AIP 18 - Budget for token acquisition using the protocol surplus

Angle Improvement Proposals
1

Hello,

This is a proposal to grant a portion of the protocol’s surplus ($300k) to the Core team to diversify the DAO’s treasury and acquire some tokens protocol tokens to help the growth of the protocol.

Context

Angle has made a surplus of $8.5m since its launch. As stated in this proposal, while it’s important to keep a portion of this surplus in the protocol as a safety net, the protocol has enough margin (with the current agEUR total supply) to use this surplus and invest it in other places.

It’s also good to have the “invested” part liquid to be able to pull funds if needed in case of a black swan events.

Many discussions recently took place to allocate a portion of this surplus to buy other tokens to facilitate incentives given to agEUR holders in different places of DeFi.

Proposal

This proposal is about granting the Core team a budget of $300k from the surplus to buy tokens of other protocols.
This pocket will not be used directly all at once, it’s more an allocation that can be used little by little as soon as attractive opportunities.

Advantage of voting this allocation prior is that acquisitions by the Core Team will not be frontrunnable by other stakeholders monitoring Angle votes.

Implementation

Idea is to never perform acquisitions of more than $100k, and to submit to a vote each allocation greater than that size. Each acquisition will be reported to be tracked transparently.
Goal is to start with a $20-40k EUL acquisition. This will allow the protocol to vote for agEUR gauge to incentivize borrowers to come and pay a yield to agEUR lenders (e.g the protocol with its AMOs).

In the roadmap, we could also use this allocation to buy CRV or CVX tokens as well.

Value to the protocol

This will enable the protocol to gain influence among other protocols and create flywheel effects for agEUR holders. We can imagine a situation in which the protocol votes for pools, and makes even more revenue thanks to its votes (like what could happen on Euler) in a similar way to what FRAX did on Curve.

Risks

The main risk with token investment is the protocol losing money on its investments due to decreased token prices and not being able to create the desired flywheel effects with the token purchases for agEUR, in which case the surplus would have been decreased.

Investments are risky but if well calibered the rewards could offset the risk, and the risk-adjusted returns could far outweight the cost here.

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Could you give a quick description of how the incentive structure works with buying EUL tokens? I am not very familiar with the protocol and would like to better understand the benefit of buying EUL tokens. CRV and CVX are well known and easy to quantify the risk/reward. Have you done any analysis on the potential ROI for the protocol by purchasing EUL? Thanks.

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Thanks for asking!
We’ve not written any quantitative analysis so far on Euler, but with a $40k market buy, we should be able to guarantee a fixed EUL distribution to agEUR borrowers of about $12k every two weeks. Assuming folding works fine, then this means that borrowers should pay lenders an amount to lenders approximately equal to this amount in agEUR.
As the protocol is one of the biggest lenders on Euler, assuming the protocol makes 1/4th of the lending revenue (even though currently it does half), then this market buy should be repaid in approximately 30-40 weeks. On top of that, it should help the protocol reinforce agEUR position on Euler, potentially creating flywheel effects (reimbursement of the market buy could arrive way sooner than after 40 weeks).

For details on Euler gauges, you can check this page.

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