Despite the bear market, a silent war for DeFi liquidity continues to rage.
Curve Finance, the largest decentralized exchange (DEX) with $5.84B in total value locked (TVL), has been the most well-known battlefield for liquidity. The Curve War is being fought by DeFi protocols vying to deepen liquidity for their native tokens on Curve by locking vast amounts of its CRV governance token.
The race to win the liquidity wars through directing CRV incentives spawned another whole protocol, Convex Finance, to optimize the process. At a high level, Convex allows depositors in Curve to maximize the token rewards they get from the DEX, thanks to the massive amount of voting power that Convex has accumulated.
Convex’s voting power comes from locking CRV tokens, which the protocol incentivizes users to irreversibly convert to cvxCRV. Staking cvxCRV earns users what they would have earned by locking CRV directly, but also yields a share of platform fees as well as Convex’s native CVX token.
It’s been a success so far — Convex’s CVX token has a $380M market capitalization as of Aug. 23. At $4.27B, the protocol is also DeFi’s sixth largest in terms of total value locked (TVL), according to DeFi Llama.
Now, Balancer, another automated market maker (AMM) that started as a research project in 2018, is gaining enough steam to attract its own protocol geared towards optimizing native token rewards.
Enter Aura Finance, whose AURA token has quietly jumped 18.9% in the past week to $3.65. The token has been on a longer-term uptrend as well — it’s up 157.5% in the past 60 days.
The token launched 75 days ago on June 9, according to Etherscan. And it’s still small — AURA has a market capitalization of just $37M, which ranks it 499th among all digital assets, according to CoinGecko. Aura’s TVL stands at $316M, making it the 33rd-largest DeFi protocol.
Like most projects which participate in the liquidity wars, Aura is complex.
“At its core Aura is a metagovernance layer for Balancer that allows all stakeholders, whether you’re an LP, governor, or DAO, to optimize the direction of voting power and thus BAL incentives,” Lamentations, an Aura contributor, told The Defiant.
Basically, Aura caters to a handful of parties — one, to depositors in Balancer. Users can deposit their Balancer Pool Tokens (BPTs), which represent liquidity positions, in Aura.
Those positions continue to earn trading fees, but also earn a boosted amount of BAL, which is Balancer’s token. This boost comes from vote-escrowed BAL (veBAL), which controls the allocations of BAL rewards to the various liquidity pools on the DEX. As Aura holds 29% of the current veBAL supply, the project exerts enormous influence over where the BAL rewards go.
Aura attracts veBAL by allowing users to exchange their BAL for auraBAL. In turn, auraBAL can be locked for 16 weeks, which yields the normal rewards of veBAL, but also additional AURA and BAL tokens from a performance fee that Aura charges on revenue from liquidity providers (LPs).
It sounds, and is, complicated.
Looking Beyond Balancer
Aura doesn’t plan on stopping at just Balancer. “Aura was built agnostically to support any token with a ‘ve’ model, so in theory, the protocol could support aggregation for other tokens,” Lamentations said.
Voting locking tokens, also known as the “ve” model,” have been an ongoing DeFi narrative since January. Essentially, the model requires that users lock their tokens in order to participate in governance. Locking usually comes with enhanced yields on liquidity deposits and a share of platform revenue.
With Balancer, the Aura team seems to have picked a good place to start amassing ve-tokens. Trading volume on Balancer has been steady throughout the past year — in fact, the protocol has seen the majority of its $200M-plus volume days since the bottom fell out of the market in May.
Aura may also have an ace in the hole. 0xMaki, who was formerly in a leadership position at Sushiswap, is working on the project. It was 0xMaki who posted the original proposal to allow Aura Finance to lock BAL tokens.
“Not anybody can necessarily launch their own meta governance protocol with Balancer without getting approval from Balancer governance,” Lamentations said.
Whales are taking notice, and perhaps driving AURA’s price action. Andrew Thurman of analytics platform Nansen, pointed out that “smart money” holdings of AURA are at all-time highs as of Aug. 22.
Nansen defines “smart money” as wallets that are very active and generally profitable.
It’s easy to feel like everyone is losing money in a bear market, but AURA shows that some sectors of the market are still hot.