Introduction to Aura, Yield through Social Aggregation
Introduction
This is the second post in the series of articles covering the Balancer and Aura ecosystems. The first article explained the mechanics of Balancer: how economic and governance power flows through Balancer from the perspective of liquidity providers and governance participants (veBAL holders). Similarly, this second article will describe the different value flows within Aura Finance from the perspective of liquidity providers, BAL BPT holders, and AURA token holders, as well as some operational aspects. Because voting is a key component in economic value allocation, we will start this post with a brief overview of Hidden Hand, the current platform in use for governance incentives, commonly referred to as “bribes’’.
Hidden Hand and Voting Incentives
Similar to how the veCRV ecosystem evolved, the veBAL model paved the way for bribing markets. Hidden Hand is currently the main adopted platform where veBAL bribing takes place, having two distinct marketplaces: one for Balancer (veBAL) and one for Aura (vlAURA, more on that below).
Tokens aside, both marketplaces work in a very similar way:
- A person looking to incentivize a certain pool (typically protocols looking to increase liquidity in specific pools) will pick a voting round (i.e. a specific epoch or week), a gauge, and a token and quantity to incentivize with.
- Voters who voted for an incentivized gauge will receive incentives proportionally to the voting power they voted with.
- Once a bribe is in place, users will be able to see all relevant information on it: the “Total Reward Value”, the votes that the gauge already received, and the current rewards per vote. Further information on the bribing tokens and amounts can be found by clicking on “View Details”.
- Users can also choose to delegate voting to Hidden Hand, which will balance votes across all available bribes, seeking the best possible dollar return for the delegators.
- Once a round finishes, Hidden Hand distributes rewards pro rata to votes received on each gauge. These rewards can be claimed in the platform as well.
Bribing unlocks additional revenue streams to token holders. The possibility to translate voting power into economic power generates value for tokens’ economics.
Understanding Aura Finance
Aura Finance is a protocol built on top of the Balancer system which aims at increasing revenue for Balancer liquidity providers and veBAL holders through the social aggregation of BAL deposits. By aggregating both BAL deposits and liquidity while creating a liquid representation of veBAL (auraBAL), it:
- Generates a larger boost of BAL captured through BAL allocation on gauges,
- Unlocks more revenue streams for BAL owners by providing auraBAL while maintaining voting power,
- Separates the yield generation potential of veBAL from the vote weight.
Those of you that are familiar with the Curve Wars might find similarities between the way Aura Finance works on top of Balancer and how Convex works on top of Curve, and this nurtures the expectation of having comparable growth. More information on Aura Finance Protocol can be found in Aura’s docs and their web app.
With respect to value flows in AURA, it is possible to observe three distinct flows centred on BAL holders, liquidity providers, and holders of AURA (the Aura Finance governance token).
auraBAL Holders
In order to achieve veBAL aggregation, Aura takes in BAL BPT which is locked for maximum time in Balancer’s platform, maximizing the veBAL holding. Aura can also take in BAL tokens, which first deposits in Balancer and then locks the BAL BPT it gets in return. In return, the protocol provides auraBAL in a 1:1 ratio for each BAL BPT received.
The two main use cases for auraBAL are either staking them within the platform or pairing them with BAL in a Balancer stable pool. Both options are further incentivized with Aura’s governance token AURA.
From the protocol’s perspective, being a veBAL holder means that Aura’s treasury receives a portion of the Balancer protocol fees, and BAL is allocated to veBAL holders, as the image below illustrates. However, BAL and bb-a-USD received as rewards are only forwarded to users that have staked auraBAL. These users will also receive Aura protocol fees.
As mentioned before, users holding auraBAL can deposit them in the auraBAL stable pool and become an auraBAL/BAL liquidity provider. Liquidity providers are then entitled to stake those BPTs in Aura and receive an additional AURA allocation. As per AIP 2, 5% of the emissions are directly allocated to this pool, while an additional 5% is allocated as voting incentives for it. AURA allocation will be further explained later.
Even though BAL BPT is permalocked within the platform, users can still exit their positions through the auraBAL stable pool (in contrast to locked veBAL).
Liquidity Providers
Balancer liquidity providers are able to deposit and stake BPT tokens (as well as the underlying tokens) in Aura Finance. Once assets have been staked, LPs will have access to Aura’s BAL allocation boost on Balancer granted by veBAL aggregation. These rewards are received in BAL.
For Aura to leverage on liquidity and veBAL aggregation, both liquidity and veBAL are held in the same address (0xaF52695E1bB01A16D33D7194C28C42b10e0Dbec2). There are at least three ways to get to know Aura’s boost:
- Aura’s UI will show it when clicking on the information icon next to the APR. An informative block will pop up with the boost, as well as additional information on how the APR is composed, as illustrated in the snapshot below.
- Using any impersonating method, such as the Rabby wallet, the same information can be accessed from the Balancer’s Portfolio UI when impersonating with Aura’s address.
- Though more indirect than the previously mentioned means, Aura’s boost can be calculated by using the min function explained in the first article.
For those readers that are on the rigorous side, the min function can also be used to calculate the impact that new liquidity would have on Aura’s boost. LPs are further incentivized with additional AURA incentives, as 50% of AURA’s emission is allocated to liquidity providers pro rata to the BAL received by the protocol.
AURA Holders
Each stakeholder that receives $AURA also faces a decision point on how to best invest it. One option is to lock $AURA in the Aura platform which will result in getting $vlAURA in return and unlocking governance participation in snapshot. Aura’s governance has three distinct use cases:
- Voting on Aura Improvement Proposals (AIPs)
- Participating directly in Balancer Governance and Balancer Improvement Proposals (BIPs) with the underlying BAL.
- Participating in Balancer gauge weight voting. This process takes place every two weeks starting on Thursday at approx. 02:00 UTC and ending on the following Tuesday at 00:00 UTC. When users vote with vlAURA on a gauge, they decide how much of the underlying veBAL will be allocated to the same gauge. More information on rules and limits can be found here.
Users that lock AURA will receive a portion of the protocol fees (4% in auraBAL since AIP 4 passed). One interesting aspect of AURA’s tokenomics is that no AURA is used to incentivize the locking of the same token, seeking to limit the inflation that translates into selling pressure. Additionally, vlAURA holders that participate in gauge voting receive voting incentives.
AURA holders can also deposit them in Balancer’s 50/50 AURA/WETH pool and, once again, stake those BPTs in Aura Finance. As with any other pool, liquidity providers will be receiving BAL from the Balancer gauges (75%) with Aura’s boost, plus AURA minted pro rata to the BAL earned. Aura governance has decided, as part of AIP 6, to use 30k AURA of the treasury per vlAURA epoch (two weeks) throughout a year (total 780k AURA) as incentives for the 50/50 AURA/WETH. These incentives are split between veBAL and vlAURA voting markets in Hidden Hand optimizing for incentive efficiency and returns for vlAURA holders.
Aura Protocol Fees
Having covered the main user flows, let’s switch to a protocol view of Aura Finance. As mentioned before, Aura stakes both liquidity and BAL in Balancer using the same address, leveraging the social aggregation of veBAL to generate a bigger boost on gauges and capture more BAL allocation. The protocol uses this inflow of BAL to pursue two strategic objectives: increase the amount of protocol-owned BAL and generate sustainable incentives for different stakeholders.
As mentioned before, after AIP 13, 25% of BAL received is classified as protocol fees (which is the maximum configurable ceiling of 25%), with the remaining 75% allocated to liquidity providers. The 25% is allocated as follows:
- 20.5% (lion’s share) is allocated to auraBAL holders in BAL. This amount was increased to further incentivize BAL deposits.
- 4% is allocated in auraBAL to vlAURA holders (AURA lockers). This amount was decreased as part of AIP 4 (from 11%). Voting incentives on vlAURA votes complement revenue streams on the locked strategy.
- 0.5% of received BAL (2% of all protocol fees) is allocated to the user that calls the harvest function caller which claims and distributes rewards.
AURA token allocation
Let’s now briefly touch on AURA token allocation.
With the total amount of AURA being 100M, Aura’s distribution goes as follows (more info here as well):
- 50% allocated to Liquidity Providers pro rata to the BAL generated. Initially, 3.9 AURA is going to be minted per BAL (link), and this number will decrease in time trending down towards 1.4 AURA per BAL.
- 5% allocated as voting incentives to the auraBAL/(BAL/WETH) pool.
- 5% as direct incentives to the same auraBAL stable pool.
- 10% allocated to core contributors (vested over 2 years).
- 17.5% allocated to the Aura community treasury for future projects and the growth of the Aura flywheel.
- 5% has been allocated to an LBP in Balancer to introduce AURA liquidity in the market. An initial 2% was used in the LBP, and the remaining 3% was to be paired with ETH on the 80/20 AURA/WETH pool. There has been some discussion on the size of the AURA liquidity pool not being enough, and potential solutions (auctions and bribing).
- 2% as rewards for BAL deposits during auraBAL bootstrapping (already happened).
- 3.5% as airdrops (2.5% initial airdrops for Balancer, Convex, and LobsterDAO communities, and 1% as future airdrops). AURA used for the auctions mentioned in the previous bullet (300k AURA) is actually taken from the unclaimed airdrops (only around 1% from the initial 2.5% airdrop has been claimed)
- 2% vested over 2 years to be used for collaboration with Balancer.
Conclusion
The purpose of this post was to explain the different value flows within the Aura Finance ecosystem. Overall, it can be stated that the protocol seeks to generate a larger boost through the social aggregation of veBAL while separating the yield generation aspect from the governance one. As voting on gauges is a key element of the Balancer and Aura ecosystems, the mechanics of bribing have also been briefly discussed by describing voting incentives on Hidden Hand.
Related Articles
Here you can find the first article of this series of posts, which focuses on Balancer.
We hope this series of introductory posts will help everyone familiarize themselves with this DeFi stack and, hopefully, those who want to take their first steps into the ecosystem.
