding, he is referring to the rewards being paid to the partner from the Core reserves.

On this note, once rewards are in the partner’s treasury, I don’t see why the rewards couldn’t then be distributed to community members if this is voted on separately…?

Another thing to consider is the risk to a partner, particularly if something goes wrong with the Core back-end. Regarding this, based on my observations and inquiries, Howard and his team are committed to ensuring the Core is safe and secure. They are also releasing an institutional-only version of the Core back and front-ends (currently in test), which says to me that they back their product, and equally as important, the bank and Custodian they are partnering with also back their product. Also, both the retail and institutional Core have been audited, and the live retail Core is closely monitored and tweaked accordingly in line with market conditions - see for example ReserveLending Proposal: Stablecoin Interest Rate Model (IRM) Adjustment Proposal — June 2022 | by unFederalReserve | Medium

IMHO if an entity is interested in implementing retail DeFi lending with the aim of bringing in more users to its ecosystem, increasing usage of its primary products, and also earning more revenue (with no licensing expense or long-term commitments), I think this is the safest, most cost-effective and easiest option - providing Residual decides to put up the 50k to get the ball rolling.

[Trantor]

Thank you for the detailed explanations. I am inclined to agree with Xeonus on his comments in the Balancer forum HERE. Scrolling through your app page it appears that almost all of the trading activity was in 2021 with very little trading or lending and borrowing in 2022, especially recently with daily amounts well under $1k. I may be incorrect and am happy to be proven wrong.

Based on this it does not seem like Aura Finance would benefit from this integration as the exposure gained would be very small and the reputational risk could be high. Aura also just approved a recent proposal to work with Silo Finance (AIP 18) and and this would compete directly with what Aura has already developed with them! I do not understand the risk to reward ratio here in this potential proposal.

[Chromff9]

Not really in favor of something like this I am afraid, as it will most likely have a negative outcome and nothing positive for either Aura or the community itself.

[Matt_AlfalfaOrSpanky]

I agree with the comments above. Im not really sure what this proposal brings to the table for Aura. And the “spray-and-pray” method of making a nearly identical post on multiple forums is not a good look.

[Aura_unFed]

Thank you for the response! Daily amounts are small as a function of markets in general. The acquisition funnel for non-custodial defi users has a narrow top and bottom. At the top, the only users targeted for the product are those that use Metamask, Wallet Connect or Coinbase wallet. This population is very small, and a lot of those early adopters had a challenging 2021 because of broad market pullbacks.

Looking at dollar amounts supplied and drawn from the core product understates the potential given depressed product prices across the board. A better metric would be the 31k safe and successful transactions or the $700 million in flows through the core contracts since inception.

I cannot speak to whether this product would compete with another Aura product, but that should definitely be considered before voting.

[Aura_unFed]

Thank you for your comments! Gut feelings are important and should not be invalidated outright.

However, we have the best interests of both products in mind. Your success is our success, and we look forward to collaborating in a positive, safe manner.

We are former bankers and accountants and technicians and do not want to add undo risk to any partner. This is why Circle, Securitize, Percent, Plaid, Fireblocks as well as our banking partners have been comfortable engaging us to date.

[Aura_unFed]

It would be great to hear more about your concerns or support related to the economics of the offer.

We do take exception to the mischaracterization of our outreach.

We are offering our global liquidity pools to every non-custodial product on the market because we believe and love this space! We know one- or two-trick ponies will be decimated by platforms that offer a diverse product offering.

We have limits to our own development capacity, and so the first of these DAO (and some non-DAO) projects that makes the right decision to partner with us will realize the benefits. Frankly, if the decision to collaborate is bypassed during this outreach, it may be a challenge to partner up once the dance card is full.

Thanks again!

[Matt_AlfalfaOrSpanky]

Hey there - in this instance, I’m pretty comfortable with the characterization of these outreach efforts. While your intention may have been different, an approach like the one Ive seen here and on the other forums generally comes across like a Constant Contact email blast or unsolicited LinkedIn advertising messages. In the future, I recommend a more tailored approach to the specific protocol or community to which you’re offering this service.

I also don’t believe you’ve answered @Contributor’s initial question, which was, “What specific, differentiated value are you proposing to offer to the Aura community?” The answer I saw appears more general rather than specific to Aura.

By way of examples that illustrate both of these points, the proposal mentions Aura’s “robust trading tools,” “trading derived revenues” and that “Residual projects a 30-40% increase in Aura Finance’s trading volume as users take advantage of interest paying deposit accounts and affordable loans available through Aura FinanceP2P.”

What exactly did you mean by these statements? What are Aura’s robust trading tools that you mentioned? And how exactly was a 30-40% increase in Aura’s trading volume calculated?

And why/how is the 30-40% projection identical for Bancor, dydx, Balancer, and Aura?

While I think it’s great to have options as to FEs, the proposal doesnt really express how this would be a value differentiator for Aura here.

[Aura_unFed]

Thank you for the follow-up comments and going forward we will consider those comments in our outreach.

The appeal to the Aura Community vs appealing to Aura Customers is a common issue when it comes to DAOs. It’s incredible, really, and likely a great PhD dissertation. Across crypto the needs and incentives of the hodlers are different than the needs and incentives of the business as it relates to serving its customers. For the sake of addressing the question, Aura picks up 3 additional product sets branded in it’s own livery. Increased usage of Aura and stickiness likely increases interest in folks joining the community. Everyone wins.

As far as differentiation, the winners will all likely offer the same five or six services as one-stop shop locations for non-custodial crypto services. P2P is the beginning. How about cash<>crypto conversion, apple pay/google pay rails, tradfi asset investing, portfolio tools, etc.? These are all things the winner will offer. We are your first, best step in that direction. Apologies for not knowing the backgrounds of Aura’s founders or the biographies of its community members, but there are only a handful of people in the COUNTRY that have the skills and abilities we bring to the collaboration. And a house is only as good as its foundation. (https://www.linkedin.com/in/howardjkrieger/)

The volume increase (in this case misstated as trading volume) is based on the only real use case for borrowing in the cryptosphere. The demographic for crypto hodlers is still 18 to 45 yr olds holding an average $60k in debt (mostly student loans) with the good news being the gender/race mix is more diverse than gen pop. Great to see. The rates on the existing debt make debt consolidation in crypto impossible (i.e. real world debt rates are lower than crypto lending rates [shame, btw]) and using crypto loans for a one-time large purchase is also off the table for the same reason. Loans on P2P platforms are denominated in the borrowed asset, so one cannot borrow and “go long” as their loan balance would appreciate with the token.

Therefore, the three options when it comes to borrowing on a pool-to-peer platform are 1) proxy sale (e.g. you don’t want to sell and take the cap gains hit, so you borrow/walk knowing that no one can come after you), 2) shorting (e.g. take out an ETH loan, swap the ETH for USDC, stake back, now you are short ETH), or 3) lever up buttercup! (e.g. borrowing to increase purchasing power to ape into a new bag or expand an existing one). Given those three uses as fact, with average utilization of Compound, Aave, Maker hovering around 30% to 40%, we know that the proceeds from those loans (all but the Type 1s) are being swapped into something else. The proceeds AuraP2P borrowers draw from their loans will likely go right into those pools substantiating our volume increase expectations.

The Aura Customers (and not necessarily the Community) are paying someone else the ability to do this right now. Aura Community could be getting paid by those folks going elsewhere.

That is the long and short of it. I appreciate you taking the time to read the proposal, first and foremost, and the candor / back-n-forth.

Cheers, howard

[Matt_AlfalfaOrSpanky]

Hey Howard - thanks for your response. Great effort and persistence on your end. Please bear with me though, I have a few more questions.

What specific loans would be most beneficial to Aura?
What are the KPIs that you would use to measure “most beneficial”?
How would you go about designing and implementing a plan to maximize those loans?
How would you measure KPI performance as you go?
In what situation would you consider adjusting the KPIs or the implementation plan?

Also, are you familiar with Balancer’s boosted pools and specifically BIP-19 core pools? If not, you should probably read up on them.

[Aura_unFed]

We never go down without a fight

I’ll take a look at BIP-19 and circle back with responses to these questions and give good insight. (On the house, btw if we can change your vote.)

-howard

[Contributor]

Hey, brother, potential proposals are left in Temperature Check status to gauge the sentiment of the community before moving it to a formal AIP and Snapshot. Based on the comments that we’ve seen so far, feedback on this Temperature Check has been universally negative, and resoundingly so. Thus, it’s unlikely that this will be proceeding to proposal for this week–just a heads up.

[Aura_unFed]

Thank you for your feedback!

Umm, I’d argue v/v comments that there have been 5 unique commenters (out of how many DAO members?!?!)

Of those five, 1 has been a detailed critique, 3 have been meh/negative with little more than an emotional appeal against, and one has been a cogent and decent argument FOR the proposal.

We know the Silent Majority supports this collaboration, and look forward to seeing their participation when it matters.

I appreciate your comment because it really brings to the surface an endemic problems with DAOs: participation and sophistication.

It would be great to see an improvement in both of those areas before moving to any sort of vote.

Cheers, howard

[Matt_AlfalfaOrSpanky]

While we’re at it, we can also the solve the historic voter apathy and participation problems in the US at large. LOL.

Feel free tho to drop whatever info you want to share in the Aura Discord and link to this temp check proposal.

I also can’t confirm how I would vote if this goes to proposal and Snapshot, but I promise that I’ll also give you an on-the-house deal for my time spent to help flesh out the details of your proposal a bit more.