About EUROC launch and how Angle can take advantage of it

Ideas
1

Hey everyone,

A couple of weeks ago, the Circle team announced that it would be launching a centralized Euro stablecoin called EUROC.

Circle is the company behind USDC one of the most robust and used USD stablecoin in the market. They’re known for the efficiency of their API which allows for super efficient redemptions and issuance of USDC from USD at a 1:1 rate.

There are other centralized EUR stablecoins in the market (EURs and EURt), but given Circle’s expertise and reputation among institutional investors, EUROC may probably take a very serious lead in the market at their launch.

While EUROC will be a competitor for Angle’s agEUR, this may bring a lot of attention to the Euro stablecoin space, and having this new asset in the space can be a great opportunity for the future development of the protocol.

In this post, we’re exploring how we could leverage the launch of EUROC to grow agEUR and Angle more broadly.

Curve Level

To start with, Curve is a top place where the presence of EUROC could be leveraged. agEUR is involved in 2 different gauges on Curve (one with ibEUR, and one with agEUR/EURs and EURt).

So far, agEUR has been helping EURs and EURt keep their peg thanks to the deep liquidity pool we had there.
On top of that, Angle has been helping a lot EURs and EURt through bribes without much help on their side, making them gain liquidity.

Pool has been severely imbalanced towards agEUR and EURt, meaning most of the CRV and CVX incentives going to LPs of the pool have in fact gone to EURs holders.
We thus have a need to start working with assets which are more easily redeemable, but also with projects that can support on their side the growth of the pool.

As such, one plan could be to build and support one new pool on Curve with either assets from protocols that are ready to support and/or with just EUROC.

The 3CRV pool on Curve has become a standard for USD stablecoins, and we want agEUR to be part of the creation of a new standard for the Euro, like DAI in the 3CRV pool.

To give legitimacy to this pool, we should have this pool as a basepool so that other Euro stablecoins that’ll appear would have to create pools not with agEUR/EUROc individually but rather with the LP tokens of the base pool.

Overall, we should leverage EUROC’s launch to increase our presence on Curve and make agEUR the de-facto decentralized stablecoin there.

Next step could be for the protocol to expand its algorithmic market operations (AMOs) on Curve, in a way similar to what FRAX has been doing by directly minting FRAX in the Curve pool.

Protocol Level

There are different ways with which EUROC could be incorporated in the protocol.
Before going in details, it makes sense to understand some trade-offs here.

EUROC will be a centralized asset for which a company will have the possibility to freeze balances. As such, and like Maker’s DAI with USDC, keeping a lot of EUROC in reserves would lead Angle to be more subject to a counterparty risk, if Circle decides to freeze Angle balance.

On the other hand, EUROC is going to be an interesting tool to on-ramp and off-ramp from fiat to crypto: 1 EUR, you get 1 EUROC, 1 EUROC you get 1 EUR in your bank account.
At the moment, getting agEUR from fiat is a bit more complex, since the stablecoin is not listed on centralized exchanges at the moment. Best route consists in getting USDC (at a 1:1 rate) and then swapping USDC for agEUR at 0.01%.

This is cheap but still a hurdle for many institutions, companies which want to provide services in agEUR for people wanting to get exposed to the €.

Moreover like USDC, EUROC should be super stable. Using this asset as a stability layer for the protocol is less risky than all the other collateral types we’re using, and on other chains where the Core module does not natively exists, it could help provide a more immediate peg for agEUR.

With that in mind, here are some opportunities and things we could do in the protocol with EUROC.

Price Stability Module

We could use EUROC to mint agEUR at a 1:1 rate (with potentially some fees). This could work on any chain and provide a free-on ramp to agEUR.

There are different technical ways in which we can have that:

We could have directly as a custom asset that can be used to bridge agEUR 1:1, similar to a bridge token in this implementation.

Other solution could be to have it as a collateral of the core module. This enables us to invest the EUROC in yield strategies. And interface for this is pretty smooth

Advantage of both solutions is that it is what is going to provide a free on/off-ramp for agEUR and help us onboard institutional money coming to the protocol.

Angle has built a lot of integrations around many places of DeFi for agEUR. Enabling the use of EUROC as a collateral could allow all EUROC holders to access DeFi through the already existing integrations for agEUR.
This would enable agEUR to become the de facto asset to use when you want to get a yield on agEUR.

We could choose either of the two options (or the two options), but the second one seems to be giving a bit more of flexibility here: beyond the strategies, we can have some fees, incorporate an oracle, …

We may see a bit less utilization in the potential Curve pool from implementing this, since they serve the same use case in the end

Borrowing Module

Another option possible is involving EUROC in the borrowing module of the protocol. Once again, there are different ways with which we can onboard EUROC in this module.

Simple collateral asset

The first option is to have it as a simple collateral from which people can borrow and at a very low collateral ratio: like 100.5%.
This makes the UX from swapping from/to agEUR with EUROC a bit more difficult but in this sense it’d be similar to Maker’s DAI.

Yield-bearing EUROC for self repaying loans

As mentionned in this governance post, we’re working on our own ERC4626 implementation of yield aggregators. While the idea for building this is to get an agEUR savings rate product, we could leverage the infrastructure we are developing to build an EUROC savings rate product as well.

There may not be many yield opportunities possible for EUROC at their launch, but Angle could be the best positioned to provide a yield on this, making Angle the best place possible to make a yield on Euros (either agEUR or EUROC).

Pushing even further, we could imagine the yield bearing EUROC to be used as a collateral for agEUR: in some way we would be providing self repaying loans in EUROC where the yield on EUROC repays the agEUR loan taken.

This is similar to what Alchemix does, we would be doing this for the Euro.

G-UNI (or other) LP token

This is something that has been done a lot by the Maker team since in some way it artificially increases the DAI circulating supply, but we could use G-UNI (wrapped Uniswap LP tokens) agEUR-EUROC as a collateral of the borrowing module to allow people to get huge leverage on this and drastically increase the agEUR-EUROC liquidity.

Essentially what we could do is let people provide these G-UNI tokens, borrow agEUR, let them obtain even more G-UNi tokens and so on with up to a 50x leverage.

This is another way of growing liquidity for agEUR on Uniswap without much difficulty.

Having liquidity both on Curve and Uniswap would multiply visibility for both tokens, but in some way it also fragments liquidity for everyone.

Ending Thoughts

EUROC is not here yet, but will soon be! While it’s uncertain what the scale and liquidity for it will be at launch, it’s important to have in mind the levers and the value we can propose around this when it launches.

It’s also important to remember the value we are bringing in with agEUR. So far, decentralized stablecoins have never been as efficient as centralized stablecoin to onboard users.

USDC can be minted at a 1:1 rate, it’s smooth and just another standard for the dollar. As for DAI to create 1 DAI, you need to borrow it, pay an interest rate on it, pay attention to your collateral ratio to avoid being liquidated. There are frictions which increase the cost of onboarding. Angle has the same with agEUR, and if the goal is to onboard billions of users to DeFi, we need to be as competitive as these assets.
One solution is to work from scratch with them.

What do we bring in then?

First, decentralized stablecoin protocols function in a transparent manner, which make them more trustable than their centralized counterpart.
We also have the opportunity to build native use cases and for cheap around our asset. It’s like being a bank developing its own product. You can do it natively in DeFi without relying on others. Our borrowing module is a case in point.

And then, we have the opportunity to open lines of credit in multiple places more easily through Algorithmic Market Operations than centralized stablecoins.

There’s a lot of other reason but the fact that around a decentralized stablecoin you can little by little build the elements of a crypto bank makes me super confident that even if new centralized assets are coming, there will always be a need for decentralized stablecoins working in tandem with these assets

We’ve built a tremendous network of integrations around agEUR, now let’s take advantage of current market conditions to reinforce and expand agEUR position in DeFi.

6 Likes
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This is a very detailed writeup on the different opportunities for Angle to capitalize on the launch of EUROC. Thank you!

There is a lot to unpack in this post, so I don’t have many definitive thoughts yet on how we should proceed, but I do have a couple of initial thoughts.

First, I think we should grab the low hanging fruit first. The most obvious one to me is to integrate EUROC into the core module with low fees for minting/burning, probably around 5 bps, as well as whitelisting EUROC as collateral in the borrowing module.

The second thing to focus on is deploying a curve base pool, and funnel all of our Curve bribes to that pool. The question is what do we use for the 3rd coin after agEUR and EUROC? If we can secure a commitment for shared incentives from something like Celo and cEUR, I think that is compelling. But there is also a level of familiarity and trust with EURT that we wouldn’t have with cEUR. Branding agEUR as “the DAI of euro stablecoins” seems a little bit easier with a EUROC/EURT/agEUR basepool given the obvious corollary of the USDC/USDT/DAI 3pool. So I’m open minded to how we implement this based on the tradeoffs mentioned, but I’m certain that it should be a priority.

I will do more thinking on the other potential ways that we could leverage EUROC that Sogipec outlined.

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Lots of oportunities.
Keep on the good work.

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Thanks for your reply!

One thing that I forgot to mention by the way is that we don’t necessarily have to add EUROC as a collateral right after launch. It’s a rapid thing to do, so we can well wait a bit after launch. As for the fees we would include, we could do this in a further discussion, my idea would be that we could be better off with absolutely no fees for this price stability module.

I share your point on Curve, one thing I have in mind is that we do not necessarily have to include a third token. A agEUR/EUROC pool could function effectively as well I guess.

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Firstly wanted to say - what an interesting read, thanks for sharing your thoughts & the transparency around that.

Love the way this is positioned as an exploration of a multiple of things that could happen.

On the Curve level proposition; how do you think current tokenomics could be optimized to facilitate AMO use?

AMOs are really a cool innovation as a way to ensure that peg management doesn’t become an overburden on the protocol, but the thought occurs to me that there might still be a risk that minting new tokens to fund the AMO might impact ve lockers through dilution, especially where outstanding mints haven’t been able to be burnt. Is there a considerating to fund the AMO through alternative means?

Longer term; how much consideration are you giving to the creation of actual FX trading tools? Would seem there is already an opportunity for EURO/USD already to start to shift to more conventional standards for a trader like spread, pips, lots etc.? Or do you see that as more of an over-the-top solution that will come with an order book model once a real depth of liquidity has been realized? (Could argue that with synths infinite liquidity is already possible)

Would be super interested to hear considerations across these areas

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Thanks for your reply!

What do you mean by optimizing tokenomics to facilitate AMO use?
On my end, I think it’s something that can be run without necessitating big governance upgrades. It’s just a matter of finding out where the profits of the AMO need to be redistributed.
AMOs is simply about minting agEUR (and not ANGLE tokens), so they don’t have any impact on that front, the real risk is the threat to the agEUR peg if AMOs start becoming too big…

About your long term point, I’d say that focus of Angle is more about making sure that agEUR is integrated, robust and can be used in many places in DeFi. So yes my take for now would be to keep setting new foundations and let other build over-the-top solutions

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One of the advantages of Angle is that we are the second-mover in the game of collateral backed FIAT stablecoins. From the past success we can see the pros and cons of a possible stability module.

I think its clear we should use this to keep the peg.

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Hey, thanks for your reply too!

I was actually thinking about AMO use cases that are beyond the current live implementation. For example, something like Frax’s FXS1559, and how they’re using to balance their FRAX-FXS pools. This helps bring further flexibility to the other AMO strategies they run. One of the advantages of being a partial collateralized stable, that for fully collateralized or over collateralized stables is hard to replicate (I know it means they’re very different products ultimately).

In particular, that seems to position FRAX very well to maintain their peg on curve via utilizing idle collateral and newly minted FRAX, then recollateralize when needed and helped them emerge as the decentralized USD stable that’s been best able to keep up with its centralized peers in a basepool situation. Otherwise, as you pointed out above, this puts a lot of pressure on a collateralized protocol to subsidize through incentives liquidity on behalf of the centralized stable pair partners. A challenge that will only become larger where more centralized stables are launched with deeper liquidity, especially where protocols have ambitions to support more than one decentralized stable.

So I was thinking about whether there is a potential “solve” that can bring some of the flexibility and benefits this has afforded FRAX to fully collateralized stables, and I admired the way this team has taken two AMO modules (Lending AMOs & LaaS) and put into practice and wondered how they could be expanded further?

So, in theory, couldn’t some of the native token supply be allocated (or bring forward from established release schedule) to direct market sell & then capture assets that can be used to fund AMO directly to serve the same purpose (i.e. sell ANGLE and buy EUROC with it)? It would mean a reallocation of token distribution from Liquidity Mining or Treasury. Then where/if AMO is profitable (via claim of CRV, other reward tokens, base fee &/or using one-time swaps to repeg and gain bonuses) in this repeg side of strategy it has the flexibility to also market buy native token supply?

Alternatively, OLM can be considered a viable replacement for direct token emissions, with funds raised from options purchase split between ve holders and some distribution to the AMO for this specific purpose.

It could be an area that was already debated and written off, but curious nevertheless

Regarding the longer term piece, thanks for clarity!

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Thanks for the long and thoughtful message.

Interesting, need to spend more time looking at the FRAX’s FXS1559 solution.

Idea for me would be to expand AMOs beyond simply lending and LaaS. But in terms of involving the token (different than the FRAX way), I think ANGLE is a bit too weak at the moment to support buying back other token. I get the upside for the AMOs and potentially for the token in the long run, but in the short term right after buying, it may create some difficult times.

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Hey, my pleasure!

Am a geek for these things and love talking it over.

It’s interesting and definitely worth a deeper look into what they’ve done with their AMO strategies (possibly some good inspiration in there). FXS1559 though is a particularly tricky one, because it only really could work in that style implementation where the stable is part-collateralized. Especially if we discard what we discussed above for the possible negative price pressure it would bring (initially, at least).

So, for a collateralized stable protocol, what is the option to create sources of funding for an AMO that are of a big enough scale to be able to drive benefits for the peg & to also hopefully bring profits streams back to locked token holders. I think that leaves only really two choices;

  1. try to fund through existing revenue-generating activities
  2. create new revenue-generating products

Looking at option 1 is almost a no-go, because it would be impacting profits for lockers and will lead to fewer new tokens being locked if APR drops. So it’s a very difficult political sell unless there are a bunch of big lockers that see the longer-term benefits and help push a positive vote through governance.

Similarly, it can also put pressure on the protocol to ensure an ever-increasing stream of revenues that can be shared where the number of locks increases exponentially or suddenly/dramatically because each individual wallet staking sees their total share of fees diluted

So if we look at option 2, a lot of new revenue requires complex product build, test, and audit, and all of that takes time - which is at a premium in a rapidly increasing market (for crypto in general, but stables specifically right now), as established existing players like circle make big entrances into the space, or new players emerge. So it’s very likely that the low-hanging fruit, where identified, could be the most desirable outcome. To that end, looking at the rewards incentives being paid out directly in ANGLE, have you considered switching this to a liquidity mining option system? This would have the benefit of decreasing immediate sell pressure from pure farmers & would present an opportunity to fund the AMO through revenues raised. Profits from the AMO strategy used to balance curve could then be paid back to existing token lockers.

If not already familiar with options liquidity mining, consider this;

  • Assume ANGLE is trading at $0.05
  • Set a strike price at = spot - 35%
  • Expiry = now

In this example, the liquidity miner would be incentivized to purchase the ANGLE CALL option because allow them to purchase at $0.0325 (due to $0.05 - 35%) & sell at $0.05 taking $0.0175 per token profit. Let’s assume the liquidity miner had farmed 100,000 options this would give them $1,750 total profit. All funds raised can be directed to fund AMO or redirect to ve lockers. This is an still a clear incentive for the farmer, but introduces a new revenue stream for the protocol.

If you want to take the process a step further you can also introduce a natural floor price where there is a disincentive for the liquidity miner farming. Through adjusting the Expiry parameters, for example;

  • Expiry = now + 30 days

Let’s assume that in the original example all liquidity miners continued to farm and dump and caused the price to move down to $0.030. The CALL price remains $0.0325 so there is no reason for the farmer to claim the option at this time since they wouldn’t make any profits. The option could expire without being claimed. Which can help to control token emissions or total supply when costs reach their floor price. For the liquidity miner, this is the same risk they take on farming any other token that has a variable value.

However the blow can be further softened by allowing the liquidity miner the access to trigger the expiry period - i.e. once they claim the reward they have a second step to activate the options expiry period.

Overall OLM of this nature could even be introduced alongside traditional liquidity mining (through rewards-directed emission) to provide a blended mix of incentives for liquidity providers.

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Thanks for suggesting this! Yes, I like the idea of trying to provide options around the token to force people to engage in some way with it!

I know that Andre supported for this type of thing with rKP3R!

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You should take a look at how Jarvis is handling their LM emissions

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No problem, I thought it might be an interesting way to fund an AMO without having to go down the new mint route.

In the Keep3r landscape all raised funds are directed back at locked token holders, but with a new implementation that can be reconsidered especially when combined with routing AMO profits back to locked token holders, as that could potentially benefit both the areas of;

  • Native token price control(ish)
  • Stability mechanism for curve pools via AMO, helping to maintain peg of stables

One additional consideration is where/if the liquidity miner triggers an expiry, if you provide a free choice (the 30 day expiry option) & a paid premium choice (say at 0.05% fee for a discount now) then additional funds can be extracted from LMs for the privilege of instant discount

Andre was considering the implementation as something that could be provided as a service to other protocols but it was one of those things that didn’t get further developed beyond the initial version - not to say it’s a bad idea.

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I didn’t think they were incentivizing liquidity via curve, are they?

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Catching up with your ideas @Funk, it’s an interesting road to consider and I can see some upsides, but ultimately this significantly reduces the incentives the protocol is able to give: taking your first example, this’d mean that instead of 0.05$ / ANGLE incentives are ~0.015$ / ANGLE

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Hey!

Pleasure to share & enjoy discussion on this topic. I think way to think about this is that the incentive allocation on protocol end does not change - it would still be the same total allocation of ANGLE tokens.

The change would happen on the farmer’s end, from their perspective they are no longer getting ANGLE tokens for free, and would have to buy them at a fixed redemption discount. Instead they receive a redemption token that can be activated for the option right (rANGLE) - total planned weekly allocation of ANGLE = total planned weekly allocation of rANGLE

In terms of emissions schedule that would mean for protocol the emissions would have a certain degree of dependency on when liquidity miners choose to redeem - because they will not all do this weekly, just as they don’t all sell weekly.

This should create a revenue stream (where previously there is no revenue stream associated with incentives) that can be used to fund an AMO that maintains a peg.

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It may actually be interesting to experiment with two tiers of incentives. For example this would be a particularly good way to incentivize users by providing LP position in a time-bound Bond locked vault with the protocol for a fixed period.

How this might look;

  • incentivize curve pool with redeemable option on ANGLE
  • incentivize locked or bonded LP with ANGLE

The benefit of the locked or bonded LP is greater for the protocol since the liquidity is not at risk of exit all the time it is locked in a bond contract. Therefore the benefit to the protocol is that it supports peg & supports the availability of the stable token.

Even the duration of bonds could have a tiering of time vs reward with examples of;

  • 4 week lock = x amount of ANGLE rewards
  • 8 week lock = higher amount of ANGLE rewards, etc.
  • 16 week lock = highest amount of ANGLE rewards

There is also the flexibility to blend this so that on bonded locks discount threshold is deeper than on curve pools. If we take above example, increase from 35% discount to 50% etc