Abstract

<aside> 💡 This report examines the Aura bb-a-USD, a strategy that involves the Balancer-Aave Boosted StablePool (bb-a-USD) being deposited into the Aura protocol on the Ethereum mainnet. This strategy is deployed to benefit from the advantages of multiple layers of protocols, enabling depositors to access the liquidity and yield of the Balancer ecosystem and the interest earned from Aave.

Our findings conclude that this strategy should not be prioritized as it requires multiple custom integrations, resulting in compounded financial and smart contract risks, in addition to a lack of stable pools on Balancer and Aura. bb-a-USD is also a relatively new protocol, having been live for less than 6 months. We believe comparable yields can be generated from other strategies.

However, should OUSD DAO wishes to pursue this strategy, we recommend deposit sizes be within a safe percentage share of the pool size, and should undergo strict slippage checks (including for withdrawals). Strategists should also monitor Balancer asset liquidity, Balancer imbalances, Balancer volume, Aave net APR, TVL fluctuations, and Aave liquidity risks.

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About Aura bb-a-USD

• About the Aura bb-a-USD strategy

• Benefits

About Protocols

This strategy composes up to 3 protocols

1. Aave protocol: Aave V2 is a lending market with a shared pool. aTokens are used for interests earned on the yield that are automatically accrued.
2. Balancer Protocol: Balancer is a multi-asset liquidity pool. Balancer pool tokens (BPT) can earn fees on token swaps as well as liquidity incentives directed by veBAL token votes
3. Aura Finance: Aura finance is a fork of Convex finance meant to achieve boosted staking yield through veBAL lockers on the Balancer liquidity pool. Interests earned on deposits are extra BAL and Aura token rewards.

About Assets

The protocol assets are an ERC20 derivative of different protocol wrapper tokens. The following is the deposit wrapper flow:

%%{init: {'flowchart' : {'curve' : 'linear'}}}%%
flowchart TB
	USDC-->Aave
	USDC-->Balancer
	USDT-->Balancer
	DAI-->Balancer
	USDT-->Aave
	DAI-->Aave

	Aave-->Balancer[Balancer bb-a-USD]
	Balancer-->Aura[Aura aura-bb-ausd]

Protocols

Aura, Balancer, Aave

Assets

bb-a-USDT, bb-a-USDC, bb-a-DAI

How Is Yield Generated?

There are multiple sources of yield in this strategy:

• via Aave
• via Balancer
• via Aura

Strategy Lifecycle

Historical Balances & Returns

<aside> 💡 The current breakdown of the yield generated from the strategy is mostly in the form of $AURA and $BAL liquidity rewards.

Aave pool APR is not considered, however, the net yield should be < 1% increase given the makeup of aTokens within the pool

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balancer liquidity since inception, note TVL start from the new deployment (see note on vulnerability below)

balancer liquidity since inception, note TVL start from the new deployment (see note on vulnerability below)

Gauge votes for the BPT, includes the liquidity pool contract prior to the upgrade

Gauge votes for the BPT, includes the liquidity pool contract prior to the upgrade

Trading volume has become stale over the past 2 months

Trading volume has become stale over the past 2 months

historical variable APY of the strategy

historical variable APY of the strategy

Risks

Financial Risks

• Lending Pool Risk (Aave)
  • Liquidity Risk: Deposits of DAI, USDC, USDT into Aave lending pools (in return for aTokens) could be subject to liquidity risk if the pool accrues bad debt, the utilization rate is too high, and/or liquidation of falling collateral values. Underlying assets are the aforementioned stablecoins.
• AMM Pool Risk (Balancer, Price Impact, Impermanent Loss)
  • Price Impact Risk
  • Impermanent Loss* could be mitigated by the stable assets in the pool as well as “nested” designs yielding consolidated liquidity.
  • X-factor: Unlike traditional weighted Balancer Pools, bb-a-USD makes use of a Linear Pool nested inside a Stable Pool, which could come with additional smart contract risk.

Underlying Asset Risks

• Depeg event on one of the 3 major assets

• Balancer imbalance leads to the least desired asset

• Balancer deposit and withdrawal slippage risks

• Redemption risks within Aave and liquidity arbitrage in case of aTokens bad debt.

• Slippage on redemption

  

  Example of a withdrawal- whereby removing liquidity on an illiquid pool can lead to loss

How to Track Risk Vectors?

• Price Impact / Slippage: For Balancer AMM
• Liquidity Risk: (Risks Parameters on Aave)
  • Example Metrics for Aave for (USDC), the real metrics would account for 3 major stablecoins

Underlying Protocol Risks

• bb-a-USD pool has been live for less than 6 months, Aura pool deposit token has been deployed 1 month ago, which is extremely recent
• The lack of smart contract immutability and 3 layers of smart contract integrations represent a large risk factor for the protocol
  • Faulty or malicious proxy upgrades on Aura contracts
  • Faulty or malicious proxy upgrades on Balancer liquidity pools
  • Faulty or malicious proxy upgrades on the Aave protocol
• Admin Functions on Aura: admin has the rights to change arbitrary configurations such as a change in rewards rates and tokens, shut down, and pause deposits

<aside> 💡 Balancer Boosted Aave USD Pool has had a vulnerability in the past, with a new pool then redeployed in September 2022

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<aside> 💡 Balancer Smart contract bugs have happened on similar liquidity pools such as Dola/bb-a-USD, the metapool paired with bb-a-USD . The nature of the vulnerability is still undisclosed.

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https://twitter.com/Balancer/status/1611363559685898247?s=20&t=aEu5S3pliJ2ev7I2sf7K1w

Conclusion & Recommendations

Conclusion

We would not recommend this as an immediate priority for Origin due to

1. Balancer and Aura strategy requires multiple custom integrations
2. Lack of stable pools on Balancer and Aura, which are the main source of yields for Origins dollar
3. Aura is still a relatively new pool, some Balancer pools have a recent history of vulnerability
4. Compounded financial and smart contract risks
5. Multiple paths for entries and withdraws with slippage considerations
6. Variable returns are in the range of what can be found elsewhere.

OUSD could consider other stablecoin pools on Curve and Convex. OUSD could reconsider this strategy once more BPT liquidity and stable pairs have grown sufficiently large, or once the protocol considers Balancer and Aura ecosystem as a strategic fit for the protocol.

Opportunity for other stablecoin strategies on Aura is not highly available at the current moment

References