eTP 1: Allocation of DAO Treasury to EUROC and WETH

[eIP] Euler Improvement Proposals Voted Proposals
1
  • Title: Allocation of DAO Treasury to EUROC and WETH
  • Author(s): Seraphim Czecker (delegate)
  • Submission Date: 29.06.2022

eTP 1: Allocation of DAO Treasury to EUROC and WETH

Summary

Proposal includes a near-term commitment to allocate $3 million of the $32.6 million raised in the recent treasury diversification event from USDC to EUROC and $1 million into WETH. These funds will be intended for securing Uniswap v3 oracles and laying the foundation for promoting EUROC to the collateral tier. This proposal paves the way to enabling on-chain EURUSD FX trading via Euler.

Motivation

The motivation behind allocating treasury funds to EUROC and WETH is three-fold:

1. Further treasury diversification into high-quality stablecoins

The DAO holds a treasury that, until the recent funding round, consisted of approx 5.4m EUL tokens (approx 20% of the total EUL).

Upon the treasury diversification funding round in early June, approx 9% of EUL were converted into USDC. After this event, the DAO now holds a treasury consisting of 2,468,672 EUL tokens (approx 9% of the total EUL) and about $32.6 million worth of USDC.

Should the proposal pass, the DAO treasury will consist of:

  1. $3 million of EUROC
  2. $1 million of WETH
  3. $28.6 million of USDC
  4. 2,468,672 EUL (approx 9% of the total EUL)

EUROC would partially hedge FX risk and further represent the global nature of Euler users and stakeholders. The Euro is the world’s second largest reserve currency, after the US dollar, and is used by at least 400 million people daily. For the DAO, EUROC is also advantageous given potential expenses such as grants and work from direct contributors based in the EMEA regions.

2. Providing EUROC Liquidity into Uniswap V3 to strengthen oracles

The risk team will explore the best way to strengthen Uniswap V3 oracles while protecting the treasury funds from market risks. While the exact proposal for capital allocation will be handled in eTP 2, one possible allocation strategy could be:

A. Provide $2 million EUROC and $2 million USDC to the EUROC/USDC 5bps fee tier.

Liquidity split:

  1. 10% of liquidity provided full-range
  2. 20% of liquidity provided within 50% price range around spot price
  3. 70% of liquidity provided within 10% price range around spot price

Given EUR/USD trades within a tight band, it makes sense to allocate most of the funds around the spot price to generate trading fees and protect the oracle from multi-block attacks.

While most of our analysis has focussed on 1-2 block attacks which require extreme price manipulation, multi-block attacks are less explored and potentially much more feasible. They require manipulation of oracles by a much smaller magnitude, which is why we believe it makes sense to deploy liquidity around a tighter band.

B. Provide $1 million EUROC and $1 million WETH to the EUROC/WETH 5bps fee tier.

Liquidity split:

  1. 20% of liquidity provided full-range
  2. 50% of liquidity provided within 100% price range around spot price

We expect similar volatility from EUROC/WETH as from USDC/WETH, which is why allocating the liquidity around a much wider price band is appropriate. Nevertheless, the multi-block attack described earlier demands a more concentrated position as per our research.

3. Paving the way to enabling on-chain EUR/USD trading via Euler and Circle

Assuming a strong pricing oracle and liquid on-chain FX markets, the risk team will be in a place to propose EUROC as a collateral asset on Euler. This would potentially enable Euler to capture a portion of the $6 trillion per day forex market.

An on-chain FX market has strong advantages vs TradFi FX markets:

  1. Unified pricing feed: FX pricing in TradFi is extremely fractured and arcane. Bringing that to a public ledger like Ethereum will allow for transparency not seen before in FX.
  2. Limiting market manipulation: given the public nature of blockchains, high-impact event-driven price manipulation would be substantially easier to track and prevent.
  3. Weekend trading: on-chain FX could allow traders to hedge weekend risk.
  4. Enabling anyone to LP into FX, not just the biggest market makers.
  5. Opening FX to DeFi Natives like DAOs that want to interact with DeFi, not TradFi.

Euler is strongly positioned to enable this as, unlike competitors, it has an efficient position building engine. For eg, instead of lending EUROC, borrowing USDC, swapping into EUROC and recursively doing this in multiple steps, one could do the following:

  1. Deposit 1000 USDC as margin
  2. Mint 2000 eUSDC (assets), 2000 dUSDC (liabilities)
  3. Swap eUSDC into eEUROC

Hence, you’ll get:

  1. 1000 USDC margin
  2. 2000 dUSDC (short USDC)
  3. 1904 eEUROC (long EUROC, assuming 1.05 EUROC/USDC price)

In fact, one could post any collateral asset enabled on Euler as margin and put on a directional FX trade in one click.

Given Euler’s market-based liquidation module, users will lose less on average in the event of liquidations. This and the flexibility of the architecture makes Euler an institutional-grade solution for bringing FX flow on-chain.

Specification

1. How is EUROC different from USDC?

EUROC will be issued by Circle under the same full-reserve model like USDC.

2. Where will the euro reserves of EUROC be held?

Circle will hold Euro-denominated banking accounts at leading financial institutions, beginning with Silvergate Bank in the US.

3. What is Silvergate bank?

Silvergate is a leading bank in the realm of fintech and crypto. They operate the SEN (Silvergate Exchange Network), which allows clients to issue and redeem USDC and EUROC 24/7. All USDC and EUROC are fully redeemable 1:1 for fiat currency if desired.

4. Who audits EUROC?

Grant Thornton LLP will be issuing monthly attestations. Circle’s financial statements, which include EUROC reserves, are audited annually and filled with the SEC.

5. When will EUROC launch?

EUROC will launch on the 30th June, 2022.

6. What integrations are already in the making?

The DeFi integrations underway include Compound, Curve, DFX, Uniswap.
Exchanges include Binance.US, Bitstamp, FTX and Huobi Global.
Custodians include Anchorage Digital, CYBAVO, Fireblocks.
Wallets include Ledger, Metamask institutional.

7. Which users is EUROC targeting?

EUROC is targeting exchanges, institutional traders, businesses and individuals. Judging by upcoming integrations, EUROC may become an integral part of DeFi and enable on-chain FX arbitrage. It could also become an integral part of other DAO treasuries, especially for teams based in Europe, the Middle East, and Africa.

Implementation

If eTP 1 is approved, the DAO will acquire $3 million worth of EUROC and $1 million worth of WETH via Uniswap, Curve or DFX at minimal market impact over the next few days.

Assessment

Given EUROC is based on exactly the same mechanism as USDC, which has proven itself as one of the most reliable DeFi assets, the risk of loss of funds for the DAO is limited. If this proposal is passed, it lays the foundations for potentially enabling EUROC as collateral on Euler, building an on-chain FX market, research collaborations between Circle and Euler, and more.

Risk assessment of providing liquidity into Univ3 and EUROC as collateral will be handled in another proposal subject to eTP 1 being approved by token holders.

Vote

The vote for this will be conducted via Snapshot till 5 July 2022, 9am EST. Here’s the link to vote:
https://snapshot.org/#/eulerdao.eth/proposal/0x3b4b7e79c40df6860e7d612bdccc4969753e283dfd84673dc5fc4d201abcb317

Relevant Links

https://www.circle.com/en/euro-coin
https://support.usdc.circle.com/hc/en-us/articles/7085902140052-What-does-it-mean-to-tokenize-USD-and-redeem-USDC-

5 Likes
2

16 posts were merged into an existing topic: About the Voted Proposals category

4
  • Title: Allocation of DAO Treasury to EUROC and WETH
  • Author(s): Seraphim Czecker (delegate)
  • Submission Date: 29.06.2022

eTP 1: Allocation of DAO Treasury to EUROC and WETH

Summary

Proposal includes a near-term commitment to allocate $3 million of the $32.6 million raised in the recent treasury diversification event from USDC to EUROC and $1 million into WETH. These funds will be intended for securing Uniswap v3 oracles and laying the foundation for promoting EUROC to the collateral tier. This proposal paves the way to enabling on-chain EURUSD FX trading via Euler.

Motivation

The motivation behind allocating treasury funds to EUROC and WETH is three-fold:

1. Further treasury diversification into high-quality stablecoins

The DAO holds a treasury that, until the recent funding round, consisted of approx 5.4m EUL tokens (approx 20% of the total EUL).

Upon the treasury diversification funding round in early June, approx 9% of EUL were converted into USDC. After this event, the DAO now holds a treasury consisting of 2,468,672 EUL tokens (approx 9% of the total EUL) and about $32.6 million worth of USDC.

Should the proposal pass, the DAO treasury will consist of:

  1. $3 million of EUROC
  2. $1 million of WETH
  3. $28.6 million of USDC
  4. 2,468,672 EUL (approx 9% of the total EUL)

EUROC would partially hedge FX risk and further represent the global nature of Euler users and stakeholders. The Euro is the world’s second largest reserve currency, after the US dollar, and is used by at least 400 million people daily. For the DAO, EUROC is also advantageous given potential expenses such as grants and work from direct contributors based in the EMEA regions.

2. Providing EUROC Liquidity into Uniswap V3 to strengthen oracles

The risk team will explore the best way to strengthen Uniswap V3 oracles while protecting the treasury funds from market risks. While the exact proposal for capital allocation will be handled in eTP 2, one possible allocation strategy could be:

A. Provide $2 million EUROC and $2 million USDC to the EUROC/USDC 5bps fee tier.

Liquidity split:

  1. 10% of liquidity provided full-range
  2. 20% of liquidity provided within 50% price range around spot price
  3. 70% of liquidity provided within 10% price range around spot price

Given EUR/USD trades within a tight band, it makes sense to allocate most of the funds around the spot price to generate trading fees and protect the oracle from multi-block attacks.

While most of our analysis has focussed on 1-2 block attacks which require extreme price manipulation, multi-block attacks are less explored and potentially much more feasible. They require manipulation of oracles by a much smaller magnitude, which is why we believe it makes sense to deploy liquidity around a tighter band.

B. Provide $1 million EUROC and $1 million WETH to the EUROC/WETH 5bps fee tier.

Liquidity split:

  1. 20% of liquidity provided full-range
  2. 50% of liquidity provided within 100% price range around spot price

We expect similar volatility from EUROC/WETH as from USDC/WETH, which is why allocating the liquidity around a much wider price band is appropriate. Nevertheless, the multi-block attack described earlier demands a more concentrated position as per our research.

3. Paving the way to enabling on-chain EUR/USD trading via Euler and Circle

Assuming a strong pricing oracle and liquid on-chain FX markets, the risk team will be in a place to propose EUROC as a collateral asset on Euler. This would potentially enable Euler to capture a portion of the $6 trillion per day forex market.

An on-chain FX market has strong advantages vs TradFi FX markets:

  1. Unified pricing feed: FX pricing in TradFi is extremely fractured and arcane. Bringing that to a public ledger like Ethereum will allow for transparency not seen before in FX.
  2. Limiting market manipulation: given the public nature of blockchains, high-impact event-driven price manipulation would be substantially easier to track and prevent.
  3. Weekend trading: on-chain FX could allow traders to hedge weekend risk.
  4. Enabling anyone to LP into FX, not just the biggest market makers.
  5. Opening FX to DeFi Natives like DAOs that want to interact with DeFi, not TradFi.

Euler is strongly positioned to enable this as, unlike competitors, it has an efficient position building engine. For eg, instead of lending EUROC, borrowing USDC, swapping into EUROC and recursively doing this in multiple steps, one could do the following:

  1. Deposit 1000 USDC as margin
  2. Mint 2000 eUSDC (assets), 2000 dUSDC (liabilities)
  3. Swap eUSDC into eEUROC

Hence, you’ll get:

  1. 1000 USDC margin
  2. 2000 dUSDC (short USDC)
  3. 1904 eEUROC (long EUROC, assuming 1.05 EUROC/USDC price)

In fact, one could post any collateral asset enabled on Euler as margin and put on a directional FX trade in one click.

Given Euler’s market-based liquidation module, users will lose less on average in the event of liquidations. This and the flexibility of the architecture makes Euler an institutional-grade solution for bringing FX flow on-chain.

Specification

1. How is EUROC different from USDC?

EUROC will be issued by Circle under the same full-reserve model like USDC.

2. Where will the euro reserves of EUROC be held?

Circle will hold Euro-denominated banking accounts at leading financial institutions, beginning with Silvergate Bank in the US.

3. What is Silvergate bank?

Silvergate is a leading bank in the realm of fintech and crypto. They operate the SEN (Silvergate Exchange Network), which allows clients to issue and redeem USDC and EUROC 24/7. All USDC and EUROC are fully redeemable 1:1 for fiat currency if desired.

4. Who audits EUROC?

Grant Thornton LLP will be issuing monthly attestations. Circle’s financial statements, which include EUROC reserves, are audited annually and filled with the SEC.

5. When will EUROC launch?

EUROC will launch on the 30th June, 2022.

6. What integrations are already in the making?

The DeFi integrations underway include Compound, Curve, DFX, Uniswap.
Exchanges include Binance.US, Bitstamp, FTX and Huobi Global.
Custodians include Anchorage Digital, CYBAVO, Fireblocks.
Wallets include Ledger, Metamask institutional.

7. Which users is EUROC targeting?

EUROC is targeting exchanges, institutional traders, businesses and individuals. Judging by upcoming integrations, EUROC may become an integral part of DeFi and enable on-chain FX arbitrage. It could also become an integral part of other DAO treasuries, especially for teams based in Europe, the Middle East, and Africa.

Implementation

If eTP 1 is approved, the DAO will acquire $3 million worth of EUROC and $1 million worth of WETH via Uniswap, Curve or DFX at minimal market impact over the next few days.

Assessment

Given EUROC is based on exactly the same mechanism as USDC, which has proven itself as one of the most reliable DeFi assets, the risk of loss of funds for the DAO is limited. If this proposal is passed, it lays the foundations for potentially enabling EUROC as collateral on Euler, building an on-chain FX market, research collaborations between Circle and Euler, and more.

Risk assessment of providing liquidity into Univ3 and EUROC as collateral will be handled in another proposal subject to eTP 1 being approved by token holders.

Vote

The vote for this will be conducted via Snapshot till 5 July 2022, 9am EST. Here’s the link to vote:
https://snapshot.org/#/eulerdao.eth/proposal/0x3b4b7e79c40df6860e7d612bdccc4969753e283dfd84673dc5fc4d201abcb317

Relevant Links

https://www.circle.com/en/euro-coin
https://support.usdc.circle.com/hc/en-us/articles/7085902140052-What-does-it-mean-to-tokenize-USD-and-redeem-USDC-

5 Likes
5

Interesting idea!

One thing I want to mention:
I’d say earning yield on EUROC and USDC might be interesting. For example, allocate a portion of EUROC and USDC to the new EUROC Curve pool (exposure to: USDC, USDT, DAI, EUROC): Contract Address 0xE84f5b1582BA325fDf9cE6B0c1F087ccfC924e54 | Etherscan

1 Like
6

Thanks for putting the proposal!

First things first, little disclaimer I am a community member of Angle.

While I understand the impact and what EUROC is going to be bringing to the overall DeFi ecosystem here, I am wondering to what extent this would actually unleash new opportunities to Euler.

Euler already supports another Euro stablecoin, agEUR, which has made its proofs over the last few months without losing its peg a single time in the market.

agEUR is so far the most liquid Euro stablecoin on-chain, it is also integrated across different chains and exchanges, and already enables the kind of use cases you mention in your proposal. The only difference is the Angle brand which is so far not as proeminent as Circle, but in the end thanks to agEUR, Angle and Euler overall you can:

  • short the €, long the €, take leverage on the $, on the €
  • weekend trading

Like what has been built so far around agEUR and with the liquidity available on Euler is already super powerful, and EUROC will provide essentially the same use cases.

I also invite you to look at this discussion where we are gathering thought on how we can make EUROC part and parcel of the Angle ecosystem, and help make Angle more secure with EUROC.

Essentially, at some point, we should potentially see agEUR mintable at a 1:1 rate from EUROC (like DAI and USDC in their PSM).

My point is not that you should not try to help EUROC, it’s super strategic for Euler to be among the first lending protocols to build liquidity around this asset, but in terms of FX use cases, you could do far better and more efficiently by leveraging what you already have, that is to say agEUR.

Liquidity is already there, there’s a robust Chainlink oracle, a robust TWAP with deep liquidity on the agEUR/ETH pair.

agEUR/USDC 1 bp pool on UniV3 also has >$15m TVL and so it can resist pretty large swaps for people taking leverage on one side or another.

Supporting only EUROC to the detriment of agEUR for the sake of FX trading through Euler would ultimately lead to more liquidity fragmentation for everyone, less efficient liquidations for borrowers.

I guess a counter proposal could be to buy both agEUR and EUROC to reinforce both oracles, and enable agEUR as a collateral on Euler, furthering the use cases you mentioned.

While I get that for many the perceived risk is higher for decentralized stablecoins, I also want to add that in the ethos of what Euler is trying to build, it still makes more sense to me to push for more decentralized projects than centralized (American) entities.

Anyway, super happy to pursue the discussion on that. As an Euler community member from day 1 (and a biased Angle Core team member), glad to see how we can build the most flexible platform on Euler, answering all kind of use cases while keeping it safe.

3 Likes
7

Along the same lines as @sogipec is there a particular reason that EUROC is being promoted and not agEUR? agEUR was able to withstand the most recent test of stablecoins so seems reasonable that it could also perform well for the purpose of FX trading. I think a strong reason for EUROC over agEUR is the current integrations and the prestige of EUROC.

That being said, if it is the belief that EUROC (instead of agEUR) is going to be a very popular asset, then why is there a necessity to use Euler treasury funds to provide liquidity to this market? This proposal would provide an unnecessary exposure to a volatile asset (ETH) and I’m unclear of the necessity for Euler to step-in, it seems more pertinent to wait to see the EUROC liquidity that appears naturally and make a decision based on that, as if it is not popular then the liquidity could go to assets such as agEUR.

3 Likes
8

This is a great proposal!

On-chain FX trading could become a big market. Listing EUROC as a collateral currency would put Euler in a strong position to become a prime on-chain levered FX trading venue. The fact that USDC and EUROC have similar smart contract / custodial risk profiles will probably make the pair more appealing to traders.

This proposal also diversifies the DAO’s treasury to more productive assets which we think is a positive side benefit.

As Euler delegates, we strongly support this proposal.

1 Like
9

Sounds reasonable and interesting to me especially given @seraphim’s previous experience in this area.

Considering the influence of the Circle company in the cryptospace, and the possible future popularity of this market, there is a possibility to get the advantage of the first application for this purpose in the market.

The size of the allocated funds looks quite large for me (I would like that any proposal without extreme necessity should not use more than 10% of the treasury), but in this case it can be justified, since at the first stage one should not expect a large amount of natural liquidity on the newly created market, and trusted oracle is very necessary.

I just have one question for clarification. In this proposal, we are not voting on a specific distribution of these funds, but you gave two possible options that I would like to consider more closely and where I do not understand the logic.

Let’s assume that only these two options end up on eTP2.

At the moment, the proposal proposes to exchange 3 million USDC for EUROC, and 1 million USDC for ETH.

Then in the case of option A., when it will be necessary to provide $2 million EUROC and 2 million USDC, I don’t understand why we exchanged 1 million USDC for ETH.

In the case of option B., when we add liquidity for $1 million EUROC and $1 million ETH, I have a question why we exchanged another 2 million USDC into EUROC.

If this is a matter of diversification, then I would like to see it as a separate proposal, and I don’t understand why in the first case we have ETH without any exposure, and in the second case we have IL-risk for its full volume.

If it’s a matter of flexibility in the options being considered, then I’d rather vote first on which option the community thinks is more appropriate for providing liquidity for this pair and oracle.

10

Disclaimer I am an Angle member

I have a similar view as @sogipec on the topic.

I understand that having EUROC as Tier is suitable on Euler, but the end goal - FX trading - is already possible with the agEUR. I am also confident that EUROC liquidity will come, as many of you commented, Circle has a reputation advantage. So allocating funds to grow slightly liquidity on EUROC, in my opinion won’t have the desired impact.
Though, full on-chain solution like agEUR, could use that help to get promoted as Collateral.

Love Euler by the way, I am involved with Angle and personally since day one. And they have true added value in the lending space with their liquidation mechanisms.

1 Like
11

I am also joining the voices of @sogipec , @Jib0xD and @gs8nrv

The common voice here (please correct me if I am wrong here) seems to be:

“Why EUROC?”

I am a community member of Jarvis, a synthetic FX products protocol that controls jEUR. jEUR is a synthetic stablecoin that is pegged to the price of EURO, and backed by overcollateralized USDC reserves. It’s liquidity is comparable to agEUR, but the true value for collaborating with Jarvis would be to bring on FX trading for their whole suite of products.

Check more info here:
https://forex.jarvis.exchange/

It would be a real shame to see this proposal passing - a real missed opportunity to earn dual benefits of collaborating within defi.

1 Like
12

After researching a bit more, the matter at hand seems even more scarier than I previously anticipated. A lot of the responses above me could be summarized as

“Why EUROC?”

Which is fair question as EUROC is a yet-to-be-proven stablecoin that has not even launched yet, and competes against a wide array of older and proven EURO stablecoins.

But after reading the near-instant retweets of core Circle members:

I am coming to suspect that there has been some kind of discussions behind-the-scenes for incentivizing this proposal.

This is a very scary thought, especially so early in the live of Euler’s decentralized governance. Can we get some clarity on this?

Something similar to this happened in MakerDAO recently and caused one of the largest voting uproars in the whole history of DAO governance.

Hope we do not repeat it here and fracture a young blossoming community this early.

1 Like
13

Hey, so eTP1 only proposes acquiring EUROC and WETH. The exact way that liquidity should be provided and indeed IF should be provided at all, will be handled in eTP2.

The suggestions in eTP1 are merely possible suggestions that will be backed by more analysis.

And I should have probably said that (A) and (B) are not alternative strategies, but rather both of them could be deployed at once. Strategy (A) involves concentrated liquidity for EUROC/USDC, which should generate tangible fees for EulerDAO. Strategy (B) involves EUROC/WETH and would be primarily for strengthening the oracle used by Euler.

1 Like
14

Hey, so you make a good point as to why EulerDAO needs to provide liquidity at all if there’s an expectation that EUROC will become extremely used. This comes from experience: even the most used assets tend to have mostly extremely concentrated liquidity. But for oracle security, you really need liquidity that is spread out.

This was apparent during community-led effort to secure wstETH/WETH pool on Uniswap. Thanks to that, wstETH has grown to $40-50mil TVL and allows 2-way trading on wstETH/WETH.

Similarly, MATIC was secured by community efforts.

Without some sort of oracle sponsorship, the incentive is to keep liquidity extremely concentrated, especially for a new product, even if the product itself is perfectly fine.

1 Like
15

Circle is an extremely reputable firm, and they do not need to “incentivise” anyone to propose something that is aimed at maximising activity and growing market share for Euler DAO, just like they do not need to incentivise people to use USDC. In fact, I do not recall Circle having to incentivise anything to achieve the USDC market share they’ve achieved, unlike most protocols in DeFi.

My sole priority is maximising Euler’s dominance in the space while keeping risks low. I do not need to be “incentivised” by Circle to propose what I think are reasonable proposals to achieve the best outcome for Euler DAO.

16

given the seraphim’s comment, which to me means that this is essentially a proposal to diversify the treasury, I vote for this proposal.

17

Excellently written proposal. Very forward thinking. I think this is a good move to solidify Euler’s position in the space. Euler will benefit from having a robust lending market for EUROC as well as earn fees on the traded liquidity.

1 Like
18

About maximizing Euler’s dominance, I agree that it’s great to be among the first movers in EUROC, but if the point is about being the place where people do leverage Forex trading, why not facilitate (and for cheap) use cases that are already there by acquiring some agEUR and reinforce the oracle?

Would love to hear your thoughts on that

19

Continuing the discussion from eTP 1: Allocation of DAO Treasury to EUROC and WETH:

我怎样才胜有蔄栌投焚

20

Quick update:

Given the macro environment, EURUSD has collapsed to parity. This has likely complicated the immediate deployment of onchain liquidity into EUROC, which is why eTP1 wouldn’t be executable at minimum market impact, as stated in the proposal.

I recommend we come back to this eTP once liquidity improves.

Meanwhile, given the conversations happening over discord and the forum, it would be great if those supporting agEUR (which is so far the most liquid euro-stable in DeFi) as opposed to EUROC present their case in a separate [RFC]. I will chime in as well.

This should ideally cover multiple aspects like:

  1. Liquidity on-chain and off-chain
  2. The mechanism (collateralisation, redemption, interest rates, etc.)
  3. Regulatory aspect

Looking forward to the discussions.

2 Likes