AIP #5 - Abracadabra Team Proposal: Get MIM on Aave

AIP #5 - Abra Team Proposal: Get MIM on Aave

Summary/Scope:

Aave is one of the largest borrowing and lending markets DeFi has, with their products tailoring a lot to institutional players it would be fantastic for the further adoption and growth of MIM. Aave collaterals get voted in by governance, in order to make sure that MIM gets voted in, the Abracadabra Team, proposes that we take 2 weeks of protocols earnings (capped at $5mil) to Bribe votes, via Bribe Protocol (https://www.bribe.xyz/).

What is the reason for needing to Bribe?

Aave assets are voted in via governance, bribes will help us assure that activity of voting for MIM is high, and ultimately make it more likely that the vote goes through. IF the vote does not go through the funds are not given to the venal. In addition, it is important to use revenue from the protocol and not new emissions to stay true to our long term plans of reducing SPELL emissions!

What is the Bribe Protocol?

Bribe creates DAO infrastructure tooling to incentivize protocol participation. Depositors stake their governance tokens in the Bribe pool to earn income. Bidders borrow the staked votes to support or reject governance proposals. Bribe V1 introduces Voter Extractable Value (VEV) to coordinate and auction powerful coalitions of DAO votes. Bribe is best used as part of a well-balanced and active delegation strategy.

How will the bribing work?

Protocol Fees are collected in MIM tokens and usually used to buy back SPELL to be deposited into the sSPELL staking contract. In this scenario, MIM fees will not be used to buyback SPELL, but will be directly deposited in the Bribing contract. This way, no SPELL selling pressure will be added, and voters will be bribed using an asset with stable values.

If this proposal passes, the last 2 weeks of protocol fees (capped at 5mil $MIM) will be used as explained above.

If the 2 weeks protocol fees exceed the 5 Millions cap, additional MIMs will be used to buy back SPELL and deposit into sSPELL staking contract normally!

Reference:

Further details:

Next Steps:
A snapshot vote will soon be put up in order for this proposal to be voted on!

8 Likes

I am against this proposal, for several reasons:

1.) Trust in sSPELL tokenomics and consistency thereof:

In the documentation of abracadabra, it is written: “Firstly fees (interest, borrow fee and 10% of the liquidation fee for certain markets) are deposited in the SPELL fee pool in the form of SPELL tokens. When users single-side stake their SPELL tokens they receive sSPELL tokens. sSPELL tokens represent your share of the SPELL fee pool with a mechanism similar to the SUSHI/xSUSHI one.”.

Holders of sSPELL rely on this description, and they should be able to keep on relying on this description in the future. Consistency in tokenomics builds trust, and any deviation, like the one proposed, can damage this trust long-term. Every token is described & characterized by written & unwritten rules, and every staker of SPELL began staking SPELL with the clear understanding that the above characteristics apply.

2.) Usage of emissions is more reasonable

The weekly emission benchmark is 911M SPELL, of which 70% are unallocated. Instead of using protocol revenues (and damging the trust in sSPELL tokenomics), the 70% of this or next week could be used for the bribe (at the moment, for example, those SPELL are worth $8.5M). While I understand the long-term plans of reducing SPELL emissions, this is hardly a priority in contrast to remaining a transparent & consistent SPELL tokenomics mechanism. Using revenues damages stakers (the most loyal participants in the protocol) significantly more than increasing emissions for this one-time bribe.

3.) Feasibility of bribes

While bribing became an important part in DeFi, it is questionable whether bribing is actually needed here. In the end, AAVE will profit from the MIM integration, maybe even more than abracadabra will. I would like to know, in a follow-up proposal, what benefits abracadabra will have from being integrated in AAVE and, more importantly, whether AAVE actually needs to be bribed in order to integrate MIM. Having this information would allow a proposal to use emissions more likely to pass.

— and one additional comment: The last SPELL buyback was 16 days ago, and people are rightfully asking for staking rewards. Withholding those, and then releasing such a proposal is extremely damaging to the trust in sSPELL, and hurts long- and short-term investors.


Revision of comment, #1: I think everyone will agree that the MIM integration into AAVE could be beneficial for abracadabra. The final proposal could explore the risks & rewards in more detail (i.e. is bribing really needed, in that height?)

I think a revision of Tokenomics - Abracadabra in order to better reflect tokenomics (i.e. highlighting that minimum of 75% of revenues are distributed to stakers; currently it is implied that it is 100%) is desired. This would also give the team more leverage in proposals like the one discussed, also it will ensure higher transparency in the future. Also a remark that revenues could be used for bribes/investments (if proposals pass) would make sSpell holders aware and increase trust in tokenomics.

The timing with the prolonged buyback was unfortunate, and skewed initial reactions to this proposal. I agree that this proposal will help abracadabra long term.

Thanks (fyi the revision was made after receiving 7 upvotes… if anyone is counting).

19 Likes

I support this proposal. Its better we use the MIM from the previous two weeks to push this proposal through. I’ve seen others propose using SPELL which is the wrong option in my opinion. The aave holders who receive SPELL will just dump it on the market causing a sharp decrease in SPELL price, leading to more leverage liquidations and further low prices. Using MIM is right in my opinion.

I’d like us to explore other options other than Bribe protocol to find the most cost efficient way. Aave votes are usually done by 4 - 5 whales. If we could negotiate a better deal with any known whales for less, that would be a better option.

All in all, I think listing MIM on Aave would bring a much greater long term value to the Abracadabra ecosystem. I’m ok with using the MIM from the past 2 weeks to pay the cost.

I’d rather invest $10 today to earn $100 in the future. The Aave listing is in the right step for Abracadabra ecosystem in my opinion

4 Likes

What if instead of sSpell holders footing the entire bill here you took some of the tokens flagged for emissions and gave them to stakers to help make them whole for the $5m they are losing out on? This shouldn’t add much sell pressure since these are long term holders.

7 Likes

Ok , great talk with Dani on Discord… I’m in

Dani paid out the last 2 weeks of fees to stakers after concerns were brought up in discord. Proposal should be for fees going forward. LFG

For those interested in reading over initial Discord discussion about this proposal, where Dani made his case for the proposal, and landed on paying out past 2 weeks of fees to sSpell holders, link is here:

1 Like

I read all the info and I’d agree that the only benefit I see if the folding to grow tvl via MIM-USDC, which is how we did it UST & MIM via Anchor protocol (which is our largest fee earner). I guess the folding strategy would mean using USDC in curve to fold assets, as there’s only 800m USDC left in aave to borrow.

If 5m is all it takes I’m all for it.

3 Likes

Ser, the whole conversation points to the importance of having a protocol treasury… I am in for the long term, but a lot of people aren’t AND that’s understandtable. MIM_Spell should start accumulating a treasury for times like this…

In the meanwhile, I think a way to run a treasury is to tap into the debt markets to fund R&D and investments. It’s very normal to do so in the real world, and we could do that here as well given that we don’t have a treasury in stables.

What do you know, we are a money market ourselves. Point the emission gun (or better yet, use unallocated spell) to the SPELL/MIM cauldron, borrow $5M against ~$15-20M worth of spell to fund this endeaver.

This has several benefits:

  • Increases MIM in circulation, better for the protocol
  • Capital efficiency, unlock the value of unallocated spell. While there is no selling presure on spell to hurt frogs
  • Allows the protocol to pay off this debt over a longer term, aligning with the long term investment thesis of the AAVE proposal
  • Allows SSpell holders to get extra fees on the debt in the short term

I would request that the team start thinking about this treasury strategy even if it’s not applied here, and also have a plan to accumulate treasury in stables.

7 Likes

what if wonderland being an investment dao purchased the bribe for abracadabra in exchange for X amount of spell tokens. id rather keep the tokens within the ecosystem knowing wonderland won’t dump on us and the value stays with the long term holders of frog nation

Investments are important to grow the protocol and $MIM market share. With that said, why not wait with this investment until weekly fees earned > token emissions?

Value accrual matters to sSpell tokenholders. They expect to receive distributions/ a yield as is described in the docs.

Many sSpell tokenholders are looking to compound distributions to offset the impact of (new) Spell emissions that dilute their positions.

Denying sSpell tokenholders their distributions by diverting cash-flows to finance growth investments is using them as an ATM and is unlikely to sit well.

I am strongly for this proposal and I made my reasons clear in this thread:

To elaborate, I think all protocols should adopt this perspective with protocol fees. In my view, using protocol fees for buybacks is one of the most short-term focused and capital inefficient uses of them. This goes not only for Abra, but for all protocols.

Any protocol that can invest the revenue internally to produce a higher ROI than if they were paid out should do so. Since defi is super innovative right now, this goes for most protocols I can think of. Protocol revenues should only really be paid out to stakers in the event the protocol cannot find a more profitable use of that. Even “Useless governance tokens” can and do increase in price with higher adoption, growth and innovation, thus making this sort of proposal a much better use of the revenue than paying it out IMHO.

Specifically, this proposal is a great usecase for MIM, and brings much higher adoption thanks to the fact that AAVE is one of the leading lending platforms, especially for onboarding new stablecoin users. We should not forget that Abracadabra is all built around its stablecoin. Higher adoption for that stablecoin is better for all our users (even since they can find nice yeilds for their MIMs), and also strengthens our peg since, as with any stablecoin, the most important thing is usecase. This proposal brings that.

I believe this proposal should be considered as an investment today that will directly strengthen our stablecoin’s adoption and indirectly lead to higher returns for sspell holders in the future, thanks to all the new users this could bring to the protocol!

As response to one point from @alexandomega , I simply do not believe this causes any trust breaking since this is proposed as a vote. Any aspect of any truly decentralised protocol should be (and is) open to change, even in one-off-cases, if it is voted on. So i don’t see this as a break of trust, just an alteration to the status-quo.

In addition, I do not think this proposal “damages” stakers, since in the end it will return more revenue to them in the future as I stated above. If it were to “damage” anyone, it would be the short-term stakers which are not here for long enough to allow this investment to yield anything. I wouldn’t really call these “the most loyal participants to the protocol” personally, so I am ok with this since it makes sure stakers who benefit will be the ones aligned with the protocols long-term vision. Which, in effect, is actually BENEFITING the most loyal participants IMHO!

Finally, I hope to see more smart investments of protocol revenues like this in the future :frog:

3 Likes

I believe that the main objective should resolve the issue of inflation and make the asset increasingly scarce in the market. Consequently, make bigger price jumps. I see the team willing to do that.

As for the proposal presented, I am totally in favor as long as it does not generate new inflation.

Of course that is not the case! unless that is clearly said at the beginning, before people join in and make their investment decision, which in this case was not, and in fact have never been in Defi as far as I am aware of. It is however reasonable to assume that some aspects the protocol are handwritten and others can be changes upon voting, and that should be pre-specified in the smart contract itself. I for one would never join any protocols that allow ‘any’ aspects to be changed upon voting.