AIP-32: Seed Trader Joe pool on Avalanche using debt-collateralized agEUR

Hi everyone,

This is a proposal to seed an agEUR-USDC pool on Trader Joe to bootstrap agEUR liquidity on Avalanche.

Context

Angle Protocol recently re-deployed agEUR on Avalanche, as announced on October 21, 2022 on the protocol’s Twitter account.

Avalanche representing one of the major Layer 1s beside Ethereum, it is important to start building agEUR liquidity there. It is a pre-requisite to further developments and integrations in the Avalanche ecosystem.

Considering that the protocol has accumulated a surplus from it operations since its launch in November 2021, it is suggested that this surplus be partly used to support agEUR liquidity development on major blockchains, including Avalanche.

One way of supporting liquidity is to seed pools on Avalanche using the protocol surplus and providing the seeding amount from minting agEUR in the market through Algorithmic market operations or AMOs.

Proposal

The proposal is to use 100k USDC from the protocol’s surplus, bridge them to Avalanche, mint a corresponding amount of agEUR on Avalanche, and then seed a agEUR and USDC pool on Trader Joe.

The exact amount of agEUR to mint on each chain will depend on the initial EUR/USD price at the time of the implementation with respect to the range chosen.

Note that if you want to play with impermanent loss simulation, we have built a simulator on the Angle App at Angle Protocol.

Implementation

The minted agEUR would be from AMOs.

As previously discussed in similar instances, the rationale for minting agEUR that way is that the protocol could technically fetch the required amount from its surplus but there will be an opportunity cost for doing so since the USDC fetched from the surplus would no longer be invested in the yield strategies of the protocols.

With $100k worth of agEUR from AMOs, these agEUR are still backed by the USDC that are used to issue them and if the value of the USD came to decrease (meaning that a portion of the agEUR issued through AMO would be “unbacked”), then the protocol could still rely on its surplus to hedge for the “loss”.

As such, using AMOs is a way to mitigate the opportunity cost while still relying in some way on the surplus the protocol has accumulated. In addition, this amount is a conservative amount to bootstrap liquidity.

As this goes live, it’s going to be important for the protocol to increase or decrease the size of the positions depending on volume.

Value to the protocol

Deploying a liquidity pol on Avalanche would allow the borrowing module to work efficiently on Avalanche, allow users to take leverage, repay their debt without any capital commitment, to facilitate low discounts on liquidations, …They’re also going to unleash a wide range of opportunities for agEUR in the Avalanche ecosystems, allowing it to be more easily integrated with the protocols that are getting built there.

Risks

This proposal bears a risk of bad debt also possible with the agEUR paired with USDC in the AMOs, but given the size of the pool proposed and the surplus currently incurred by the protocol, this can reasonably be considered as acceptable.

Please comment below with any input you may have. The suggested amounts and ranges chosen can be discussed and amended according to community feedback.

Hi @BlockAdopter,

I personally believe that the Avalanche ecosystem is the only EVM ecosystem other than Polygon and BNB (some reservations regarding this one) where it makes sense to implement agEUR liquidity. I believe the main priority of the protocol will be creating liquidity in zk-rollup ecosystems as I believe they will be the main source of scalability and adoption of the blockchain ecosystem.

Best regards,
Pedro Lopes

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