- Edited
Summary
We propose to deploy a $0.75m KLIMA/wETH Protocol Owned Liquidity (POL) to Aerodrome on Base by migrating a portion of our existing Polygon KLIMA/BCT LP and procuring 100 ETH from the treasury using USDC, as outlined here.
Aerodrome allows liquidity pools to attract 3-4x as much value in AERO tokens as they collect in trading fees and protocol incentives.
As a result the DAO could collect $3+ in AERO rewards directed to a KLIMA/wETH pool for every $1 it deploys in incentives. The KlimaDAO community will benefit from attractive APRs, increased trading volumes, deep liquidity, and access to the Base DeFi community. The position will also provide a veAERO vote share, allowing the DAO to direct AERO emissions for potential future migration of carbon pools to Base as well as potential liquidity rewards for carbon liquidity providers, and in time may allow the DAO to provide LP deployment/veAero votes as a service to other protocols launching tokens.
Motivation
Our current Polygon KLIMA/BCT LP is valued at $2m and has generated insignificant volumes and fees, with $26k of volume on $2mn in liquidity and roughly $78/revenue/day.
In spite of the strong price action, liquidity and volume for KLIMA are still relatively muted. There is an opportunity for the DAO to be an early mover and capture a larger portion of market share, which in turn should help bring volume and activity to Base - this is even more relevant given the future potential migration of the majority of KlimaDAO activity to Base.
Aerodrome is the central trading and liquidity marketplace on Base with more than 2x the TVL of all other DEXs on Base combined. AERO emissions are streamed to liquidity pools weekly based on the number of votes received during the weekly voting period (“epoch”). Voters (veAERO holders) receive 100% of fees & incentives for the pools they vote on. Voter rewards typically generate 3-4x the value to LPs. In other words, for every $1 in voter rewards, $3-4 worth of AERO emissions get streamed to LPs.
Projects and their communities can deposit incentives to attract votes/use their own veAERO votepower to direct emissions to their liquidity pools. Every listed project on Aerodrome is eligible to receive veAERO airdrops to help them build Project Owned Votepower passively and benefit from fees and any incentives by voting for their own pool/s. These airdrops are distributed to partners proportional to their contribution across three categories every four weeks. More details about the program here 4.
KlimaDAO is uniquely positioned to benefit from the 3-4x multiplier on top of base fees, as it already owns $1M of KLIMA/USDC liquidity on Polygon whilst also owning 700k+ KLIMA tokens. The DAO can also leverage Relay, Aerodrome’s veAERO automation layer, to vote for KLIMA/wETH perpetually, compound veAERO rewards, and direct AERO emissions to KlimaDAOs POL at zero cost to the DAO. This will grow its share of rewards received over time without adding extra operational overhead.
Specification
Remove $1.4m of liquidity from the existing Sushiswap KLIMA/BCT
Remove a $1.4m portion of the current LP for migration to Base. As KLIMA/BCT has become the largest LP owned by the DAO, KLIMA tokens can be repurposed for other pools that will create more volumes and fees.
Deploy a new KLIMA/wETH LP of $0.75m on Aerodrome
Bridge 100 ETH and a corresponding amount of KLIMA to base for deployment on Aerodrome.
Allocate up to 200k KLIMA tokens ($0.5m value) as incentives over 20 weeks
Funds will need to be set aside for equal weekly distribution as voter incentives over 10 weeks. The DAO should receive the $ value of these funds back in AERO rewards at a greater than 3x multiple.
Compound an equal portion of AERO rewards into more KLIMA/wETH POL
In order to ensure zero net cost of the KLIMA incentives, $25K weekly worth of the AERO received will be converted into more KLIMA/wETH POL.
Lock all portion of remaining AERO rewards to build veAERO votepower
In order to build a position in AERO to direct rewards to the new KLIMA/wETH LP and any future carbon LPs, the remaining AERO should be locked to build veAERO votepower and qualify for Flight School rewards. The Protocol Team will monitor and determine the best utilisation of AERO rewards.
Deposit veAERO into Relay to automate veAERO management
As noted above, the DAO can also leverage Relay to vote for KLIMA/wETH perpetually, compound veAERO rewards, and direct AERO emissions to KlimaDAO POL at zero cost to the DAO.
Assumptions
Expected ROI on deploying position
The total value of AERO emissions last epoch was $5.9m and total rewards (fees and bribes) was $985k, which divided together is a 6x multiplier (i.e. for every $1 in voter rewards, $6 of value was directed to LPs). A 3x multiplier has been used to account for efficiency reduction over the 10 week program.
$25k of KLIMA incentives per week should generate $75K worth of AERO emissions (at the 3x multiplier) distributed to the pool each epoch, which is $3.9m annualised.
By compounding $25K worth of AERO into KLIMA/wETH the DAO will be capturing its weekly earnings whilst growing its POL position on Base and creating a net nil loss from incentives.
Any remaining AERO estimated at $25-50K per week can then go into building KlimaDAO votepower so it can vote for its own pool and claim voter rewards (fees & incentives) every week.
Recommendation
We recommend the DAO approves the creation of a $0.75m KLIMA/wETH POL position on Aerodrome, distributing up to $0.5m of incentives in KLIMA over a period of 20 weeks, with incentives calibrated by the protocol team based on realized performance. We also recommend that an amount of AERO equivalent to the incentive value is compounded into additional KLIMA/wETH POL, and the remainder of the AERO is votelocked to build a veAERO position.
Rationale
We stand to increase our impact with earnings on Protocol Owned Liquidity
The DAO should earn $20k+ per week from KLIMA/wETH liquidity with only $750K in liquidity i.e. a 2.7% weekly return. Compared to $400-500 earnings per week on $2M in liquidity i.e. a 0.025% weekly return. This excludes weekly earnings made by the end of the program through its veAERO votepower.
The deployment should Boost APRs and deepen liquidity on Ethereum L2s
AERO emissions will attract additional liquidity providers for KLIMA/wETH, likely bolstering liquidity and trading volumes on Base.
A successful trial can mean rolling out Carbon liquidity to Base in a similar manner
Base is the fastest growing L2 network and a potential leader in onboarding new users to the ETH ecosystem this cycle. Developing a stronger presence on Base will allow KlimaDAO to service the growing Base community and KlimaDAO votepower can be used to direct emissions to a future Carbon pools post-migration to Base.
The DAO’s veAERO position will be a tool to use in future to support other projects
The DAO’s veAERO position will provide a vote share base for an intended migration of carbon pools to Base and potential liquidity rewards for carbon liquidity providers as noted above, but in time may also allow the DAO to provide LP deployment/veAero votes as a service to other protocols launching tokens.
The move will improve KlimaDAO exposure and strengthen its brand
Aerodrome offers all partners support via amplifying relevant comms. As the largest and most ecosystem aligned DEX used by some of the biggest L2 power users in DeFi and trusted by Coinbase Ventures, a close partnership with Aerodrome gives projects a natural boost in exposure and branding. We would have first mover advantage as KLIMA/wETH is not yet whitelisted on the platform and the team wants to work with us directly.
Timeline
Within one week of this proposal passing.
Costs
$0.5m worth of KLIMA tokens will be used as incentives throughout the program (200k KLIMA at current prices) but will be offset by the returns generated in AERO.
Important Links
I’ve included a selection of other important links below, which might be helpful context:
Smol Dapp Safe: MultiSafe - SmolDapp
Example Discussion on Issue: https://forum.safe.global/t/how-to-create-a-safe-on-arbitrum-by-retaining-same-ethereum-safe-address-and-owners/3173/7