#16 auraBAL Divestment

Treasury Council Decision #16: auraBAL Divestment

TLDR: Unwind bauraBAL position into WETH, in order to de-risk from the directional bet on BAL and further strengthen overall bitcoin/ether ratio.

Background

In the first two weeks before Aura launched its platform, a very effective way to acquire AURA was to lock BAL into auraBAL and stake that. Treasury participated in this event back in May 2022 (forum post, GitHub issue) by rebalancing part of its other influence assets: its (bve)CVX position.

Since then that staked position, along with other positions such as liquidity on Aura, have yielded a considerable AURA position. Actually it has even outgrown the original (bve)CVX position, at around $746k AURA vs $689k CVX.

Either way, the original auraBAL position only serves as a farm for AURA, for which the treasury now has multiple other sources. Also it does not provide any influence or other utility. With a value of $518k it is the biggest non-influence alt position in the treasury, and creates a risk by providing too much exposure to its underlying BAL.

Proposal

Given the still skewed ratio of bitcoin/ether of the treasury, this proposal is to divest of auraBAL completely into WETH. This requires three steps; (1) withdraw from the badger vault, (2) swap from auraBAL to B-80BAL-20WETH using its stable pool, and (3) a one-sided withdrawal from B-80BAL-20WETH to WETH.

Timing wise there could almost be no better moment to make this particular swap:

After the 40 WBTC swap (previous treasury decision) and this divestment, the bitcoin/ether ratio will have gone from $5.5m/$1m to $4.7m/$2.3m (roughly from 5:1 to 2:1).

On top of this divestment, the treasury’s Aura/Balancer compounding strategy should be adjusted to not sell 70% but 100% of the harvested BAL, and not sell 30% but 0% of the harvested AURA. This ensures no further auraBAL position will be built up, while maintaining an ever growing influence position of vlAURA.

Metrics of Success

How long will the investment thesis take to play out?

Both withdrawals and the swap can be done in the same block. No need to time it or wait with it for any reason.

What are the risks associated with each investment?

  • Protocol risk (0 - 10): Likelihood of a smart contract or a system of smart contracts (protocol) is exploited or funds are lost

1: This actually decreases smart contract risk, from the auraBAL to the WETH contract.

  • Liquidity risk (0 - 10): Liquidity risk refers to how easily an asset can be bought or sold in the market.

6: auraBal/B-80BAL-20WETH holds $15m, and will incur us a slippage of >1%. This is considerable, but at the same time auraBAL can only be minted in one direction and cannot be redeemed at all. B-80BAL-20WETH itself holds ~$180m and provides ample liquidity for a one-sided withdrawal.

  • Market risk (0 - 10): Market risk is the risk that arises from movements in stock prices, interest rates, exchange rates, and commodity prices. Metrics to consider : VaR, skew, sharpe.

4: auraBAL/WETH looks to be close to its all-time high, although could always go up more. The fact is that the treasury does not want to bet directionally on BAL, and would prefer to de-risk that to ether.

  • Execution risk (0-10): How long will it take to execute, how many signers on a Multisig or queue of things that must be signed first.

3: Will need to be scripted but can be done in one single tx.

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