Proposal: [Pilot] Aera for Moonwell

[shaan]

Title: [Pilot] Aera for Moonwell
Author(s): @shaan, @jakeaujus
Submission Date: Tue May 2, 2023

Summary:

The Gauntlet team recently launched Aera, an autonomous treasury management protocol. The initial version of Aera was built specifically for lending protocols like Moonwell. This proposal is to run a free Aera pilot for a portion of Moonwell’s Apollo reserve funds.

Overview:
Aera is a solution for optimizing DAO funds autonomously and on-chain. For most DAOs, treasury funds (e.g., reserves, treasuries, safety modules, backstops) are not actively managed or adjusted based on market conditions. For DAOs, this can lead to an inability to maintain runway, cover liabilities, and benefit from growth in the market. Traditional institutions can allocate funds to more nimble managers who make day-to-day decisions, but DAOs face numerous challenges with this model including governance and creating strong incentive alignment with external managers.

Aera provides DAOs with a one-stop solution for managing treasury funds efficiently and transparently. The Aera protocol consists of vaults, which are constructed on a per-protocol basis and can hold a combination of stablecoins, native tokens, and other cryptocurrencies. The objective function of the vault is determined by each DAO and is highly customizable ranging from simply keeping fund proportions in line with borrows, to complex hedging strategies using on-chain options. Vaults are automatically rebalanced by multiple actors (Guardians and Arbitrageurs) who compete on-chain to propose the best combination of assets in the portfolio. This ensures that the vault objective is met across a wide range of market scenarios and time horizons.

Below is an image of how Aera works.

• Guardians are experienced risk analysts and can be institutions or individuals. They will compete by periodically submitting asset weights to rebalance the vault, which evolve over time to keep up with the objective and market variables. Their submissions are aggregated amongst other Guardians and weighted based on historical performance. To participate, Guardians must stake their own assets and reimburse the vault if their decisions underperform.
• Arbitrageurs in the open market execute transactions to rebalance to the Guardians’ preferred allocation to earn profit

Motivation:
The Moonwell Apollo market has accumulated around $1M of reserves, which are now primarily in the form of USD stablecoins (USDT, USDC, FRAX), MOVR, and ETH. These reserves are static and do not help the DAO future proof its reserve needs. With the launch of Aera, there is now a purpose-built solution that simplifies and automates much of this optimization.

A few key benefits for Moonwell:

• Aera helps to minimize bureaucracy. The DAO doesn’t need to plan strategies, but rather just pick assets.
• The Aera protocol continuously rebalances Moonwell’s fund portfolio based on market conditions
• Aera will eventually allow for coordination of a decentralized network of actors working together transparently on-chain to optimize the vault

Pilot Description

For our initial use case we built an Aera Vault that allows DAOs to capture gains in periods of market strength and protect losses during downturns. Specifically, we built an Aera vault comprising of ETH and USDC that allows the DAO to target a specific portfolio volatility level (i.e. 5%, 10%, 15%) as a method of managing overall portfolio risk. This Aera vault is rebalanced on a daily basis to target the specified volatility level. A volatility targeted portfolio is a common product in TradFi to better manage portfolio risk in a way that is adaptive to market conditions.

Some additional details

1. The initial objective of the vault will be the volatility target decided on by the DAO
2. Gauntlet will serve as the initial Guardian with all fees set to zero. There will not be other guardians participating for this pilot.
3. Guardians and Arbitrageurs continuously rebalance the vault based on the volatility target decided on by the DAO and market conditions.
4. The Moonwell community can view vault performance through a public dashboard and withdraw funds at anytime.

Implementation
We want to start with a small test pilot for Moonwell in Q2 to build trust in the Aera protocol. Throughout the quarter, we will share performance updates for these funds and provide a dashboard that is open to the public. Assuming the pilot goes well, the community can vote to increase the allocation size once the pilot concludes. Currently, Aera is only launched on Ethereum Mainnet and Polygon. The Aera Vault for Moonwell Apollo, would live on Polygon and comprise of ETH and USDC that is rebalanced on a daily basis. As such in order to fund this vault we will need to move funds from Moonriver to Polygon, the steps are described below:

Pilot steps:

1. Moonwell snapshot to align on specific volatility level that the Aera Vault should target. We will create a snapshot with 3 different volatility levels that the community can align on:
   1. Volatility target 5% (Conservative Risk Tolerance) - based on the past year, this target would have roughly rebalanced between 4-9% ETH and 91%-96% USDC. This volatility level has in the lowest exposure to ETH relative to the other volatility levels. Lower exposure means that the vault could see lower gains/losses in $ terms.
   2. Volatility target 10% (Moderate Risk Tolerance) - based on the past year this target would have roughly rebalanced between 8-20% ETH in the vault.
   3. Volatility target 15% (Aggressive Risk Tolerance) - based on the past year this target would have roughly rebalanced between 13-29% ETH in the vault. This target would have the most exposure to ETH. More exposure means that the vault could see more gains/losses in $ terms.
2. Moonwell governance approves a recallable unsecured loan to Aera via a governance vote. Loan terms are below*, some highlights:
   1. Loan can be recalled at any time via Moonwell governance
   2. If the value of the vault drops below $200k for 7 or more continuous days, the Vault will be shut down and Aera will return $200k to Moonwell
3. In the case that the above governance vote passes, $250k from Apollo USDC.multi reserves would be deposited into an Aera vault on Polygon
   1. Specifically, the steps would be:
      1. Upon passing, the governance proposal removes reserves from the protocol and transfers them to an Aera team owned wallet (cross-chain compatible) on Moonriver
      2. From there, the Aera team unbridges from Moonriver to an Aera team owned wallet on Ethereum, then bridges USDC from Ethereum to an Aera team owned wallet on Polygon
      3. The funds are then deposited into an Aera vault on Polygon via a Aera team owned multisig
4. If the Moonwell wishes to recall the loan at any time, this can be done via a snapshot vote indicating the community preference to recall. At this point the Aera team will withdraw from the vault and return the funds to the Apollo Reserves (described in loan terms*)

Why Aera

This initial version of Aera allows DAOs to put idle assets to work in an autonomous, risk-aware manner. We have been testing Aera internally at Gauntlet for over 9 months and have been operating a ETH/USDC Aera vault on Polygon with our own funds. In addition Aera has been audited by Spearbit, which can be seen in our docs.

FAQs:

• What does this cost?
  • Free during pilot phase
  • Cost structure will be considered in late 2023 during scaled rollout phase
• When will there be more Guardians?
  • During the scaled rollout phase in late 2023. A new version will launch with the ability to assign new Guardians and enable vault fees to promote Guardian specialization and competition.
• Are there docs?
  • Yes! See docs.aera.finance

Next Steps:

It would be great to hear the community’s feedback on trialing Aera and happy to answer any questions – please comment below. If there is no pushback, we will follow up with a snapshot and subsequent governance proposal.

*Loan terms
Aera Foundation will receive a loan of USDC in an original principal amount of US $250,000 equivalent market value (the “Loan Tokens”) for an initial term of six (6) months, to be renewed automatically unless an affirmative recorded snapshot vote of non-renewal is taken by the Moonwell Apollo DAO. The loan may be recalled at any time by an affirmative recorded snapshot vote of the Moonwell Apollo DAO; in which case Aera shall promptly repay the Loan Tokens, subject to standard processing and transfer protocols. If the value of the Loan Tokens should decrease by more than twenty percent (20%) for a period of more than seven (7) continuous calendar days during the term of this loan, then Aera shall promptly repay the Loan Tokens and additional USDC in an amount adequate to return not less than $200,000 equivalent market value of USDC to the Moonwell Apollo DAO.

[0xrobinhood]

Hi guys!

i am a total fan of you at gauntlet and your new product is definitely great for daos…i would also like to thank you for what you have already done for apollo, although it wasn’t always easy ( voting )
and i would immediately accept your offer for apollo reserves…but i‘m asking myself…

-1m$ reserves
-500k$ mCap $Mfam
-1.5m$ FDV $Mfam

And currently able to vote are less than 250k worth of $Mfam,

idk, wouldn’t it be better to do something for the value of $mfam with the reserve ? something like a buyback with the reserves or there are many other options…

dont get me wrong, i really really appreciate the „free“ offer for the apollo reserves from you guys!

Just wondering what other mfam holders think about it🧐

Best

[shaan]

Thanks @0xrobinhood for the kind words! With Aera our goal is to help drive the longevity of DAOs by ensuring that they have the necessary reserves fund in place to cover insolvencies, pay contributors, as well as grow during times of market strength. At a high level we don’t want to get rid of the diversified reserves that the Moonwell Apollo DAO currently has, as this can be used directly to sustain the DAO in the future.

[0xrobinhood]

Thanks for the answer ok, i get you and support this proposal

So for example with the other assets like Movr & Ksm we could work out something to help the value and continuous staking rewards of the safety module ?

[shaan]

Next steps

In order to take this forward, we will be kicking off a snapshot vote targeting Monday 5/8/2023.
This snapshot vote will be a Ranked Choice vote, which means voters will need to select options in their order of preference. We will give the following options:

• Yae, Aera pilot with 5% volatility target (Conservative Risk Tolerance)
• Yae, Aera pilot with 10% volatility target (Moderate Risk Tolerance)
• Yae, Aera pilot with 15% volatility target (Aggressive Risk Tolerance)
• Nay, Do not start Aera pilot

As a reminder, here is how you can think of the different volatility targets:

1. Volatility target 5% (Conservative Risk Tolerance) - based on the past year, this target would have roughly rebalanced between 4-9% ETH and 91%-96% USDC. This volatility level has in the lowest exposure to ETH relative to the other volatility levels. Lower exposure means that the vault could see lower gains/losses in $ terms.
2. Volatility target 10% (Moderate Risk Tolerance) - based on the past year this target would have roughly rebalanced between 8-20% ETH in the vault.
3. Volatility target 15% (Aggressive Risk Tolerance) - based on the past year this target would have roughly rebalanced between 13-29% ETH in the vault. This target would have the most exposure to ETH. More exposure means that the vault could see more gains/losses in $ terms.

[coolhorsegirl]

I think ranked choice voting is a great idea—let the Moonwell community decide what kind of risk tolerance they’re alright with. I’m excited about this proposal!!

[shaan]

We are now live for snapshot (link below)!

https://snapshot.org/#/moonwell-apollo-governance.eth/proposal/0xa5c1d4e4f72637f3f73366146b8df51bf6a7ca5eb28514aa51c60000b6184b01

Snapshot voting will conclude in 3 days on May 11th.

[WardenFinance]

In favor of this proposal, options seem to be properly balanced for desired risk tolerance levels.

Current organic distribution of reserves is probably not the most optimal backstop for the protocol to not accumulate bad debt.

Just out of curiosity, what is the rationale for using a USDC / ETH blend? Was there any other composition considered?

[shaan]

Thanks for the support @wardenfinance!
In terms of which assets to use we took a couple factors into account. One was exposure to the broad crypto market, closely followed by liquidity. ETH is a natural first choice given its volume, TVL and significance in DeFi.

Given that most other liquid non stable assets are highly correlated to ETH as seen in this correlation plot of WETH and WBTC, stablecoins offer a nicer pairing with ETH by helping to limit the variance of the portfolio.

From there USDC was chosen primarily due to its onchain liquidity. Also since the proposal is taking from USDC reserves there’s less friction in constructing the initial portfolio.

[shaan]

The snapshot has concluded with almost the majority of votes in favor of an Aera pilot with an Aggressive Risk tolerance! This was the most voted on Apollo snapshot in history and almost no Nay votes, thanks for the engagement everyone! **Next we will be kicking off a governance vote targeting May 16th,*.

As a reminder, the governance vote will remove $250k of USDC.multi reserves and follow these steps

i. Upon passing, the governance proposal removes reserves from the protocol and transfers them to an Aera team owned wallet (cross-chain compatible) on Moonriver. This wallet address will be 0xf72Dbe617a4f24c8447178f6F11E4F399393255e

ii. From there, the Aera team unbridges from Moonriver to an Aera team owned wallet on Ethereum, then bridges USDC from Ethereum to an Aera team owned wallet on Polygon. Funds will be moved on the next immediate buisness day post successful governance vote.

iii. The funds are then deposited into an Aera vault on Polygon via a Aera team owned multisig. This multisig is here 0x2132624899b2C7065f6802BF77f6C706Cfe855a4

After successful deposit into the vault we will let the community know and soon after we will provide a link to a dashboard where the community can view key metrics on the vault, and similarly will provide updates on a regular cadence.

Looking forward to the Governance Vote!

[shaan]

Governance Vote is now live!

Moonwell.fi: DeFi's liquidity well

Vote will conclude on May 19th

[shaan]

The governance vote has passed! We appreciate all the support from the community throughout this process and are excited to get started.

The timelock will end tomorrow, and we will proceed to fund the Aera vault on Monday May 22nd, as described in the thread above. We will provide an update here after the vault is funded and soon after provide a link to the Application where the community can see the vault on an ongoing basis!

[0xrobinhood]

Hi Shaan i think you can start with another proposal to increase the funds for aera