AIP-20: Seed Atlendis pool on Polygon using protocol surplus and/or debt-collateralized agEUR

AIP: Seed Atlendis pool on Polygon using protocol surplus and/or debt-collateralized agEUR

Authors: Alexis Masseron (Co-founder and CEO @Atlendis Labs) and Juan Montero (Co-founder and CEO @Sirox finance)

Summary:

This is a proposal to seed the upcoming Atlendis borrowing pool with agEUR to generate yield for the DAO and incentivise current agEUR holders to earn on their held stablecoins.

Context:

To further expand the agEUR adoption it’s crucial to ensure that holders can generate sustainable yield from it by including it on the main lending protocols in Ethereum and Polygon.

One of the newest lending protocols on Polygon is bridging the gap between on-chain and real world businesses: Atlendis is a credit protocol allowing vetted institutional to access revolving lines of credit in a transparent and capital efficient fashion. Atlendis is partnering with a credit scoring company called X-margin that runs KYC/KYB and financial checks to make sure each borrowers have a score that represent their ability to repay so every lender can adjusts their rates based on those data.

Atlendis is opening in the next few days an agEUR pool for a European credit facility called Sirox. Sirox aims to cover short term capital needs (less than 1 month) for SMBs (e.g. payroll-advancing company). They would withdraw the funds from Atlendis whenever needed within that month, use them in the real world and pay back both the principal and interests on used liquidity before the pool’s maturity is reached (30 days).

Repayment of principal + interests from Sirox to the borrowing pool does not follow a fixed schedule within the pool’s maturity (1 month) as it depends on the final client’s usage of liquidity. Nonetheless, it needs to be done when the pool reaches maturity, making 1 month the maximum time that funds will be locked into the pool.

Proposal

The proposal is to deposit from 100k to 1m agEUR over the next 6 months to seed the liquidity in the upcoming Atlendis borrowing pool for Sirox at 6-8% interest rate with a 1 month maturity. Proposal is to follow the schedule:

  • Month 1: deposit initial 100k @ 8% (total deposited 100k)
  • Month 2: deposit additional 100k @ 7% (total deposited 200k)
  • Month 3: deposit additional 300k @ 7% (total deposited 500k)
  • Month 4: deposit additional 250k @ 6% (total deposited 750k)
  • Month 5: deposit additional 250k @ 6% (total deposited 1M agEUR)
  • Month 6: deposit 0 (total deposited 1M agEUR)

Month 1’s deposit will happen between the borrowing pool set up and 1st of August. Afterwards, subsequent deposits will happen the 1st of following months. New deposits from the DAO won’t block other agEUR holders to deposit in the pool, in the event that other agEUR holders provide sufficient liquidity to meet the the thresholds this will give an opportunity for the DAO to exit the pool if the DAO seems it’s in their best interest.

After the initial 6 months, the amount will be withdrawn from the borrowing pool and the proposal will require explicit renewal.

The borrower, having gone through a KYC and risk assessment process by X-margin (as previously explained), represents a good risk adjusted opportunity for both the protocol and the user’s funds to generate sustainable yield on their stablecoins.

This proposal will execute following implementation 1 in the following paragraph.

Implementation:

Two main options are possible to implement this proposal:

  1. [PROPOSED] Mint debt-collateralized agEUR to provide liquidity to the borrowing pool: With this option, USDC’s surplus of the protocol is not affected and will still be generating yield through the strategies.
  2. Borrow agEUR against USDC from the protocol’s surplus: Some of the USDC in the yield-generating strategies from the protocol would be set as collateral to borrow the necessary amount of agEUR and provide liquidity to the pool. With current strategies’ APR at ~1-2% obtaining 6-8% on the borrowed agEUR represents a very profitable opportunity.

We propose to implement the debt-collateralized minting option as it’s a way to indirectly rely on the protocol’s surplus without the need to remove them from the strategies, earning both APYs, the current USDC strategies and the new Atlendis pool against the minted agEUR.

Value to the protocol:

Providing liquidity to the proposed pool would, not only generates profits for the deployed funds from the protocol, but also incentivises other agEUR holders to provide liquidity to the same pool and capture new users to buy and hold agEURs to benefit from the pool’s lending rates. This would greatly help to agEUR adoption in Polygon in this market where sizeable sustainable yield opportunities are scarce.

It also helps other players like Sirox Finance to adopt and design their systems around agEUR.

Risks:

Following implementation 1 (minting debt-collateralized agEUR, as recommended), the risk of borrower default could create some bad debt on the provided agEUR but the increasing deposited amount schedule makes sure that the protocol could foresee any potential issues before investing a significant amount that could affect the protocol’s health.

Additionally, Atlendis being a fairly new protocol to the Polygon environment, even if audited, could represent a small smart contract risk.

An additional risk inherent to implementation 2 is the reduction of the immediately available USDC surplus which could affect time to pull all funds back to the Core module as, while the liquidity is being used in the pool (borrowed by Sirox), it is not possible for the lenders to withdraw the funds until either the borrower repays or the pool reaches maturity (1 month).

Edit: typos

4 Likes

In favor of the implementation 1! More generally, I think it’s a great opportunity for Angle to go into under-collateralized platforms, especially in those where borrowers are well identified!

Really nice proposal @aAlex, and in favour of the first option as the second one is less capital efficient - even if it is only a 0.5% cost. The risks from both option are identical from a protocol stand point.

Looking forward to bring @Angle into real world assets!

1 Like