The Gauntlet team recently launched Aera, an autonomous treasury management protocol. This post is a temperature check to assess the community’s appetite to trial Aera for a portion of Compound v2’s reserve funds.
Aera is a solution for optimizing DAO funds autonomously and on-chain. For most DAOs, insurance 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 insurance 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.
For more detail, here is a quick video that walks through how things work.
- Guardians are experienced risk analysts and can be institutions or individuals. They 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 Compound v2 market on Ethereum has accumulated over $40M of reserves, which are now primarily in the form of USD stablecoins ($22M DAI, $14M USDC, $3M USDT), WBTC ($3M), ETH ($1M), and BAT ($1M). These reserves are static and don’t track risk exposure. In previous discussions on reserve management, the community has shown interest in reallocating reserves to a more optimal asset mix. 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 actual liabilities and market conditions
- Aera allows for coordination of a decentralized network of actors working together transparently on-chain to optimize the vault
How It Works
- Compound governance deposits a portion of reserves into an Aera Vault
- Compound governance works with a Guardian to set the objective and selects a set of assets for the vault. Gauntlet will serve as the initial Guardian with all fees set to zero. Later in 2023, a new version will launch with the ability to assign new Guardians and enable vault fees to promote Guardian specialization and competition.
- Guardians and Arbitrageurs continuously rebalance the vault based on the objective and market conditions
- Compound can view vault performance at any time through the public dashboard and have instant access to funds due to the self-custodial design of Aera
- What does this cost?
- Free during trial phase. Fees enabled in late 2023 during scaled rollout phase.
It would be great to hear the community’s feedback on trialing Aera and happy to answer any questions – please comment below. If the community is supportive of a trial, we will follow up with a detailed proposal to vote on.