The rise of Auxo
Premise
This post is the continuation to: Time to say good Pie where I outlined the reasons why I believe it’s time to refocus operations and upgrade the product line.

The initiative of Governance Mining together with the work done on Treasury Management has yielded good result in boosting governance participation to, on average, over 50% of token holders. I would argue, it also did a better job in fulfilling the original vision then pies did and ultimately has provided consistent value to veDOUGH holders. PieDAO was the first organization to put distribution of treasury farming to stakers in the map, the initiative has been, over the last year, often recognized as the main selling point of the DAO and has served as inspiration to other organizations which started similar operations.

After running the initiative for one year, several issues have been identified with the current version of Governance Mining which prevents the system to scale.

Probably the most important is that, as for now, the treasury principal increases exclusively through the compounding of 25% of rewards being distributed, we need mechanics to expand treasury principal faster and to a larger scale in a way which is non-dilutive vs Treasury NAV. We need a way to align incentives for stakers to advocate and promote to new stakers without diluting their own rewards. We need to provide optionality for those who value being liquid while creating greater value for stakers under locks.

Improvements are required to further decentralize the operations of treasury management, keeping token holders in control while retaining a degree of flexibility for operators to act without having to go through the governance process for every single action.

The changes proposed below are inspired by the idea to embrace what works and make it scale, making liquidity provision the main activity of the DAO and protocol development centered around that very need.
The rebranding to AUXO is here described as the celebration of this choice and to signal a net cut from previous operations.

About Auxo
The goal of the Auxo Protocol is to create decentralized productive treasuries, it allows communities to allocate capital and generates yield on multiple chains on behalf of its token holders.

Auxo is run by AuxoDAO.

AuxoDAO is a network of dedicated community members who make decisions on protocol mechanisms through community governance.
AuxoDAO uses its protocol-owned treasury assets to run a multi-chain decentralized farming fund with the goal to provide liquidity and expand its principal while generating yield on behalf of its token holders.
The Treasury returns the value it generates to its holders actively participating in governance through its core passive-income product veAUXO.

The AUXO token represents share of the fund and has an intrinsic floor value grounded in its wholly owned treasury capital, which is carefully preserved & grown.

The AUXO Token has a strictly controlled policy of expansion based on the NAV Value of the treasury fund. The DAO optimizes for protocol owned liquidity where AUXO denominated pairs are directly owned and managed by the DAO instead of relying on rented-liquidity and incentives.

There will be no liquidity incentives in AUXO, therefore eliminating sell pressure for the token.
The protocol implements policies to automatically buy-back tokens from the market in conditions when the token trades below NAV value.

AuxoDAO will introduce $KARMA, a community token to reward holders loyalty and which utility is primarily of engagement, promotion and rewards which can be used within the ecosystem to obtain benefits.
More info on KARMA, later.

📝 AuxoDAO is fundamentally different from PieDAO because veAUXO holder manage the DAO own funds with the mandate of generating yield, compared to creating and managing tokenised funds which use yield strategies for others.

Protocol
The Auxo Protocol is composed of several modules implementing mechanics to allow to expand, manage and redeem an productive-treasury, handle reward distribution and capital-efficient access to capital via fixed-rate loans.

An high-level list of modules:

Staking & Liquid Staking
Rewards distribution
Treasury
Bonding
Lending
Staking & Liquid Staking
Staking in AuxoDAO inherits the core mechanics of the timelock system used for veDOUGH, therefore the staking periods of minimum 6 months and maximum 36 months remain the same with the same curve. It introduces a set of changes to enable direct on-chain governance, includes a mechanic for liquid staking which is native to the protocol, aggregation of all locks into a single position.

Auxo token holders are offered with two options for staking, veAUXO which allows for full ownership and enjoys better rewards or xAUXO a liquid version of veAUXO which accrues less rewards and delegates voting power to a representative.

veAUXO:

Receives the maximum rewards possible.
Direct on-chain governance rights.
Non-trasferable
Lock is owned directly by the staker
Retain the right to burn their AUXO at the end of the lock to withdraw assets from the redemption pool.
Bonding to veAUXO is guaranteed to happen at NAV
Can migrate to xAUXO by paying a penalty
Elects the representative for xAUXO
xAUXO:

Delegates voting power to a representative elected by veAUXO holders.
Locks tokens in perpetuity - one-way lock
Transferable
Receives less rewards compared to veAUXO
Bonding to xAUXO happens at premium
Includes a mint fee
xAUXO stakers pay a price for staying liquid and delegating their voting participation which directly benefits veAUXO Holders which are long-term aligned and commit to vote by themselves.

veAUXO Stakers benefit from xAUXO in different ways:

Increases the rewards for veAUXO stakers by the virtue of the tax applied to xAUXO rewards.
Increased the NAV of the treasury as bonding to xAUXO happens at premium.
Increases rewards due to everyone who decide to migrate to xAUXO from veAUXO.
Rewards distribution & Slashing
The new reward system offers options to the stakers on how to receive rewards.
Stakers can decide to withdraw their rewards in the assets farmed, therefore withdrawing multiple tokens, or delegate to a vault which will be automatically sell rewards to accrue the desired base asset.

Three vaults will be offered:
ETH Rewards: The ETH Vault will claim on behalf of stakers and sell the rewards for ETH. The AUTO vault is an easy way for stakers to increase their ETH position using rewards.

USD Vault: The USD Vault will claim on behalf of stakers and sell the rewards for USDC. The AUTO vault is an easy way for stakers to increase their stable position using rewards.

Compounding Vault: The AUTO vault will claim on behalf of stakers and sell the rewards to bond for veAUXO. The AUTO vault is an easy way for users to increase their position in veAUXO using the rewards, this action increase treasury principal.

Slashing in the new system is largely simplified by removing the concept of 3 month freezing period, stakers are slashed every single month should they not participate into voting.

Bonding - Increase principal
AUXO introduces a way for veAUXO holders to create recurring liquidity event, also know as bonding, in order to increase treasury principal by minting tokens.

A liquidity event takes place when governance identifies new opportunities to pursue and is seeking for capital to deploy.

The pricing function is defined based on the net asset value of the treasury, factoring in liquid and illiquid assets, and the number of existing AUXO tokens.

Token minted during the bonding system are automatically staked into veAUXO or its liquid derivative xAUXO.

Bonding to veAUXO always happens at exact NAV price while bonding to xAUXO pay a premium, consequently bonding to xAUXO increases the NAV price.

Unsold tokens during a liquidity event are simply not minted and do not impact the supply.

Decentralize Treasury Operations
Auxo decentralize the process of treasury management by building on top of gnosis-safe multisigs to integrate specialized contracts which implement safeguards specifying which tokens and which contracts the Treasury can interact with.

It’s veAUXO Holder job to whitelist contract address and contract signatures into the whitelist.
Once a contract is whitelisted, it can be autonomously used in the Treasury operation until removed. Such system allows that only authorized transactions are executed by Treasury operators.

The Whitelist System allows veAUXO holders to add or remove authorization for specific function signatures on a specific contract address by doing an on-chain vote.

Lending
Auxo Lend is a treasury-backed credit market that provides the most capital efficient borrowing option for the DAO with fixed income lending.

Using Auxo Lend, lenders can access reliable yield opportunities by depositing capital into lending pools. These lending pools are managed by AuxoDAO which deploys capital in yield strategies.
The DAO can access extremely efficient on-chain financing leveraging his treasury and reputation to borrow capital without risking liquidations.

Users can earn a sustainable yield through diversified exposure to the Auxo Treasury without having to stake and enjoy a set-and-forget solution as loans are backed by treasury assets.
Auxo Lend allows veAUXO holders to increase the amount of deployable capital up to 100% resulting in greater yield for the stakers.

The role of governance
In AuxoDAO governance is designed around resiliance of operation and keeps the system trustless and decentralized.
veAUXO holders serve different roles including but not limited to:

Notarization & Transparency

The community voting is used as subjective oracle to insure full transparency about how strategies are performing, together with information about how they’re set up, operated and composed.
Authorization and Access control

veAUXO Holders control the authorization layer of the Treasury by whitelisting contract address and contract signatures. Such system allows that only authorized transactions are executed by Treasury operators.
Election of Treasury Operators

veAUXO Holders can add and remove Treasury Operators at any time, retaining control over who does what.
Election of xAUXO Delegatee

veAUXO Holders can elect the representative which is going to vote on behalf of xAUXO holders.
Issuing liquidity events

veAUXO Holders have veto power to authorize, or block, new liquidity events.
The Farming Operations
The farming operation will be focused on expanding liquidity provision to multiple chains in order to capitalize on the best opportunity according to a risk framework which is detailed and coherent and that provides guidance on the assessment of such opportunities and transparency for AUXO holders.

Further information will be released later.

Conclusion
The reality of farming has evolved significantly in the last year, it is now more complicated than ever to extract good yield with balanced risk and it requires effort and expertise to asset opportunities, understand the technical design of new protocols and the economic assumptions it relies on.

The Treasury Committee spent the last months doing significant research on developing a new set strategies which allow to generate value consistently outside of rewards emission, focusing on cross-chain arbitraging, hedged-univ3-range farming, on-chain option arbitraging and other fully and partial delta neutral strategy. While those efforts where initially framed as a product development initiative, it became quickly clear that the vast majority of those strategies are extremely dynamic and nearly impossible to be build as set-and-forget vaults since they all require a good degree of active management to ensure an healthy way of operating and sufficiently good APY.

Auxo is designed in continuity with the operations which had best served veDOUGH holders in the last year and build on that by creating ways to grow the available principal and expanding operation on different chains. Auxo takes all the expertise accumulated in building tokenised funds with underlying productivity to deliver a protocol which is tailor around the DAO needs for trustless treasury farming. The introduction of the lending component increases significantly the ability of the treasury to operate and provides a venue for users looking to earn yield in a set-and-forget way which is equivalent, if not better, than a vault offering.

Published on HackMD
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