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, 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 a combination of stablecoins, native tokens, and other cryptocurrencies. The portfolio strategy of the vault is determined by each DAO and is highly customizable ranging 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 on-chain to propose the best combination of assets in the portfolio. This ensures that the vault strategy is met across a wide range of market scenarios and time horizons.
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 out 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 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 $239k (down from $251k last month due to recent ETH volatility) with a distribution of 65% USDC, 35% ETH and Moonwell is planning to increase their allocation for the next phase of their pilot.
The Compound v2 market on Ethereum has accumulated over $45m of reserves, which are now primarily in the form of USD stablecoins ($22.2m DAI, $14.1m USDC, $3.7m USDT), WBTC ($3.1m), ETH ($1.3m), and BAT ($597k), 0x ($305k). These reserves are static and do not help the DAO future proof its reserve needs particularly because there is higher than necessary exposure to long tail assets such as BAT, and 0x. 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 Compound:
- Aera helps to minimize bureaucracy. The DAO doesn’t need to plan strategies, but rather just pick assets.
- The Aera protocol continuously rebalances Compound’s fund portfolio based on market conditions.
- Aera is non-custodial - the DAO is in control of it’s assets.
We will start with a small test pilot for Compound in late Q3 or early Q4 to build trust in the Aera protocol. Throughout the 3-month pilot period, we will share performance updates for these funds. Assuming the pilot goes well, the community can vote to increase the allocation size once the pilot concludes.
- Compound governance deposits $500k of BAT or 0x from reserves into an Aera Vault on mainnet. A governance proposal removes reserves from the protocol and transfers them to an Aera vault on mainnet.
- The vault would then swap out of these assets into wstETH and USDC using an execution strategy that minimizes slippage and utilizes the best onchain liquidity source.
- Guardian continuously rebalances the vault based on market conditions and the portfolio strategy. For the pilot, the portfolio strategy will allow the DAO to target a specific portfolio volatility level (15%) as a method of managing overall portfolio risk to capture gains during periods of market strength and protect losses during downturns.
- Compound can view vault performance at any time through the public dashboard and have access to funds due to the non-custodial design of Aera.
- What does it mean to target a portfolio volatility level of 15%?
- Volatility is a measure of risk and gives a sense of the scale of day-to-day fluctuations. A volatility of 15% means there is a good chance (but not a guarantee) that the portfolio will move somewhere between 15% up or 15% down from the starting balance. For the pilot, the vault will be a two-asset vault consisting of wstETH and USDC. Over the past year, a strategy targeting a portfolio volatility of 15% would have resulted in wstETH allocations between 15% and 35% (with the remaining in USDC).
- What does this cost?
- Free during pilot phase (no fees paid to Vault Guardians). Cost structure will be considered in late 2024 during the scaled rollout phase.
- Are there any execution costs incurred by rebalancing?
- Yes, the vault will incur execution costs as part of ongoing rebalancing activities. These execution costs will be minimized as much as possible by using the best on chain liquidity sources.
- 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?
- Yes, see docs.aera.finance
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.