AURORA Token economy 2.0

[Alex]

This is a proposal for updating AURORA token economy.

Short description: introduce a consumption use case: buy back AURORA and burn it with every transaction; allocate AURORA to staking rewards in a bitcoin-style exponentially decreasing model; introduce the stream of rewards that is governed by locked staked AURORA (similar to ‘ve’ governance models); specify the unlocks of Aurora DAO Council treasury; remove booster coefficient from staking.

Background

AURORA is a governance token, that was introduced by Aurora DAO to foster the decentralisation of governance of the Aurora Protocol in Autumn 2021. The intended governance model was proposing to allocate 20% of AURORA token supply to a community treasury, while keeping the substantial part of the token supply (40%+) in the hands of the Aurora DAO councils for future projects. AURORA staking was introduced after multiple discussions (first, second) in May 2022. Besides that, discussions about further decentralisation of governance and mechanics of the community treasury platform have been conducted, however, without tangible results.

I would like to revamp these discussions and propose an update to the AURORA token economy that would bring closer the implementation of the community governance procedures.

Per-tx AURORA burn

In modern L1 protocols base tokens usually have two use cases: a consumption use case (users need to pay for gas in these tokens) and governance/protection (users need to stake tokens to be able to process transactions and perform hard forks). Aurora ecosystem works on top of NEAR blockchain, so during Aurora operations it is NEAR token that is consumed (see more here) and thus, such a use case cannot be implemented for AURORA token in full (not talking about Aurora being released much earlier than AURORA token was introduced).

However, during the execution of NEAR transactions, only 70% of NEAR is burned, while the other 30% is transferred to the smart contract that was called (see more here). This measure was implemented as a way to remunerate developers of the smart contract.

The above means that Aurora smart contracts (Aurora Engine, Aurora Cloud instances, Rainbow Bridge contracts, etc.) actually collect NEAR tokens over time.

I propose to use these NEAR tokens to buy back AURORA from the market and burn it. Here’s how this should be implemented:

• On a monthly basis, security councils of the core Aurora Protocol contracts must withdraw from the contracts NEAR tokens that were earned and transfer to the Aurora DAO Council (auroradao.sputnik-dao.near account).
• Aurora DAO Council should then transfer these NEAR tokens to Aurora and deposit it into the wallet that is used by the purchase script
• Purchase script to execute small purchases of AURORA tokens using 1inch aggregator over the next month
• Aurora DAO Council to withdraw the bought AURORA, transfer it over Rainbow Bridge to Ethereum and burn it.

Notes:

• AURORA must be burned on Ethereum, since it’s an Ethereum token
• Unfortunately, AURORA token contract does not have the burn method (and is non-upgradable).
• Burning mechanism can be a transfer to 0x0 or something more sophisticated.
• In future, public methods for withdrawing excess NEAR tokens from all Aurora Protocol contract and transferring these into Aurora DAO Council can be implemented, so Security Councils may not be involved in the operations

Introduction of this mechanic will put AURORA on par with any other L1 base token.

AURORA Staking rewards

The first year of AURORA staking is coming to an end and the rewards for AURORA staking were determined only until May 2023. So it’s time to determine the future rewards. Here’s what I propose:

• Allocate 50,000,000 AURORA (5% of the total supply) from Aurora DAO Council treasury into staking rewards
• Distribute rewards with constant speed every quarter with a decrease every quarter.
• The decrease coefficient (from quarter to quarter) should be equal to ~0.95760328069857364, which would ensure the rewards decreasing 2 times every 4 years.

This would lead to the distribution of ~2,119,836 AURORA during the first quarter (May 2023 - August 2023) of the program. This is approximately equal to the staking rewards distributed at the moment. Thus no major change in the APY of the staking is expected.

During the first year there should be distributed 7,955,179 AURORA; during second – 6,689,482 AURORA; during third – 5,625,161 AURORA and during fourth – 4,730,178 AURORA. As expected, during the first four years exactly a half of staking rewards (25,000,000) should be distributed.

Expected APY from AURORA staking in AURORA tokens would be approximately ~16% during first year and will drop to ~10% during second year and will continue to drop over time. However, the balancing force to this drop would be ecosystem streams that might be created as a result of the operations of the community treasury (see below).

The allocation of AURORA staking rewards would provide clarity and predictability to market participants.

Community treasury

One of the most successful models used in DAOs for the community treasury was introduced by Curve in their VE Governance Model. In short: users that are locking $CRV for an extended period of time are eligible for veCRV tokens that can be used to boost the rewards on the provided liquidity to specific pools. And though Aurora is a much more complicated protocol than Curve, similar concepts might be applied.

I propose to implement the Community treasury the following way:

• Use community treasury funds as incentives to projects on Aurora
• Allocate 100M AURORA of Community treasury funds to be deployed over the course of the next 4 years as incentives (with another 100M allocation to be decided later)
• Allocate 25M of AURORA to be deployed on a weekly basis (approx. 2M AURORA per week) as a stream over the first year of the operation of the program
• Add an ability to AURORA stakers to lock staked AURORA for a certain period of time (this can be implemented without changes of staking contract, but through the separate locking contract, that will stake on behalf of a user)
• Depending on the amount of locked AURORA and the term of lock, allocate to the user a new token, veAURORA. The details of veAURORA should be developed further, however, the north star should be veCRV mechanics.
• Introduce an opportunity to the user to vote with veAURORA on the projects / initiatives to receive the funding from the incentive stream
• Introduce an interface for locking AURORA and voting with veAURORA inside Aurora+
• Projects and initiatives that are seeking to obtain funding must post their proposals on the governance forum in any format. The listing of the initiatives in the Aurora+ interface should be accessible through a simple open repository of initiatives (similar to Chainlist process)
• For the first year, Aurora Labs’ team would be performing the monitoring of the funded initiatives and their delivery. The creation of independent monitoring organisations (public police) is encouraged.

Intention: In case of the successful application of this initiative, I see the whole treasury to migrate from Aurora DAO Council to the Community Treasury. Thus, the community would be responsible for funding, while Aurora DAO Council will play the role of an executive arm that would be able to perform actions that are problematic for the DAO.

The proposed model for the Community Treasury operations is broad and light. It allows funding the public goods, as well as allocating incentives to DeFi projects (similar to $CRV) and other types of initiatives. The functionality of Ecosystem streams can be used by the projects to pay back to the community for allocating funding.

Aurora DAO Council treasury

The current tokenomics of AURORA operates with the intended/expected distribution of AURORA to the market, however, to introduce clarity to the market participants, an unlocking scheme for this funds is proposed:

• Aurora DAO Council now owns ~402,000,000 AURORA for the future projects
• Aurora DAO Council now holds also 200,000,000 AURORA which are allocated to Community Treasury
• With the allocation of 50,000,000 AURORA to staking rewards, Aurora DAO Council would be left with ~352,000,000 undistributed AURORA
• Keep 102,000,000 AURORA on the balance of Aurora DAO Council and treat these tokens as liquid
• Allocate the remaining 250,000,000 AURORA to be linearly unlocked over the period of 5 years. This might be implemented through NEP-141 locking contracts on NEAR or solutions like Sablier on Ethereum to remove the bridge risk.

What should be removed

Besides new mechanics, there is one that I propose to remove – the boost coefficient in staking. This coefficient was introduced as a means of boosting the rewards of early stakers, however, the boost is working only with ecosystem streams that have proved to be small compared to AURORA rewards. Besides that, the booster coefficient and its mechanics confuses many stakers.

The non-linear allocation of veAURORA depending on the locking time would serve the similar goal.

Implementation

In case of support of this update, I propose to implement the majority of it on 18th of May 2023. And introduce the community treasury after the updates to Aurora+ and staking mechanics as soon as these are developed by Aurora Labs.

Conclusion

Proposed update to AURORA token economy introduces consumpiton use case to AURORA token, brings clarity to market participants in staking rewards and unlocks of the AURORA supply to the DAO Council. It also proposes to implement the community governance through an established ve-model.

[Aliaksei]

What is the destiny of VOTE tokens? Will it be possible to convert them to veAURORA?

[Aurobot99]

Hi,

Thank you for the write-up, unfortunately I’m very concerned about the following:

• A lack of unified communication from all of the Aurora DAO members about critical decisions concerning the network | Aurora DAO ≠ @Alex
• Flip-flopping stance of Aurora Labs on the implementation of a token burn (@Alex has specifically mentioned before that Aurora Labs would not support a token burn in the past)
• Seemingly no clear long-term strategy or vision to cultivate community that is genuinely incentivised to contribute in governance and the wider health of the Aurora network

Unless I have misunderstood this proposal, it does not seem to fix any of the core issues that have plagued the Aurora network since it’s inception.

Would love to see a more focused effort

99

[Nck]

I think this proposal is quite reasonable:

1. Of course token price ≠ project success BUT we are in crypto space, just look at current sentiment in community groups - it definitely doesn’t help to attract new users to Aurora. May be someone didn’t support token burn before but we should act considering current situation
2. We have many funds in the Treasury and we should use them for further development
3. We definitely need more projects on Aurora, today I don’t see many new projects, I see projects leaving Aurora for Arbitrum etc
4. We should use previous successful experience of other blockchains and that is - INCENTIVES, this will definitely attract more projects, and good projects will stay even after the incentives will end

[Aurobot99]

I would like to come back and add that I support a $NEAR token stream, coupled with a retention of the vote token—opposed to a burn mechanism and an implementation of the vetoken model proposed.

@Alex it might be helpful if you can outline what happened exactly that has caused the Aurora DAO elections to be delayed indefinitely, because it directly links back to the use-case of the $VOTE token itself.

It might also help the community understand why you are suddenly proposing a shift to vetoken model governance.

I think it is a good idea of yours to cancel the boost coefficient.

[Alex]

@Aliaksei
VOTE tokens were designed to perform the elections of DAO Council. I think there are two ways forward:

• Implement elections of DAO Council members as it was planned. Even with the above proposal this makes sense for at least for some period of time.
• Discard VOTE tokens and perform DAO Council management based on their internal procedures (votes for adding or excluding members) + polls of veAURORA holders. In the long run, in case VE model for Community treasury would work as expected, it makes sense to allocate the whole Aurora DAO Council treasury holding to Community treasury. In such a case, Council will become yet another participant in the ecosystem and won’t have any special treatment. This would be just another set of people that would work for the ecosystem. They would need to get the funding from the community treasury.

@Aurobot99
From my exploration and analysis of the blockchain ecosystems, I can clearly state several things.

First, the shorter the period for a user is from an action to a tangible result, the more engagement you can expect from this user. This supports the narratives around expected airdrops and VE models of other projects. In case of $CRV people are locking tokens and distribute the rewards to themselves. What can be simpler than that? . A piece that adds to the engagement is the ability for a person to make an educated personalised decision. In case of $CRV, this is the period of lock.

In the current model (Aurora DAO Council holds the treasury, it gets elected once a year) the engagement from the people is required only once a year. This means that the connection path between the user and his influence on the treasury management is very long. Thus, he won’t feel that he’s in charge of anything. An outcome of this understanding was the initial proposal of having a Community Treasury, where users would be able to directly influence the distribution of the funds and thus the direction of the development of Aurora ecosystem.

This proposal changes nothing in the approach chosen. VE model for the Community Treasury is just a specification of how it should work. While VOTE tokens were designed to handle the elections of the DAO Council and represent a non-direct influence on the ecosystem.

VOTE future

I think the future of $VOTE tokens is a point of additional discussions and it was intentionally not in this post. This proposal is about the token economy and implementation of the Community Treasury mechanics. It is not about the Council procedures.

From the technical side, election smart contract is developed and audited. It can be used at any time. There’s no front end for it though. The thing that is lacking is clear guidelines on how the elections should be handled and process around it that would prevent a misuse of power of the new elected Councils and dishonest elections. An attempt to describe it in the further decentralisation of governance post was gaining quite some valuable feedback that should be analysed and incorporated. It clearly shows that there are many points of view on the election process and things are not quite simple.

Honestly, I’ve never seen the proper implementation of elections in blockchain ecosystems. And I’m sure that it’s going to be something quite complicated to organise in general, not saying about being organised by Aurora Labs–the small-size blockchain development company. Aurora Labs doesn’t have the resources nor the expertise to handle all of the aspects of elections. Unfortunately within the last year no other participant of the ecosystem was offering their help with it. So I really encourage community to pay attention to this and jointly work on this problem.

An option to consider may be the delay of the elections. The implementation of working Community Treasury would presumably get engagement from the users. Performing the elections of the Council afterwards is exactly what’s needed for the proper democratic voting with a representative result.

[megdanov]

I think we all have to understand that the token economics are important and they can hold back a project and even bring a project down. I support any mechanisms meant to utilize the AURORA token(like burning, etc.) and make it more valuable. Don’t forget that no amount of treasury will matter, no amount of staking rewards will matter, no grants will matter if the token is worthless to the ecosystem and goes to 0$.
Also in my opinion the AURORA token itself should be utilized for voting and the VOTE token should be removed in general. We don’t need more tokens. $AURORA should be used for more and more things.

[Ardbs]

While it is true that token price alone does not determine the success of a project, it plays a significant role in attracting users and building a strong brand image. Implementing the proposed changes would not only create a more robust and sustainable token economy but also help in driving the growth and adoption of the platform.

[Vladislav_vl25]

I think that would be a great solution.
In the blockchain world, everything is changing rapidly, and it is important to be able to adapt to all conditions.

Special thanks to Alex for initiating our community into these plans and sharing more about it at the community call.

[zubairansari07]

Thanks Alex for the proposal to add utility to the $AURORA token. The new mechanism to burn the token in a planned manner is quite good and understandable.

Users in our community used to ask frequently what plans do we have for the AURORA token. Finally once the proposal is approved, we will have increased utility and hope the hodlers will be happy

[sek]

I think i like the concept of the ve-Model.
veAURORA! Awesome initiative!!

[israel_igboze]

I am glad that this has come up.
Many community members, especially new ones always ask about the use case of the Aurora token.

I perceive thst this is much more helpful to the token economy of the Project to end users.

Just as others have said, i hope the $VOTE token for the DAO will still hold it’s place.

[duOCELOT]

Your proposal for updating the AURORA token economy seems well thought out and could potentially improve the token’s overall utility and value proposition. The introduction of a consumption use case for AURORA, through the buyback and burn mechanism, could give it a similar function to L1 base tokens, which may increase its demand and value. Additionally, the allocation of AURORA to staking rewards in a bitcoin-style exponentially decreasing model could provide clarity and predictability to market participants and also incentivize long-term staking.

The introduction of a community treasury, governed by locked staked AURORA tokens, could also foster a stronger sense of community participation and incentivize stakeholders to hold their AURORA tokens for an extended period. However, it may be helpful to provide more specific details on how this governance model would work and how it would be different from the current AURORA staking mechanism.

Overall, your proposal has potential and could be beneficial for the AURORA token economy. It would be interesting to see how the Aurora DAO Council and the wider community respond to it and if it could lead to tangible changes in the governance of the Aurora Protocol

Great!

[techdir]

Greetings to all community members. Want to say this proposal is really great and here is why:

1. Introducing a consumption use case through the buy-back and burn mechanism will put AURORA on par with other L1 base tokens, providing more utility.
2. The allocation of AURORA staking rewards will provide clarity and predictability to market participants.
3. The introduction of a community treasury, similar to the VE Governance Model used by Curve, could incentivize users to lock their tokens for a longer period of time, thus creating a more engaged and invested community.
4. The proposal outlines a clear plan for implementation, including withdrawing NEAR tokens from the Aurora Protocol contracts and executing small purchases of AURORA tokens using the 1inch aggregator, which should make the process smoother and more efficient.

The proposal appears well thought-out and addresses several areas where improvements could be made to the AURORA token economy.

[techdir]

@Alex as far as I understand, at the moment there is no burning function in the contract and this function will have to be implemented.
Is there a risk of negatively impacting network operations?

[cizi31]

Thank you Alex for the proposal. Happy about the new updates, especially the buy-back-and-burn mechanism could be very interesting for the community.
Can’t wait to share the great news!

[ramgor]

Greetings @Alex

As a community member:

First of all, you made me go to study one more time our financial history and our tokenomics! Thanks.

Your proposal is not only an achievable good idea but also timely and suitable to ride Aurora in the fast and changing evolutionary path of the crypto world and adapt Aurora to the new approaches, some of them tested in other chains with success.

My experience in governance tokens still needs improvement so I will let the ve-token opinion to other buddies. But I do perfectly understand the tokenomics you are talking about as a necessary step to evolve; the crypto ecosystem is more aggressive in terms of evolution even than the hardware that sustains it. Not implementing better changes would be like a doctor pretending to cure a disease with a vintage procedure in the presence of a proven modern one. To evolve and to improve is what everything does to stay in the game.

As a trader and a long term micro investor:

In addition to our Aurora finite total supply, burning some tokens will considerably contribute to the psychology of any investor, staker, hodler, and trader, taking the deflationary idea to our table, even if this would be just a small % of the circulating supply.

The idea is complete, coherent, and achievable.

As a local leader of a community guild :

You are coming up with bold ideas and letting people share opinions and discuss them; that is what a true leader does.

Thanks

[derymars]

I think this plan will benefit the entire community. Burning AURORA with every transaction is a great way to increase the token’s value and decentralization of governance.

Happy to support!

[Sachinmurali03]

I’m excited about the new governance model! It’s perfectly designed to provide more utility for $Aurora, which is great news for token holders. This model will enable greater participation and decision-making power for the community, leading to a more decentralized ecosystem which will lead to an increase in the value and adoption of $AURORA. I’m excited to see where it goes from here.

[Turco]

TLDR imo giving a greater use than just governance to the token is already a big step, I think that removing the boost coefficient is fine, there are greater reasons than that feature.

It’s good to see new AIPs, I also hope to see more throughout the year.

btw It would be good that this proposal is discussed on twitter, in some ama or some other place so that it has a greater reach with the users. We are already discussing it in our community and creating a survey to receive a better feedback.