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title: [Proposal] Deposit BAL into Aave Polygon v3 status: Proposed author: @Llama - @Matthew_Graham & @solarcurve created: 22-01-2023

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Summary

The proposal presents the Balancer community the opportunity to deposit additional BAL tokens into Aave v3 on Polygon to earn yield.

Abstract

There is currently $32.9m of BAL idle in the Balancer Treasury. BIP-52 was the first proposal to suggest depositing BAL into Aave deployments to earn yield. This proposal builds on BIP-52 and presents an opportunity to the community to deposit an additional 44.5k BAL into the Polygon v3 deployment.

When BAL is listed on Aave v3, this proposal recommends migrating BAL deposits from the Aave v2 deployment to the v3 deployment on Ethereum. Aave v3 is set to be deployed this coming week without BAL being listed, however we expected it will be added in time given the nature of the relationship between the two communities.

Motivation

After reading the Karpatkey proposal and learning that managing BAL falls outside of the defined remit, we would like to suggest that BAL be deposited into Aave v3 markets to earn yield. The graphic below shows that BAL yield can be very high at times and is consistently above 5%.

Currently, there is the ability to deposit up to another 44.5k BAL into the BAL Reserve on Polygon v3 before the SupplyCap on the Reserve is reached. Utilization within the BAL Reserve, 46.25%, is around the Uoptimal value, 45%,which indicates strong demand for BAL. Any small increase in utilization will lead to a noticeable jump in deposit and borrow rates.

This proposal by Llama intends to increase the utilization of the Reserver, increase the yield that flows to deposits and reduce the variance in the deposit and borrow rates. It is worth noting that there is no proposed increase to the SupplyCap which means another proposal would need to be submitted on Aave to enable additional deposits into the Reserve. This favours moving sooner before the upgrade to increase borrowing rates goes live.

Balancer is currently supplying 41.65% of the liquidity into the Reserve and given Balancer has a long term view, evident by the duration of the current deposits, there are no perceived issues with being able to withdraw a portion of these funds at any time. The difference between the SupplyCap and BorrowCap on the Reserve acts to make liquidity available to users who wish to withdraw funds when the Reserve is at max deposits and max borrowings, 28.5k BAL when proposal linked above is implemented. This exit liquidity is something Balancer needs to consider, it could lead to needing to withdraw funds gradually over time. Given the long term view and amount of BAL held by the DAO, this is very manageable and definitely worth considering.

Specification

Amount to be transferred, SupplyCap - Total Supplied, as shown on the Aave front end, here. At time of writing this is 44.5k BAL.

Send funds from the DAO multisig to polygon: 0xc38c5f97B34E175FFd35407fc91a937300E33860.

Deposit BAL into the Aave v3 BAL Reserve, polygon: 0x8ffDf2DE812095b1D19CB146E4c004587C0A0692.

Copyright

Copyright and related rights waived via CC0.