[AIP-26] Optimize AURA/ETH and AuraBAL Stable Incentives to Maximize Protocol Benefit

Authors: 0xShunbun, Lamentations, 0xahtle, with support from the Aura Maxis

Summary

Aura DAO currently incentivizes both the auraBAL Stable and the AURA/ETH pools via voting incentives on Hidden Hand’s veBAL and vlAURA market. However, as these markets have compressed in efficiency, it has made less sense to always allocate to Hidden Hand to incentivize these pools. To ensure stable yields and to reduce net emissions, Aura DAO can add incentives to these pools through different methods to better optimize efficiency.

Background

In AIP-2 and AIP-6, Aura DAO voted on proposals that allocated AURA to Hidden Hand as voting incentives to increase the liquidity of the 50/50 auraBAL/[8020 BAL/ETH BPT] and 50/50 AURA/ETH pools.

These proposals did well to bootstrap liquidity for both pools while efficiency in the vlAURA market was high, in excess of 1.5 to 2x. Yet over recent voting cycles, efficiency for incentives has begun to compress toward 1x, resulting in attempts to maintain efficiency by testing the waters in the veBAL market. While this has had some effect, voting incentive efficiency in the veBAL market is inconsistent and comes with the risk that veBAL holders not aligned with Aura DAO can obtain large amounts of AURA with little return to the DAO.

Emitting AURA from the treasury into voting incentives also has the effect of Aura DAO effectively ‘double-spending’ on emissions, assuming those tokens are not put out of circulation via locking. vlAURA voters that get AURA as voting incentives are more likely to lock their AURA than veBAL voters that get AURA as voting incentives.

With this in mind, we propose the following incentive model to maximize cost-effective incentives for these key pools:

• If vlAURA efficiency was above $1.4 last cycle, add incentives to the vlAURA Hidden Hand market to the point where efficiency is expected to reach $1.4
• If vlAURA efficiency is under $1.4, allocate voting incentives veBAL via priced voting incentive markets (e.g. Hidden Hand v2, or if unavailable, any provider supporting $/veBAL at the discretion of the multisig) at a price of the value BAL emissions for those same votes (implying a ~2x efficiency))
• For AURA left over from these mechanics (either the vlAURA market compresses to a projected 1.4x or the veBAL market incentives are not allocated), allocate the remainder to direct emissions via a new “VirtualRewardPool,” which would allow AURA rewards to be directly distributed to LPs, such that the net AURA spend on these pools is the same every two weeks

Note: vlAURA efficiency is voting efficiency as defined by Llama Airforce.

Specification

Should this proposal pass, the following will be implemented:

For AURA/ETH incentives

1. Allocate 40,000 AURA per vlAURA epoch for 25 cycles (totaling 1,000,000 AURA) from the treasury to the Aura incentive multisig mentioned in AIP-6 for the AURA/ETH pool. This will be sent to the incentive multisig in batches of 250,000 AURA to minimize operational risk, and to leave AURA for other initiatives. The incentive multisig will allocate AURA to voting incentive markets or as direct incentives based on the aforementioned conditions.

2. Set up an ExtraRewardStash for the AURA/ETH pool with the following specification:

{
  "version": "1.0",
  "chainId": "1",
  "meta": {
    "name": "Transactions Batch",
    "description": "",
    "txBuilderVersion": "1.13.3",
    "createdFromSafeAddress": "0x5feA4413E3Cc5Cf3A29a49dB41ac0c24850417a0",
    "createdFromOwnerAddress": "",
  "transactions": [
    {
      "to": "0xCe96e48A2893C599fe2601Cc1918882e1D001EaD",
      "value": "0",
      "data": null,
      "contractMethod": {
        "inputs": [
          {
            "internalType": "uint256",
            "name": "_pid",
            "type": "uint256"
          },
          {
            "internalType": "address",
            "name": "_token",
            "type": "address"
          }
        ],
        "name": "setStashExtraReward",
        "payable": false
      },
      "contractInputsValues": {
        "_pid": "0",
        "_token": "0xC0c293ce456fF0ED870ADd98a0828Dd4d2903DBF"
      }
    }
  ]
}

1. End AIP-6’s ongoing incentive program 2 vlAURA voting cycles early. 40,000 out of the 60,000 AURA left can be recycled to this new program, for a total of 26 cycles, while the remaining 20,000 can be returned to the treasury.

For auraBAL Stable incentives

1. Continue the same rate of emissions to the auraBAL Stable pool as specified in AIP-3, though under the same conditions as the AURA/ETH pool

Voting

This RFC will be live for a few days, and if it sees no contention from the community, will be turned into an AIP for voting this upcoming voting cycle.

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 adjusting AURA/ETH and auraBAL Stable incentives as specified in the proposal.