Aura Balancer Boosted Aave strategy

SUMMARY

Build and deploy a yield-earning strategy utilizing the Aura Balancer Boosted Aave USD pool as an initial entry into the Balancer ecosystem.

BACKGROUND

One month ago, voters selected Aura bb-a-USD as the most interesting potential strategy from a group of 11 candidates for the Exponent team to investigate. After a few weeks, they produced the following risk report:

https://exponent-cx.notion.site/Aura-bb-a-USD-Risk-Strategy-Report-36ef8390734443bd9a2d7488ea4c1430

OVERVIEW

If approved, this proposal would signal to the Origin core team that there is interest in exploring integration with Balancer and Aura. Implementation of the strategy would be subject to further review of the protocols involved and an economic analysis of the strategy and its associated risks.

ARGUMENTS AGAINST

In Exponent’s detailed report, they identify at least five reasons why this strategy should not be prioritized at this time and may not be worth the risks involved:

• Multiple custom integrations would be necessary
• There is compounded financial and smart contract risk
• Balancer and Aura lack very many stable pools
• The current implementation of the pool has been live for less than six months
• Comparable yields can be generated from other strategies

ARGUMENTS FOR

Balancer is a growing AMM with a handful of pools that could become interesting for us. Since the beginning of OUSD, we had planned to integrate Balancer along with Curve and Uniswap as LP strategies to generate trading fees. They have been innovating with their AMM for several years now and have been audited by the top security firms that we respect and have also used for our own audits.

At times last year, Balancer has shown signs of a budding governance war analogous to what has happened with Curve. Aura is a meta governance layer and Convex fork that has gained traction capturing 10-60% of BAL emissions in various weeks over the past eight months. There is demand for the governance tokens of both protocols as well as a path to generate a sustainable base APY as DeFi adoption grows.

This strategy in its proposed form would utilize the Balancer Boosted pool that unlocks idle liquidity by generating interest from borrows on Aave. However, there are likely to be other similar pools launched in the near future. The Balancer team recently proposed¹ to launch a similar pool integrating Euler in place of Aave, and voters agreed to distribute EUL incentives on a trial basis. There is a possible future where multiple boosted pools are competing with one another for liquidity and AURA emissions, both of which would drive higher yields for OUSD.

While this strategy would be more complex than our existing integrations, it’s not fundamentally different from what we’re doing now. The monitoring recommendations are consistent with what we should be tracking for other strategies as well. And although this one has only been live in its current form for six months, our existing minimum bar for protocols has been 90 days (e.g. Morpho Aave).

Ultimately, we need more strategies to be able to facilitate yield for more OUSD holders as we grow. The Balancer ecosystem provides an interesting playground for us to explore different possible yield sources, and the Aura bb-a-USD pool has consistently produced a higher yield than many of our other existing strategies over the past several months.

Reference ¹ https://snapshot.org/#/eulerdao.eth/proposal/0x8f046317b789af0de687334356a63005c2e213beb446ff620e43e5f356020c3e