Author(s): Jake Lynch, Deepa Talwar, @Gauntlet
Disclosure(s): I have no financial exposure to Aera or Gauntlet. Aera has worked with Spearbit in previous engagements, which is how I learned about the protocol.
The Gauntlet team recently launched Aera, an autonomous treasury management protocol. This post is a temperature check to assess the community’s appetite to allocate funds to the Treasury Guild to trial Aera.
Aera is a solution for optimizing DAO funds autonomously and onchain. For most DAOs, treasury funds (e.g. reserves, treasuries, safety modules) 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 challenges with this model such as cumbersome governance, incentive alignment and trust with external managers.
Aera provides DAOs with a non-custodial 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 various digital assets. The portfolio strategy of the vault is determined by us and is highly customizable. Strategies can range from simply keeping fund proportions in line with liabilities, to complex strategies using Liquidity positions to provide POL.
Vaults are automatically rebalanced by Vault Guardians who compete onchain to propose the best combination of assets in the portfolio.
Threshold’s treasury has approximately $20M in funds, which are primarily in the form of native token (~98%). The treasury guild has been implementing a multi-phasal treasury diversification process. On a high level, this process has looked like this:
- Borrow to establish liquidity pools, and ergo liquidity, increasing the accessibility and usability of the T token.
- Primary protocol(s): Curve
- Assets: T, ETH
- Status: Winding down
- Incentivize pools to further deepen liquidity and add new liquidity pools to increase order routing possibilities and stabilize liquidity
- Primary protocol(s): Curve, Balancer, Convex, Aura, Paladin / Quest
- Assets: T, ETH, TBTC
- Status: Steady state
- Optimize protocol-owned liquidity management with sophisticated POL management via vaults to further stabilize liquidity
- Primary protocol(s): Uniswap, Arrakis
- Assets: T, ETH
- Status: Currently in trial / ongoing
- With liquidity stabilizing, diversify assets on balance sheet via market maker and bond program
- Primary protocol(s): Bond protocol
- Assets: T, TBTC, WBTC
- Status: Currently in trial / ongoing
- Next Step. A diversified and liquid treasury is not enough on its own. The treasury must also be actively managed to avoid opportunity cost of slow rebalancing. Additionally, as token holders and retail participants, we are prone to the typical DAO treasury management pitfalls (e.g. FOMO, FOJI - fear of joining in, etc.). Aera provides us with a rational, measured, and flexible solution to help us achieve our long term goals. However, it will take some getting used to. Before considering using it with Governor Bravo, I recommend the treasury guild practice using it with a diversified set of funds.
To start - a small test pilot for Threshold in Q3 to build trust in the Aera protocol. Throughout the 3-month pilot period, we will share performance updates for these funds along with a dedicated dashboard. Assuming the pilot goes well, the community can vote to increase the allocation size once the pilot concludes.
Discussion in forum.
Threshold Treasury Guild decides on the portfolio strategy. Some options are:
Volatility-targeted portfolio: This strategy allows the DAO to target a specific portfolio volatility level (i.e. 5%, 10%, 15%) as a method of managing overall portfolio risk to capture gains during periods of market strength and protect losses during downturns. The vault will be dynamically adjusted by the Guardian on a daily basis to target this volatility level.
Generate safe yield: This strategy will allow the DAO to leverage onchain lending markets like Aave and Compound to generate supply side yield on stablecoins and majors. While Aera has the ability to do this, frankly, I don’t think it is for us, but I will ultimately defer to the treasury guild.
Something more bespoke, pending Aera’s approval.
Threshold governance removes $250k from the treasury and transfers these funds into an Aera Vault on mainnet.
The vault would then swap out of these assets into assets that align with the selected portfolio strategy (e.g wstETH, DAI, TBTC, WBTC) using an execution strategy that minimizes slippage and utilizes the best onchain liquidity source.
The vault would be dynamically adjusted by the Guardian. Threshold can view vault performance at any time through the public dashboard and have access to funds due to the non-custodial design of Aera.
Gauntlet on their recent case study:
We have chosen to bring Aera to market slowly through rigorous research and testing both internally and through small pilots. Aera has been audited by Spearbit and tested internally for 9 months. We launched our first pilot with Moonwell in May. We built an Aera vault comprised of ETH and USDC ($250k total allocation, initially all in USDC) that allows the DAO to select and target a specific portfolio volatility level (15%) as a method of managing overall portfolio risk. This Aera vault is rebalanced on a daily basis to target the specified volatility level - you can view the live dashboard that tracks vault performance and transaction here along with the updates we shared with the community to date here. As of today, the total value in the vault is at $240.5k (down from $251k a week ago due to recent ETH volatility) with a distribution of 60% USDC, 40% ETH and Moonwell is now interested in increasing their allocation for the next phase of their pilot.
- What does this cost?
- Free during pilot phase. Cost structure will be considered in late 2024 during the scaled rollout phase.
- What is a Guardian?
- Guardians are experienced risk analysts and can be institutions or individuals. Gauntlet will serve as the initial Guardian with all fees set to zero. There will not be other Guardians participating for the pilot. During the scaled rollout phase in 2024, 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 and an app?
Would be great to hear the community’s feedback and happy to answer any questions - please comment below. If the community is ready to move forward, we will follow up with an onchain vote.
@Luna5 could you please assist me with the proper title and timeline for discussion, voting, etc.?