Title: Allocation of DAO treasury to agEUR
Author(s): Pablo Veyrat (Angle Protocol core team member)
Related Discussions: ETP1
Submission Date: 15th of July 2022
This is a request for comment with various thoughts on ways with which Euler could support agEUR and become a central place for forex trading.
Proposal includes different options for enabling Euler to build up an agEUR position and lay the foundations to promote agEUR as a collateral tier.
There’s recently been a proposal to allocate a portion of the DAO treasury to EUROC and wETH. Yet more than two weeks after launch, the EUROC liquidity did not materalize on-chain (total supply is 340k as of the 15th of July).
While EUROC would be a new stablecoin on Euler, agEUR has been one of the longest standing stablecoin on Euler and one of the most used stablecoin on the platform.
There are currently 7.05m agEUR lent for 2.17m agEUR borrowed on Euler.
agEUR is a stablecoin of the Angle Protocol. It is based on an over-collateralized protocol (current collateral ratio = 220%). agEUR can be issued from different means and across different modules:
there is a core module which allows to mint agEUR from USD stablecoins at a 1:1 rate: the protocol hedges itself against the EURUSD change risk by issuing perpetual futures and it relies on other depositors (called standard liquidity providers) in addition.
agEUR can also be borrowed against other assets (like wETH, wstETH, wBTC) in a way that is similar to what Maker is doing with DAI. Liquidations were inspired by Euler’s cutting-edge liquidation mechanism
The protocol can natively mint agEUR in different places and protocols if the ways these agEUR enter the market are guaranteed to be over-collateralized. To this extent, 3.6m agEUR were minted on Euler and there’s been a governance vote that guarantees that borrow interest rate will remain < 3%.
agEUR has consistently held its peg since its launch, TVL of the protocol is $83m and the protocol has accumulated a safety net of around $10m since its launch.
agEUR is so far the most traded Euro stablecoin on-chain and it has full range liquidity controlled by the Core team on Uniswap on its UniV3 ETH-agEUR pool.
The Euler proposal about allocating a portion of the treasury to EUROC stated all the potential opportunities that could arise with the addition of a strong Euro stablecoin on the platform:
opportunity to take leveraged FX bets (e.g. long the € or long the $) and more globally paving the way to enabling on-chain EUR/USD trading via Euler
give means to European DeFi users to get a yield without having to care about change risk
hedge the DAO’s FX risk
pay European contributors of the DAO directly in €
While it’s important to have centralized stablecoins (diversity of assets, easier on/off ramps), all these opportunities that were mentioned for EUROC can be accessible and for cheaper with agEUR.
As mentioned above, agEUR has deep liquidity and a strong oracle, it even has a Chainlink oracle. The stablecoin has a cheap off-ramp available with Mt Pelerin. It also offers products which can be used complementarily to Euler: people can for instance borrow agEUR against USDC and hedge their € exposure by opening perpetual futures with Angle.
agEU’s stability mechanism is by the way what allowed other centralized stablecoins (like EURs and EURt + Curve integrations) to keep their peg during the stormy weeks of May.
At the moment agEUR is only a cross tier asset on Euler, and having it as collateral could unleash a wide range of use cases which are available nowhere else in DeFi like longing the € with leverage. With the current turmoil in FX markets with the € price decrease, it may be the right time to expand the offerrings for on-chain DeFi traders.
Several things would be needed for this:
reinforce agEUR TWAP
or a switch to Chainlink agEUR oracle when you’re ready to do the switch
agEUR as a collateral could be added to start with with conservative risk parameters.
The oracle reinforcement can be done for pretty cheap given the existing on range liquidity. Full-range liquidity on the agEUR-ETH pair is owned and controlled by the protocol. The Angle team could lock this liquidity in a multisig with the Euler team to guarantee it’s not going to be removed.
There is also no need to increase liquidity on an agEUR-USDC pool since there’s already a big pool incentivized by the Angle Protocol.
With all this in mind, what I suggest is reconsider this proposal that has been voted and also allocate a portion of the treasury to agEUR.
There are different options with it:
either as stated in the original proposal, acquire $3m of agEUR, use a portion to increase full range liquidity on the agEUR-ETH pair, increase liquidity on the agEUR/USDC pair and keep the rest in the treasury
only acquire what’s needed to make the full range liquidity manipulation proof: note that since agEUR liquidity is far greater than EUROC, there is potentially no need to spend $3m to make agEUR a “strong” asset (like would have been needed for EUROC).
Split the acquisitions between agEUR and EUROC. While this may be an option, I want to remind here the fact that if liquidity for EUROC came to grow in the future and Euler wanted to take part of this, there are ongoing discussions in the Angle governance to allow minting agEUR from EUROC (and conversely) at a 1:1 rate so that all agEUR integrations are in fact EUROC integrations, and with this in mind there is potentially no real point in fragmenting liquidity further.
Before detailing the exact implementation, it might be good to have some more community feedback on the proposal and on the options.
This is indeed still a request for comments and I’d be glad to hear everyone’s feeling on this and how to position Euler at the heart of the FX market.