Context
This is a proposal to add the OpenTrade EURC Yield Vault (XEVT) in order to provide Angle with a reliable, low cost, and efficient means of generating stable, low risk returns on EUR-denominated reserves backing EURA.
OpenTrade Overview
OpenTrade is an institutional grade platform for safe, compliant USDC & EURC yield products. Built by a team of former Centre (joint venture between Circle and Coinbase that launched and governed USDC/EURC) leaders, and backed by leading investors including a16z Crypto and Circle, OpenTrade’s enterprise-grade platform has been purpose built to provide FinTechs with an out of the box solution for USDC and EURC yield products, that can be accessed with the click of a button and are secured through OpenTrade’s bankruptcy remote structure, bank-grade operations, and time-tested legal framework.
OpenTrade’s European Sovereign Bond-backed EURC Yield Vault (XEVT) Overview
OpenTrade’s EURC Yield Vault (XEVT) allows users to lend EURC on-chain and generate daily interest. All loans are fully collateralized by EURC, German, French and Italian 1-month Sovereign Bonds, Euro Money Market Funds, and Reverse Repurchase Agreements secured by those bonds. Deployed on Ethereum earlier this year, the product is the first of its kind to allow for instant interest accruals with no terms and same day withdrawal processing.
On-chain, the OpenTrade vault is an ERC-4626 yield bearing vault, which has been built as an extension to the open-source Perimeter Protocol, developed by Circle Research with core contributions from OpenTrade. This allows users to manage positions using ERC-20 Vault Tokens, XEVT, which are issued when EURC is lent, automatically track the value at an exchange rate that increases each day to reflect daily interest accrual, and can be exchanged in and out of EURC at any time.
Off-chain, OpenTrade programmatically mints/burns EURC via Circle based on the vault’s real-time in/out flows and facilitates the buying and selling of collateral through a bankruptcy-remote SPV which is legally restricted to only invest in the eligible assets defined for this product. The SPV and off-chain operations are managed by an FCA regulated Asset Management firm, Five Sigma, through a dedicated team that has been established specifically for this product. Five Sigma currently manages over $2B for large institutional clients including pension funds insurance companies.
The Five Sigma team responsible for this product is highly experienced in trading and portfolio management for fixed income products. Five Sigma carries out trading, cash management and custody operations through OpenTrade’s strong, established network of top-tier banking partners, including JP Morgan, Barclays, Fidelity, DMBL, Instesa San Paolo, and Wilmington Trust.
Investment Strategy
The portfolio of collateral is restricted to EUR, EURC, German, French and Italian 1-month Sovereign Bonds, Euro Money Market Funds, and Reverse Repurchase Agreements secured by those bonds. Its dual objective is to provide sufficient liquidity to adequately service outflows while also maintaining competitive yields. Loans are fully collateralized at all times by eligible collateral. All loan collateral is held in bankruptcy remote custody accounts at Tier 1 banks. No securities lending or leverage is permitted.
Vault Info
- Performance: Variable interest rate benchmarked to the to the yield curve spot rate for 3-month maturity Euro Government bonds, published by the European Central Bank.
- Base Currency: EURC (Ethereum)
- Term: None (open-ended)
- Yield: Benchmark minus 50 bps
- Investment Window: Anytime (T+0)
- Withdrawal Window: Anytime (T+0)
Proposal
Proposal is to deploy EURA reserves into OpenTrade’s EURC Yield Vault (XEVT) as part of an integrated solution that allows for automated investments , withdrawals, and accounting updates within the Transmuter system.
Value to the protocol
The addition of XEVT provides significant improvements in a number of key areas of EURA reserves management in line with the core properties of the system as a whole, including but not limited to:
- On-chain integration: Angle can integrate the Transmuter directly to OpenTrade smart contracts to facilitate fully programmatic operations for investments, , withdrawals, and accounting
- No on/off ramping of EURC: Through OpenTrade, EURC can be invested and withdrawn directly from the XEVT vault which provides significant cost savings and operational efficiency improvements compared to current operations which require EURC<>EURO exchange for every transaction
- Instant interest accrual: Investments begin accruing interest immediately, interest accrues and compounds daily
- No lock-ins / terms: Angle can exchange XEVT for EURC including accrued interest at any time, with same day withdrawals enabled that are fully linked to the Transmuter accounting system
- Stable, low-risk returns: This product will pay yields in line with EUR money market rates and is fully secured by HQLA held in bankruptcy remote accounts and managed by an FCA regulated asset manager. This provides reliable income stream for the protocol.
Implementation
Phase 1 (September, 2024)
Angle to deploy ~ €1M EURC into the OpenTrade XEVT vault. In parallel, Angle Labs and OpenTrade will perform the work required to fully integrate and deploy an automated investment / withdrawal workflow that is tailored to the Transmuter system accounting operations.
Phase 2 (October - November, 2024)
Angle will integrate the Transmuter to the OpenTrade Vault with the protocol upgrade for the deposit / withdrawal workflow, and deploy the remaining EURC reserve funds into the OpenTrade vault