[AIP-63] Tokenomics Optimisation and Emission Reduction

Abstract

This proposal re-ratifies AIP-42 for a further 6 months and maps out a number of optimisations to Aura’s tokenomics to reduce overall emission without impacting core functions.

The AURA emission is the backbone of the Aura Protocol, providing fuel to keep auraBAL healthy, boosting yields for LPs, and contributing to the silently consistent 50%+ APR of vlAURA holders. While emission to these pieces is necessary, this AIP begins to transition Aura into long term health by a scheduled reduction in overall token emission. This proposal should reduce the pressure from newly emitted units and allow AURA to return to a more reasonable valuation. The changes proposed here have a net effect of reducing overall emission by 12% immediately, with further reductions scheduled every 6 months, slowly moving emission to sustainable levels over the next few years, while keeping APRs steady and prioritising auraBAL LP & AURA.

Overview

There are many factors/variables involved when looking at the efficacy and health of the overall Aura token emission, and there are also a number of goals that need to be considered when deciding to make any changes. As mentioned above, the Aura emission is critical for maintaining health of the ecosystem and there is a balance that needs to be struck between short and long term health when the community is deciding which levers to pull. This post intends to outline all the current data, define a number of key goals, and propose some tweaks and reductions to the current emission.

It has been 6 months since AIP-42 was implemented, a landmark proposal that aligned voting rounds more closely with Aura stakeholders by concentrating AURA emissions to Aura snapshot vote results. It was stipulated that it is required to re-ratify the 90k units/w that are going out as part of this emission (around 17th February). In order to align this with voting rounds, changes from the re-ratification would take effect on round 44. This is thus a good opportunity to review the wider emission numbers and look to optimise wherever possible to ensure Aura has a smooth transition into the long term.

Current data

⚠️ Disclaimer: this data was compiled on 28/01, there are many internal and external variables involved which may be subject to change

Sources:

• This data set contains projections being discussed here.
• Data on recently vlAURA voting rounds can be viewed on Llama Airforce or Defilytica.
• Historical stats/APRs can be found on the Aura app or Defillama.

Key takeaways from the current data (Figure 1):

• BAL being farmed by Aura contributes to around 60% of the overall revenue, due to Aura’s consistent success in attracting Balancer LPs, where Aura farms over 70% of the BAL emission, and controls over 53% of the veBAL votes.
• Current emission is around ~350k AURA per week, roughly contributing to around 40% of Aura’s overall revenue across LPs, vlAURA, auraBAL and AURA/ETH. Each of these serves an important piece.
• vlAURA currently valued at a discount vs vlCVX in both P/E (1.65 vs 3.12) and against holdings (0.5x vs 0.74x) (Figures 1.1 and 1.2)
• Fees going to auraBAL from veBAL are reasonably substantial at $30k/w now that Aura’s veBAL share has grown.

Other observations:

• auraBAL peg has been consistently around 99% for the past year
• Active AURA/ETH liquidity has been decreasing over past 6-12 months, while the POL held in the 80/20 pool stayed consistent, with a current $4.8m overall liq
• Circulating supply is currently around 44m, with 2.6m to be returned to the treasury from an Arbitrum pool

Current APRs
Value flows	BAL ($USD)	AURA ($USD)	ETC	Current Sum	Current TVL	Current APR%
vlAURA	$12,366	-	$212,936.05	$225,302	$19,320,000	60.64%
LPs	$231,866	$114,250	-	$346,116	$315,000,000	5.71%
auraBAL Pounder	$69,217	$35,416	$25,950	$130,582	$31,500,000	28.02%
auraBAL LP	-	$33,120	-	$33,120	$8,500,000	20.26%
AURA/ETH LP	-	$10,350	-	$10,350	$2,400,000	22.43%

Previous optimisations

There are a number of levers to pull: fee rates/destinations, mint rates (i.e. how much AURA minted per BAL) per pool/auraBAL, LP Incentives amounts/strategies & AIP-42 emission amount.

There have been a number of relevant proposals/changes over the past 12 months:

• [AIP-26] Optimize AURA/ETH and AuraBAL Stable Incentives to Maximize Protocol Benefit
• [AIP-42] Maximizing Value of Aura LP Incentives & Bootstrapping L2s
• [BIP-371] Adjust Protocol Fee Split
• [BIP-408] Change Passive Fee Distribution
• [BIP-521] Cap individual voter weight on Snapshot

Proposal

Reduce overall emission and extend the lifespan of the Aura emission whilst optimising for impact on core functions and users. Core functions include:

• LP capacity & competitiveness
• vlAURA yield & voting incentive capacity
• auraBAL staking & LP yields
• AURA liquidity

When taking the current data into account, each of the above functions is being catered to reasonably well proportionally. Thus, the proposal is to make a decrease across the board, with a few exceptions:

• AURA/ETH liquidity should be given a relative boost
• auraBAL LP incentives should be prioritised over time to protect the peg

Changes

See Figure 2 on the sheet to understand how these changes affect the emission.

A) Redirect vlAURA fees (auraBAL) to AURA/ETH liquidity

This change takes the 4% fee currently attributed to vlAURA holders and redirects it to be used as extra incentives on the AURA/ETH pool. This change results in an almost doubling of the AURA/ETH LP APRs while removing the base yield on vlAURA. Proposed by a large vlAURA holder on Discord who feels that the auraBAL yield is wasted yield/dust for most actors in the locker.

B) AURA reduction

This change is a relative reduction in AURA distributed to each function. Given the Balancer emission decreases yearly in March, this naturally reduces Aura minted on “LP Rewards - mintRate” and “auraBAL - mintRate”. Additionally, for the “Other” allocation, this naturally decays over time. Thus, the reduction affects the following:

• “LP Rewards - AIP42” & “AURA/ETH - LP”: 15% initially, and 8% every 6 months
• “auraBAL - LP”: 9% initially, and 4.8% every 6 months

C) Remove 2% fee going to the auraBAL pounder

This change has the effect of marginally reducing the overall fees to auraBAL to the benefit of LPs and also reduced net AURA mints.

Dest	Before	After
Fee rate - auraBAL [Pounder]	2.00%	0.00%
Fee rate - auraBAL	18.50%	18.00%
Fee rate - vlAURA > AURA/ETH	4.00%	4.00%
Fee rate - harvester	0.50%	0.50%
Total fees	25.00%	22.50%

Effects

As shown in Figure 2 & 2.1, these changes have a net effect of reducing overall emission by 12% immediately, with further reductions scheduled every 6 months, slowly moving emission to sustainable levels over the next few years, while prioritising auraBAL LP and AURA.

Changes would happen on round 44.

Technical specification

• A
  • call setExtraReward on 0xdd8ab2eaf5487fab70c36f6997afb1d5d743e516 to add auraBAL as an extra reward
  • call setCrvDepositorWrapper on 0xd9e863B7317a66fe0a4d2834910f604Fd6F89C6c with a custom ICrvDepositorWrapper that mints auraBAL and queues up as an extra reward
• B
  • call setRewardPerEpoch(76500000000000000000000) on 0x54231C588b698dc9B91303C95c85F050DA35189B
  • add a new ChefForwarder to the Masterchef by calling add with on 0x1ab80F7Fb46B25b7e0B2cfAC23Fc88AC37aaf4e9 with 20 allocPoints
• C
  • call setFees(1800, 400, 50, 0) on 0xCe96e48A2893C599fe2601Cc1918882e1D001EaD