Following a proposal by @Lord_Bogdanoff, and in line with the current Aura goal, which is to accumulate veTokens (now veBal), this temp check should allow us to discuss a bonding sale of Aura for veBal.
You can read about bonding here if you need a refresher.
The bonding could be:
a) Only directed toward DAOs and large buyers
b) Open to everyone, using a bonding mechanism
I prefer the first option, as DAOs are much less likely to sell the Aura acquired through this channel.
I must add that we’re enjoying a good coincidence:
Balancer recently decided to proceed with a sale of 250k Bal (worth around 1.75M$)
Aura could act as a broken between Balancer and Olympus: Olympus gives 1M$ to Balancer for its Bal tokens, which will be converted to AuraBal and are exchanged for Aura.
This is clearly a winÂł situation, where all DAOs avoid slippage/frontrunning, with little downside overall.
Of course, all of this discussion is conditioned to the technical feasibility of diverting a share of the total supply.
This proposal is essentially a veBAL to Aura swap, with Aura being priced at a discount. So I have a few concerns here:
First, there’s a significant danger to this line of thinking because willing market participants still frequently mint auraBAL at fair value. If this is implemented, you’ll be signaling that previous minters who paid full price, arguably the most ardent supporters of the ecosystem, aren’t as valued as new buyers.
Second, unless this is a permanent discount, this program could have a chilling affect on future minters. Everyone will naturally sit around and wait for the next sale or promo, rather than entering immediately.
Third, where would the $AURA for this program come from? Tokenomics are fixed, so this proposal would need to include not just the technical specifications to make this happen, but also a re-examination of Aura’s entire token structure.
I don’t feel I’m smart enough to foresee the impact of a change like this. I don’t think it’s actually that hard to buy up $1m worth of Aura over the course of say 4-6 months with sub 10% slippage considering Aura’s emitting so much and so many people are looking to sell their claimed rewards. It’d be great to get someone to come in a buy a ton of AuraBal but I also worry about freezing market activity if it’s understood there’s a smart way to buy into Aura and a dumb way only used by plebes.
In the end I think there are a few end goals here:
Foremost: Increase the veBAL managed/AURA in circulation.
In order to do that: Maintain decent peg on veBAL to make people feel SAFU in their ability to exit later.
Not to also be forgotten: AURA needs the biggest boost/most veBAL for the farms to work at their best.
This proposal would only really make sense to me if by bonding, or otherwise selling, AURA for auraBAL would be if we could increase the ratio of AURAbal/AURA and then use the resulting auraBAL to help stabilise the peg while generating further returns for the DAO/treasury.
This might be possible, but it’d need a lot of work to figure out and model. It seems unlikely that bringing AURA into circulation and selling it at a discount for auraBAL is likely to improve key metrics much.
Tbh i think the idea presented on the forum is OK but I don’t think that “bonds” are needed - it’s basically a trade with trusted parties who are going to provide fresh capital.
What could also be good (instead of buying directly and acquiring POL) is an up front payment for committing to locking up veBAL with fresh capital - . e.g. commit to minting&locking 50000 auraBAL for 2 years, get ~100k+ vlAURA up front and then earn the yield on the auraBAL (numbers not final but an idea)
“Fresh capital” is important - it implies that the creditor is not going to be dumping an existing auraBAL position to participate in this program. This is equally important in the bonds thing if there is a discount involved.
How much would we be able to acquire via the sale? I think all counterpoints above are valid but if Aura is able to accumulate enough veBAL it could have a meaningful bootstrapping effect. IMO, need to get back on track to having a stronger plurality position of veBAL and % of BAL rewards so as to ensure Aura is at the foundation of the veBAL ecosystem and unchallengeable.
There’s also likely some math to do. Will the transaction be accretive or dilutive to overall br*be efficiency to Balancer LPs?
The vast majority of Balancer TVL has already been captured by Aura. It’s not clear to me how swapping Aura for veBAL would be accretive. Aura represents +80% of the primary pools, what is left to accumulate?
Hello, I do not feel this proposal is value accretive for Aura.
Bonding was brought up in the auraBAL discussion as a method to acquire veBAL at a lower rate than what we currently pay i.e. 3.56 AURA per BAL according to Grafana.
But having AURA buyers on the secondary market is crucial to the protocol’s mechanics, especially if we want a flywheel effect. An increase in AURA price = increase in AuraBAL and Aura LP APYs = increased users and TVL = increased veBAL revenue = increased AURA revenue = increased AURA price. Positive AURA price action also allows us to charge a higher BAL performance fee for LPs, if we choose to do so.
If we go through with such a proposal, I would ask for swaps to be at fair market value at the very least. Helping protocols acquire AURA with no slippage or price impact is already a huge discount imo.
3.56 Aura is distributed per BAL farmed, however only a small fraction of this BAL is locked as veBal (and then AuraBal) by the protocol – the rest is distributed. Only 3% of the total BAL farmed goes to mint AuraBal (or 16% of the fee Aura takes - 4 points of 25%).
Hence, any mechanism, be it OTC or bonding (or else) will reduce Aura’s dilution in the long term.
Furthermore, because the Balancer APY boost depends mainly on the ratio % of veBalOwned / % of the liquidity pool owned, Aura has a very low boost at the moment. Increasing our veBal owncership would increase the amount of Bal farmed and would allow us to increase the fee and/or reduce Aura’s emissions.
As for the secondary market, right now many farmers are minting Aura for “free” and selling it, which depresses the price. Selling a share of those tokens OTC or by bonding and reducing the emission as a result would reduce the selling pressure, and increase the price, as most owners are retail users that lock to get incentives.
Hence, any mechanism, be it OTC or bonding (or else) will reduce Aura’s dilution in the long term
Unless we change emissions via a redeployment of the smart contract this would not be the case, right?
Aura has a very low boost at the moment
We need concrete data on how increasing veBAL ownership affects our boosts. From the Balancer docs, boosts are also limited by the size of liquidity deposits. I do not think our boost scales linearly with our veBAL share, but we need formalized calculations to confirm.
To address the initial proposal, let’s make a scenario.
Aura is trading at $2.7 and DAO A wants to make an OTC exchange with 270,000 USDC for 100,000 AURA, and we exchange that 270,000 USDC for 14,754 veBAL at a market price of $18.3. We increase AURA’s circulating supply by 0.472%, while increasing our veBAL share by 0.541%, a win overall.
Pros:
We increase share of veBAL while diluting AURA at a lower rate
We bring fresh veBAL into AURA
We improve Aura’s fundamentals, by increasing gauge boosts and emission control
More emission control = more voting incentives
Cons:
We remove buying pressure from the secondary market
If DAO A used 270,000 USDC to purchase AURA, they would only receive 94,629 AURA on Matcha.xyz, increasing AURA price from $2.7 to $2.85.
This sets a bad precedent for future buyers. Why would they buy if there are privileged parties getting better deals than them? Moving forward, will whales/DAOs market buy or OTC? Does it stifle AURA price appreciation?
AURA price appreciation is very important for
Getting more AURA per BAL via fee and emissions tweaks
Attracting TVL and increasing BPT liquidity, thus increasing veBAL revenue
Attracting more voting incentives due to appreciation in emissions per USD
Overall, I feel the OTC deal was a dynamic solution brought up in context of our inefficient AURA<>BAL exchange rate, caused by our static tokenomics. I strongly urge meditators to first consider building long-term dynamic solutions into our tokenomics such as
The ability to tweak performance fees
Keeping the 4% fee paid to AURA lockers in auraBAL in the treasury instead, promoting the auraBAL peg and mints.
Reducing auraBAL emissions/fees, converting it to funds used to buyback auraBAL or lock new veBAL.
Using increased performance fees to buyback auraBAL or mint new veBAL into the treasury
If the DAO still believes we are required to bootstrap veBAL locks, proceeding with OTC trades is definitely beneficial. However, to build a healthy secondary market, we must not set a long-term precedent for OTC/bonding. Furthermore, I believe we should charge a positive slippage fee to OTC buyers, as a signal to secondary market buyers that may feel short-changed.
Prior to determining whether or not to bring in capital partners via OTC/bonding, it would be helpful to better understand the need for acquiring additional vebal in the first place. The argument that the protocol isn’t at max boost is irrelevant if aura has already captured the majority of bal tvl. Selling aura for bal requires either accretive in-place cash flow pickup, which is pretty clearly not the case given relative aurabal apy, or enabling future growth that cannot otherwise be obtained. The latter does not seem to be true on mainnet given the current capture level, but may be true to enable rapid expansion on L2 or elsewhere once crosschain is ready. Regardless, if the goal is further expansion then it would be helpful to outline the target market size to better understand the potential capital allocation return profile. Selling aura at a discount to market to appease unknown large potential stakeholders of unknown value add for unknown capital allocation is questionable.
The larger the veBal share captured, the more interesting it is for third parties to incentivize Aura votes toward the pools of their choice, and the higher the revenues of vlAura holders.
Aura’s goal isn’t to capture 100% of the TVL of Balancer, it is to accumulate as many veBal as possible, as this is the way we’ll maximize our returns as Aura holders.
Currently, we’re “selling” Aura to liquidity providers at a very, very deep discount. It’s a matter of perspective, and such operation could happen at a premium.
I, however, agree regarding the expansion to another L1 or L2, which would kick Aura’s flywheel even stronger by diversify it and increasing its utility.