The Three Kinds of DAO-to-DAO Partnerships
As Flipside’s Governance team, we recognized that DAO-to-DAO partnerships have yet to be analyzed in adequate depth. We are active in DAO governance day in and day out and have witnessed the blooming partnership between two of the most formidable DeFi protocols, Aave and Balancer first hand.
After reading hundreds of proposals, talking to key stakeholders and crunching terabytes of data, we’re able to provide a comprehensive 41-page analysis on the results.
I’ll extract how DAO-to-DAO (D2D) partnerships were made in this post and go into the data in a follow up article. You can also jump the queue and access the full report here.
One aspect that was of particular interest to us as Flipside Governance is how D2D partnerships are formed and driven. We managed to distill the various modes of engagement into three main categories:
- Founder or core team led partnerships
- Professional governance org led partnerships
- Community led partnerships
The Aave x Balancer D2D relation fits into each one of these categories at times. Here’s the relevant chapter from our report:
A Partnership Made on Discourse
Where do I begin
To tell the story of how great a love can be
The sweet love story that is older than the sea — Song lyrics by Andy William (Love Story)
The partnership you’re about to get intimately familiar with is not your average Hollywood love story. But the protagonists aren’t your typical movie starlets either. Even so, community members of these two DAOs saw something profound in what the other had to offer. Some complimentary capability paired with the deep expertise and trust that comes from time-tested smart contracts.
And now that you know more about how these protocols are governed, those of you with an eye for a story have probably grasped an important omission. If you read the last chapter carefully, you might have noticed that any reference about permissions, roles or mandates for certain actors but not for others is missing. That is by design.
Both of these DAOs are in some existential way entirely driven by their communities. Even the newest and most inexperienced member on the Aave forum can draft a clever proposal and if enough token holders see value there, it will get executed.
“Chaos! Anarchy!”, you might say. And you’re right. Sometimes these forums and chats can be chaotic, disorderly and downright noisy. But ever so often a hitherto unknown anon, with a cute PFP and an alias for a name, comes along and makes a proposal that stops the light banter and frothy speculation mid sentence. And then, after a short, intense silence full of gigabrains pondering the ramifications, you start to see a lot of nodding heads. Only that in the cyberspace of decentralized organizations, this nodding is usually visible in the form of Likes on Discourse or 👍or 🚀on Discord. With the occasional 💯and :this-tbh: thrown in.
DAO to DAO (often abbreviated D2D) partnerships come in a variety of forms and flavors. Some are brokered by core teams or founders, others are championed by governance professionals like Llama or Flipside Governance, and some are made without any back and forth, without asking for permission, in a way that only true open source software on transparent, decentralized and permissionless networks can enable. Aave ❤ Balancer touches every one of these categories at some point.
Balancer Pools in Aavenomics
First, Aavenomics, as Aave called the tokenomics of its governance coin, already included Balancer pool contracts from the very beginning. Aave features a Safety Module that contains funds with a one-week lock-up duration that can be sold to cover bad debt in the case of a shortfall event. These are user funds in the form of staked AAVE, that were voluntarily deposited into the Safety Module to get a part of the Safety Incentives, a regular distribution of AAVE tokens.
Aave devs killed two birds with one stone and added the possibility for users to deposit AAVE/WETH Balancer Pool Tokens (BPTs) into the Safety Module. A Jedi Master move that deepens liquidity for AAVE on-chain and allows users to get Balancer trading fee rewards on top of the Safety Incentives.
Aave users have been busy and confident to stake their $AAVE in the Safety Module to secure the protocol. The amount of stkAAVE has been on a consistent upward trend ever since Safety Module went live.
Security conscious readers might point out that Aave’s Safety Module is now exposed to an external actor. Rest assured, Aave devs got that covered. The 80/20 AAVE/WETH pool is a Balancer contract deployed and audited by Aave, and as such fully controlled by Aave governance. Oh, the joys of permissionless building when combined with open source innovation.
Strategic Partnership in Two Parts
Second, Llama proposed two strategic partnerships with Balancer on the Aave forums in March and April 2022, which resulted in Aave purchasing 300,000 BAL, among other things. This made Aave one of the top 30 BAL holders and very influential in Balancer. ’cause partners are important in that way, too.
The initial proposal by Llama already envisioned purchasing the full 300k of BAL but adjusted to 200k via a token swap with $AAVE after community feedback. In the second proposal Llama managed to convince the Aave community to purchase another 100k BAL via a bonding curve contract. The purchase was finalized in December 2022. Here’s a schematic of this aspect of the partnership.
The Community Drives the Ship
Third, the most important part of the partnership is the community, who has not only happily used the results of the partnership like BAL yield on stkAAVE or Balancer Boosted Pools, but improved almost every aspect through proposals by passionate members.
Notable community members that were instrumental in shaping this partnership were: Marc Zeller aka lemiscate, monet-supply, rabmarut, depressedape and DavisRamsey.
In the end it doesn’t matter what core members or governance professionals believe, if the community doesn’t agree and support the development, the effort will be in vain.
We’ve dug through the forums on both Aave and Balancer and distilled a timeline of the partnership for your convenience. And because we are a blockchain data company we wanna finish this chapter with a dashboard illuminating the number of users who voted on proposals in both Aave and Balancer governance.
Lastly we want to close this chapter out with a chart that shows the number of votes by users who voted on both Aave and Balancer proposals in Snapshot.
If you want to know more about this extraordinary story, download the full report as a PDF here: fscrypto.co/dao-to-dao-analysis
Want to collaborate with us?
Reach out on Twitter or email us at governance@flipsidecrypto.com. If you want to support our work, delegating to us is the best way. It costs almost nothing (some gas fees) and puts your tokens to the best possible use.
Our delegate address for Hop, Optimism, Aave and others is flipsidecrypto.eth.
