Simple Summary
This is an operational update to the ongoing Aera pilot. As a reminder, Aera has been running a pilot on Compound with Aera for the past few months to swap out of ZRX and BAT into a volatility targeting strategy consisting of wstETH and USDC (initial deposit was $500k vault is now worth $780k, vault is here https://app.aera.finance/1/vault/v2/0x3D6eEf6A92b15361697698695334E98C5db91D6b).
This proposal does the following:
- Allows the vault to use Milkman from CoWSwap when trading BAT
- Liquidity conditions have severely deteriorated onchain for BAT since the initiation of this pilot, requiring additional exchange integration with Milkman in order to tap into offchain liquidity
- (optional) Adds cUSDCv3 as an allowed asset in the asset registry, enabling the vault to earn yield and provide liquidity to Compound with its USDC
- Change the guardian address, a hygiene update for the Guardian as Gauntlet migrates some internal Guardian infrastructure
This proposal does not change the goals of the Aera pilot (diversification out of BAT and ZRX, and managing the proceeds in a volatility-targeted vault), it is simply an update to the existing vault to better enable these goals. It similarly does not change any of the security properties of Aera, the vault is still non-custodial and only the Compound DAO can withdraw/pause the vault.
Additionally after seeing lots of community interest, we are considering adding cUSDCv3 to the vault so that the USDC can generate yield on Compound, something we would like community input on (see below).
More Detail
Pilot Status Update
The Aera pilot has now been running for ~3 months. The initial deposit to the vault was $500k in ZRX and BAT. The goal was to diversify out of those assets into wstETH and USDC, targeting a 15% annualized volatility. The vault is now worth $796k and consists of 66% USDC, 26% wstETH, and 8% BAT.
As a reminder, Aera is a non-custodial solution, and the vault is owned by the Compound Governor Bravo Timelock (aka the DAO). None of the proposed updates in this post change the non-custodial nature of Aera.
Since inception, the Vault has fully diversified out of the initial $400k of ZRX into USDC and wstETH. These holdings are being rebalanced on a regular basis to target a 15% annualized volatility.
Extending Aera’s ability to sell out of BAT
After starting the pilot onchain BAT has been very difficult to sell onchain. So far the vault has been able to sell roughly $48k of BAT and there is another $52k remaining in the vault.
Since the pilot program began, we have added support in Aera for CoWSwap’s Milkman contract with the goal of increasing the available liquidity for BAT swaps. This integration allows us to dynamically adjust execution price as the market price changes and taps into a network of solvers that are able to fill these orders efficiently and competitively using offchain liquidity.
We expect that this will enable the Aera Vault to swap 10x more BAT at same 100bps slippage bounds (increasing daily volume from $300-$800/day to $2k-$5k/day). Of course, this is just based on current liquidity conditions and existing solvers, and given that market liquidity is dynamic this could change.
Generating yield on USDC holdings via Compound III ETH comet.
Initially we proposed not having cUSDCv3 used to generate yield, as we wanted to avoid deploying capital meant for covering insolvencies, into the same pool that is potentially at risk of insolvencies.
However, we have heard the community’s feedback on including cUSDCv3 as an asset in the vault and allocating the existing USDC in the vault into cUSDCv3. The benefits for the DAO would be as such:
- Provides additional USDC liquidity to the Compound III ETH comet
- Generates yield on an otherwise idle asset in the vault
Adding this asset to the Vault’s asset registry is also part of this proposal and will enable the guardian to allocate in and out of this asset.
In the limited scope of the pilot though the actual need for this capital to cover insolvencies is dwarfed by the other reserves in the system (both V2 and V3 have over >$50M in reserves compared to the <$500k USDC in the pilot), and as such if the community is keen on generating yield on USDC and supplying this asset to cUSDCv3, then this can be enabled in the aera vault.
Next steps
Would love to hear any community feedback before proceeding to a vote. Specifically around the inclusion of cUSDCv3 or not, should the community have push back we can elide it from the proposal and just proceed with the other updates.