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Some of the crypto-sphere’s largest decentralized autonomous organizations are looking for ways to optimize the liquidity of their native tokens, and they are increasingly turning to the Aura Finance protocol on Balancer to do just that.
Aura Finance is a complex DeFi protocol that allows DAOs to optimize liquidity for their own tokens or other liquidity pairs they wish to direct rewards to. In addition, they can use Aura to influence the direction of rewards for other projects they may benefit from.
By integrating with Hidden Hand, Aura enables DAOs to provide voting incentives to the liquidity pools they wish to direct BAL and AURA rewards to at a cost-effective rate. In this way, they can increase the liquidity and return on these pools.
DAOs like Olympus, Lido, and Gnosis have already funneled millions of dollars worth of tokens into Balancer, a popular DeFi ecosystem that includes an automated market maker (AMM), a decentralized exchange, and a liquidity platform. At the same time, these DAOs have focused on adopting proposals accumulating Vote Escrowed BAL tokens while seeking partnerships with other protocols and tokens to deepen their returns from veBAL.
It’s a scramble for control of the balancer ecosystem that has been dubbed the “balancer wars” versus a similar scramble that ignited in 2021 in the Curve DeFi ecosystem. In the balancer wars, multiple crypto-protocols are vying to influence the ecosystem to gain additional benefits for their own projects, resulting in a battle to accumulate more BAL. These benefits include the ability to vote on important decisions, such as B. The level of mining rewards for different liquidity pools that DAOs may be invested in.
Previously, the only way to accumulate veBAL was to purchase Balance Pool Tokens (BPT) from Balancer’s 80/20 BAL/WETH pool. However, with the arrival of Aura Finance, DAOs have suddenly found a much better way to affect the protocol.
How Aura Finance increases utility
Aura Finance is a decentralized, community-led protocol designed to maximize incentives for balancer liquidity providers and veBAL holders. To that end, it started rolling out its native AURA token in June, amplifying the impact of AURA-controlled veBAL tokens. By October 2022, AURA had accumulated a combined value of over $500 million to become the 20th largest DeFi protocol.
Aura then launched auraBAL, which serves as a liquid shell for veBAL. It can be purchased by depositing liquidity into Balancers 80/20 BAL/WETH to hold veBAL and then converting it into auraBAL before spiking it to not only pay the regular balancer fees for holding veBAL but also receive additional BAL rewards from Aura’s performance fees than AURA.
Additionally, auraBAL holders have the opportunity to contribute these tokens into the auraBAL/(80/20 BAL/ETH BPT) pools on balancers to receive auraBAL/BPT tokens. These can then be used on Aura Finance to maintain a separate pool of AURA rewards for providing liquidity to other users.
In this way, auraBAL provides the balancer ecosystem with its multiple rewards superior utility compared to staking traditional veBAL, while eliminating the need to periodically re-lock veBAL. As Aura accumulates more veBAL, the protocol will continue to scale and gain influence.
Aura Finance took advantage and made things even more complex. Aura Finance then introduced Vote Locked AURA tokens. With it, users lock their AURA to gain privileges such as B. the ability to vote on changes to the Aura Protocol, channel funds from the Aura Vault, vote on balancer snapshot proposals, and earn rewards with additional auraBAL. In addition, vlAURA token holders can also participate in Balancer Gauge voting to generate revenue for lending their votes
DAOs race to accumulate
With the clear benefit that Aura Finance offers, a number of DAOs have attempted to accumulate AURA, auraBAL and vlAURA to gain influence over the ecosystem.
Among the biggest players in the Aura ecosystem is Badger DAO, which previously accumulated a significant amount of BAL and has now increased its holdings of AURA for voting. Meanwhile, Olympus DAO recently passed a proposal adding BAL and AURA to its strategic asset whitelist, allowing it to maximize its veBAL holdings. Additionally, Redacted has proposed blocking all AURA flowing into its treasury to increase returns on strategic partner liquidity pools, and blocking AURA again to maintain the benefits of holding vlAURA. With this, Redacted would be able to use vlAURA to influence votes that are beneficial for its own ecosystem, the proposal states.
The Balancer War incentives have proven seemingly irresistible to a variety of DAO-led crypto protocols as they can bring huge benefits to their own projects. In order to win voting rounds and get these benefits, the protocols try to collect as much veBAL as possible. Now that Aura Finance is adding additional benefits to the mix, it has been able to incentivize veBAL holders to stake these tokens in return for some incredible reward multipliers and garner even more voting power than before. As a result, Aura Finance has grown from nothing to become one of the biggest players in the balancer ecosystem and a rising star in the entire DeFi world.
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