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.
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
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
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
- The initial objective of the vault will be the volatility target decided on by the DAO
- Gauntlet will serve as the initial Guardian with all fees set to zero. There will not be other guardians participating for this pilot.
- Guardians and Arbitrageurs continuously rebalance the vault based on the volatility target decided on by the DAO and market conditions.
- The Moonwell community can view vault performance through a public dashboard and withdraw funds at anytime.
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:
- 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:
- 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.
- Volatility target 10% (Moderate Risk Tolerance) - based on the past year this target would have roughly rebalanced between 8-20% ETH in the vault.
- 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.
- Moonwell governance approves a recallable unsecured loan to Aera via a governance vote. Loan terms are below*, some highlights:
- Loan can be recalled at any time via Moonwell governance
- 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
- In the case that the above governance vote passes, $250k from Apollo USDC.multi reserves would be deposited into an Aera vault on Polygon
- Specifically, the steps would be:
- Upon passing, the governance proposal removes reserves from the protocol and transfers them to an Aera team owned wallet (cross-chain compatible) on Moonriver
- 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
- The funds are then deposited into an Aera vault on Polygon via a Aera team owned multisig
- Specifically, the steps would be:
- 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*)
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.
- 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
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.
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.