Acquisition of veBAL, auraBAL, and vlAURA

Intro

This proposal contains two initiatives to acquire veBAL, auraBAL, and vlAURA via a one-time purchase to kickstart the flywheel mechanism and a modification of the current Optimism protocol fee distribution in order to continue to increase exposure to these assets without further use of current treasury funds.

Background

Aura Finance is a protocol built on top of the Balancer system that provides maximum incentives to Balancer liquidity providers and veBAL stakers through social aggregation of veBAL deposits. Read more here: https://docs.aura.finance/aura/what-is-aura. To learn more about veBAL, look here: https://docs.balancer.fi/ecosystem/vebal-and-gauges.

Recent discussion amongst Beethoven Ludwigs (https://discord.com/channels/885764705526882335/1010923236877422672) has involved the pros and cons of directing treasury funds to allow for active participation in the recently initiated flywheel effect that has been eagerly awaited since the deployment of Beethoven on the Optimism network. The first bribing round via Hidden Hand on Optimism using BEETS, USDC, and OP tokens to direct BAL emissions towards the Rocket Fuel pool was a massive success, resulting in an increase of TVL from ~$40,000 to north of ~$2,330,000 as of time of this writing, a substantial increase in TVL considering a bribe amount of just ~$8,300 (50,000 BEETS, 2,500 USDC, and 2,100 OP). Given that an increase in TVL will generate increased fees, and that bribe amount is directly related to generated fees (50% of Beethoven’s fees on Optimism are used as bribes), bribe amounts are only expected to continue to increase, thus further increasing TVL, and so on (hence the “flywheel” effect).

Thanks to the recent passage of the “Restructure of Treasury Assets” proposal (https://snapshot.org/#/beets.eth/proposal/0x2de0c116162b820bed17351164f1806106a04eb19c9499648d5725fd75b36dbe), Beethoven now has over $250,000 worth of Protocol Owned Liquidity (POL) in the Rocket Fuel pool. As such, the protocol will be actively earning BAL token emissions. However, per the agreement with Balancer Labs, any farmed BAL tokens are restricted in use to holding or sending to the Ethereum network to be converted into veBAL. While this is certainly a good thing, accumulating a substantial veBAL position using these farmed BAL tokens to actively direct BAL token emissions to Beethoven pools will take time a significant amount of time.

The treasury currently has ~$930,000 worth of stable coins between ~$720,000 of USDC in the treasury wallet and ~$210,000 of stablecoins in POL in Fantom pools. Considering that $500,000 should be available for a potential bug bounty and ~$250,000 should be available as project runway, ~$180,000 is currently not being utilized in a capital efficient manner.

Additionally, the current protocol fee distribution on Optimism is the same as on Fantom: 50% to protocol owned liquidity, 30% to bribes on Fantom, 18% to team, and 2% to eco-fund. Half of the fees collected on Optimism are first directed towards bribes on Hidden Hand for Beethoven pools (currently only Rocket Fuel); after this the above allocation occurs. The 50% allocation towards POL from the Optimism network is currently “chain agnostic,” meaning that these funds can be used to accumulate POL in Beethoven pools on Fantom, Optimism, or both, at the discretion of the Liquidity Committee, though must be used to accumulate POL in Beethoven pools. However, the 50% allocation towards POL from the Optimism network could instead be used in isolation to further increase veBAL, auraBAL, and vlAURA positions on Ethereum to promote the flywheel effect without the need to further tap into treasury funds.

Motivation

This proposal seeks to gain community approval to direct $75,000 worth of USDC tokens in the treasury wallet on the Fantom network towards the Ethereum network in order to obtain a position in the Balancer and Aura ecosystems in order to actively participate in the flywheel effect. One third of this amount would be allocated towards the purchase of veBAL. One third would be allocated towards auraBAL, which would then be staked to earn rewards. One third would be allocated to the purchase of AURA, which would be locked as vlAURA.

Additionally, the proposal seeks to reallocate the 50% of fees on Optimism that currently goes towards the accumulation of POL in Beethoven pools instead be bridged to the Ethereum network to be evenly split towards the purchase of veBAL, auraBAL, and vlAURA on a monthly basis. This would result in a silo effect of 50% of fees collected on Optimism (effectively preventing this allocation from reaching Fantom) and reduce the total amount of POL accumulated each month in Beethoven pools; however, the treasury would still be accumulating assets, albeit in Balancer and Aura on the Ethereum network. This aspect of the proposal will allow the protocol to “dollar cost average” into veBAL, auraBAL, and vlAURA on a monthly basis without the need to further tap into treasury funds. This would not have an impact on the 30% allocation on Optimism towards bribes on Fantom. In theory, the resulting flywheel would increase fees generated on Optimism, resulting in larger amounts of fees directed towards bribes on Fantom, directly benefitting fBEETS holders.

Impacts

The proposal would have 3 main impacts.

Diversify treasury funds via exposure to both Balancer and to Aura Finance, a project that directly benefits the Balancer (and by extension, the Beethoven) ecosystem. Several DAOs have recently acquired positions in Aura, have deposited liquidity into Aura, or are discussing doing so, including Gnosis DAO, Temple DAO, Badger DAO, Aave DAO, Olympus DAO, and Redacted Cartel.

Provide the opportunity to passively farm AURA, BAL, and bb-a-USD tokens via staking veBAL and auraBAL, as well as auraBAL via locking AURA. In addition to the potential upside that AURA and BAL may have, this will allow for additional capital generation for the treasury.

Finally, and most importantly, the initial purchase will allow the protocol to rapidly kickstart the flywheel mechanism that recently began with the initiation of Hidden Hand bribes on the Optimism network by using veBAL and vlAURA to direct BAL emissions towards Beethoven’s pools. The shift in allocation of POL accumulation away from being confined to Beethoven pools towards accumulating positions in the above projects on Ethereum will result in the continued expansion of treasury assets that will directly benefit Beethoven on both Optimism and Fantom.

Risk Assessment

There are inherent smart contract risks.

BAL and AURA are volatile tokens, and their price may fluctuate. This is a risky proposal insofar as that the treasury is reducing its stable reserves in favor of positions in volatile tokens. However, price fluctuations in these token values should be irrelevant to the main purpose of this proposal, which is to increase the BAL emissions towards Beethoven on Optimism in order to attract liquidity and increase generated fees. Additionally, given the bear market is in full swing, the long-term trajectories of both BAL and AURA may be bullish.

Having a position in vlAURA will expose the protocol to receiving its own bribes. However, the bribes received by the protocol can simply be added to the next round.

veBAL and vlAURA positions could become diluted over time. However, using the 50% of Optimism fees that are currently being allocated to POL to instead further increase these positions, as well as reinvesting any farmed tokens on the Ethereum network, will minimize any dilution of the initial position gained via the one-time purchase.

An initial aggressive strategy using 50% of generated fees on Optimism to accumulate positions in veBAL, auraBAL, and vlAURA will be beneficial in directing BAL emissions towards Beethoven on Optimism. However, as generated monthly fees increase, this allocation may need to be revisited and shifted once again towards accumulation of POL in Beethoven’s pools. As an example, an initial reduction to 30% towards accumulation of veBAL, auraBAL, and vlAURA to allow 20% to be used for POL could be a reasonable intermediary step in the future and would be up to the community.

Specifications/Execution Plan

If approved, the following would take effect:

The Liquidity Committee would direct $75,000 USDC from the treasury wallet and 0.5 ETH (to be used for the sole purpose of gas fees) from the Fantom network to the Ethereum network.

One third would be converted to veBAL and locked for the maximum amount of time (1 year).

One third would be converted to auraBAL and staked.

One third would be converted to AURA and locked as vlAURA.

The veBAL and vlAURA would only be allowed to vote for Beethoven pool(s) during gauge votes. Vote allocation will be decided by the Liquidity Committee.

The veBAL and vlAURA voting power may be used to vote on Balancer Improvement Proposals and Aura Improvement Proposals at the discretion of the liquidity committee for or against proposals in a manner that aligns with the best interests of Beethoven.

Once per month, rewards would be first harvested and then allocated as follows: harvested BAL would be reinvested as veBAL and lock time would be again extended to the maximum (1 year); harvested auraBAL would be staked; harvested AURA would be locked as vlAURA; harvested bb-a-USD would be swapped for ETH to ensure ongoing coverage for gas fees on the Ethereum network.

Once per month, 50% of protocol fees collected on Optimism (after the 50% of fees has been removed for the purpose of Hidden Hand bribes) would be bridged from Optimism to the Ethereum network and evenly split to purchase veBAL with max time lock (16.66%), purchase of auraBAL which would be staked (16.66%), and purchase of AURA to be locked as vlAURA (16.66%). These can be combined with the above harvested rewards per the Liquidity Committee in the most efficient manner possible to reduce gas costs. The rest of the allocation would remain unchanged (30% towards bribes on Fantom, 18% towards team, 2% to eco-fund).

Once per month, any farmed BAL on Optimism by the protocol will be bridged to the Ethereum network and converted to veBAL along with the above harvested tokens. Again, this will be combined with the above to reduce gas costs to the extent possible.

Any bribe rewards received by the protocol due to actively voting with vlAURA will be added to the next bribing round.

Any time that vlAURA expires, it will be again locked as vlAURA.

Conclusion

This proposal aims to direct $75,000 worth of treasury stablecoins towards positions in veBAL, auraBAL, and vlAURA in order to direct BAL emissions towards Beethoven pools on Optimism. The proposal will also direct 50% of protocol fees on Optimism (after 50% reduction that is allocated towards Hidden Hand bribes) to the Ethereum network on a monthly basis to purchase veBAL (16.66%), auraBAL (16.66%), and vlAURA (16.66%).

A vote “For” the proposal would direct the funds towards the Ethereum network for the above purposes.

A vote “Against” the proposal would not direct funds in this manner; no funds would be transferred, and the current Optimism protocol fee distribution would remain the same.