For several months readers have requested thoughts on $AURA. At a cursory glance, it became abundantly clear why $AURA has developed such a pristine glow. Surviving the recent doldrums is challenging enough, but outright launching into a trash heap of a market and thriving? Let’s find the mayor of DeFi and get them the keys to the city!
As recounted in their recent newsletter:
“Aura Finance’s official launch on June 9th, and subsequent bootstrapping phase, occurred under a backdrop of the worst possible crypto market conditions. With Bitcoin itself seeing its worst month on record, Aura Finance launched in an environment of considerable macro uncertainty and market capitulation. Despite these considerable headwinds, Aura was able to achieve a successful fair launch and to capture over 25% vote escrowed Balancer (veBAL) market share. This 25% veBAL capture officially represents the largest single position in veBAL and has demonstrated the viability of the protocol after only a month in existence!”
They’ve also seen explosive TVL, doubling to $200MM in just a week.
It’s not merely the “number go up” vibe that makes the project notable. Let’s dig in…
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Perhaps only boomers understand analogies, but here goes anyway:
$CRV : $CVX :: $BAL : $AURA
In other words, Aura is commonly described as the Convex of Balancer, a simplistic but decent comparison. If you’re not familiar with Balancer, it’s an AMM and thus competes directly with Curve.
Wait, aren’t you a Curve maxi? Shouldn’t you hate Balancer?
I’m admittedly biased towards Curve and surely have the blinders on to some degree, but my loyalty remains to the truth. We’re all trying to figure this complicated space out, and if I’m wrong in my Curve boosterism I’d like to know!
At any rate, I’ve never seen any fellow Curve fans express anything like hate toward other AMMs — my default take is that more AMMs using different formulas and approaches are overall better for the space. The greater the surface of DeFi optionality, the larger the space and the better for everybody. Everybody will migrate to what works anyway, just as Balancer adoped a veTokenomics model recently.
To that end, it’s definitely worth diving into the Balancer. They’re being utilized for the recent launch of Aave’s $GHO and Concentrator’s IFO, so they’re doing something right. In fact, when trying to describe the weighting of Curve v2 pools, Curve pointed to the Balancer calculator.
Part of the appeal to protocols is that Balancer allows for several different styles of pools — some of which can be tailored to suit specific launch offerings. As mentioned above, Concentrator had interest in preventing massive dumping and IL throughout their farm offering, and thus interest in some of these offerings, more info here:
It’s an interesting construction, and one that wouldn’t be possible under Curve v2 pools. In essence, it’s a pool with some artificial restrictions in place to inhibit the free trade of the token.
It’s a nice trick intended to protect LPs throughout the event. Long term, of course, the free market will require the token to trade openly or it will have little purchase, and the intent is to launch a Curve v2 pool after launch.
Under the hood, Balancer pools have similar trading formulas — a stablecoin math inspired by the Egorov invariant for stablecoins and a constant product math based on a generalization of x * y = k for variable priced assets. The mechanics of how they do this is interesting, and their whitepaper is indeed worth a read.
The general take I see from Curve chads is that Balancer under the hood is decent, probably better than Uni v3 as a mechanism. The open question I have is that I have yet to see how Balancer pools perform at scale relative to Curve v2 mechanics. I don’t think it could from a strictly theoretical perspective, but I’m smol brain. Anyway, theory matters less than how it performs in the wild.
My observational evidence suggests v2 pools have the performance edge at scale, but I have not collected or studied any particular data to corroborate my suspicion. We’ve not yet witnessed Balancer performance at comparably large TVLs, so we don’t really have any great data points.
It feels anecdotally like Balancer has had issues scaling up to such volume, and I suspect they’d need some sort of tweak to get there, but I admit this is entirely just intuition from seeing performance thus far. Markets are discovering this directly right now, and in fact, there’s some evidence my hunch is entirely wrong:
Since it’s an open question, it wouldn’t be stupid to hedge your bets and take a flier on $BAL. Against $ETH, $BAL has pretty much only gone down, currently trading at an all-time lows relative to $ETH. The adage is of course “buy low, sell high,” and therefore it wouldn’t be crazy to make a bet on the capable team reversing this trend (not financial advice).
One final innovation worth addressing is the recent forum proposal, BIP-19, which aims to solve the problem of incentivizing pools that don’t deliver protocol revenue. BIP-19 creates the concept of “Core Pools.” The team is bullish on the prospect of how this could up fees. It’s too early to see how this will play out. Will it lead to great things? Will it merely incentivize wash trading? We’ll find out, but exciting to see innovation nonetheless.
Which brings us to $AURA, which could be the catalyst that brings a flywheel to $BAL. The Convex analogy is suitable, but the team of course studied the Convex rollout and looked to improve further on the model, so could it be Convex on steroids?
Among the most bullish is undoubtedly @SmallCapScience. It’s a classic case where I pay attention to people who are smarter than me. Here’s the full thread:
The short recap is that the team is stellar, headlined by Sushi’s 0xMaki. Ser Science prefers the veTokenomics of Balancer to Curve, and $AURA has scooped up a whopping 25% of the veBAL to date without excessive dilution.
Certainly compelling cases! The only quibble I immediately noticed with Science’s thread is that the focus on FDV feels irrelevant, since we won't see that benchmark for 300 years and very few of us will be alive to witness it.
What’s the bear case for $AURA?
A pair of other threads are less bullish. For starters, Ouroboros Capital considered the above thread, but ultimately came away less than bullish.
Even more bearish is this thread from @midoji7
Midoji doesn’t believe the veBAL rewards can catch up to AURA tokenomics.
In the past our condom protector was also notably bearish in the past, but has backed off such a harsh stance in private DM.
It’s tough for my smol brain to parse out all these conflicting viewpoints, so I’d just guess the answer lies somewhat in the middle. I’d imagine AURA continues scaling until it hits a natural ceiling, at which point it stagnates until it sees some other sort of breakthrough. In this interpretation, a bet on AURA/BAL would not necessarily be a bet on what they’ve built to date, but a bet on what the smart team could build based on their early successes.
This is the argument that most activates my FOMO — the AURA tokenomics gives them room to expand their footprint to other ecosystems. It also seems inevitable they make such moves, given the high octane caliber of the team.
In conclusion, $AURA/$BAL are certainly on my watch list of potential buys. I doubt I make any moves swiftly though, as there’s several other tokens higher on my priority list. Still, if you suspect there’s a 5% chance the Balancer Wars may flippen the Curve Wars, I’d consider you wise if you hedged your portfolio accordingly.
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