Hello,
This is a proposal to accept Curve FRAXBP as a collateral for agEUR on mainnet.
Context
Angle can so far only support “classical” ERC20 tokens as a collateral of its borrowing module. By “classical”, I mean collateral assets that are routed on 1inch and that are not yield bearing tokens.
We’ve been working over the last few weeks on setting up an infrastructure to enable the protocol to list virtually any type of ERC-20 token as a collateral, including assets that do not have liquidity pools.
Reason for this is that there is a wide range of valuable tokens that have little to no utility in DeFi except for holding them: this is notably the case for Curve LP tokens which when staked in gauges (on Convex or StakeDAO for instance) do not let you do far more things.
Abracadabra was one of the first protocols to propose using such tokens as a collateral for its USD stablecoin MIM. They grew quite rapidly thanks to these integrations, but fees for borrowing MIM against these assets remain quite high: 3.5% a year for Tricrypto2 for instance with a 0.5% upfront fee.
With our borrowing module tech and the UX (on which we are continuously iterating) for getting leverage and borrowing agEUR, we believe we can improve what’s currently being done. On top of that, we are working on zaps to allow people to acquire the LP tokens and start borrowing without ever owning this LP token: basically you’ll be able to come with USDC in the protocol and then contracts will route your USDC to FRAXBP that will then be used to borrow agEUR which will then be swapped to FRAXBP again.
Proposal
Proposal is to start by accepting FRAXBP as collateral asset of the borrowing module.
Risk parameters can still be refined, but this is what I had in mind to start with:
# Liquidation surcharge for liquidators
surcharge = 0.02
# Max discount given to liquidator
maxDiscount = 0.08
# Collateral factor
CF = 0.85
# Liquidation boost
boost = 2.5
# Target health factor
targetHealthFactor = 1.05
Implementation
Implementation will rely on slightly amended VaultManager contracts together with an additional infrastructure around to wrap the LP tokens. Idea is that you’ll still be able to claim your CRV, CVX or SDT when you have a position that is borrowing agEUR.
Idea would be to have both options possible: StakeDAO and Convex for places where the Curve LP tokens are staked.
Value to the protocol
People will be able to get leverage on Curve LP tokens in a way and for a price that other similar protocols (Gearbox, Abracadabra) cannot match yet. This has the potential to drastically increase demand for borrowing agEUR and usage of the protocol.
FRAXBP is just a start but any kind of yield bearing token could then follow after that.
Risks
The risk is the risk of not being well able to liquidate. We are currently working as well on the liquidation infra to makes sure that everyone will be able to efficiently liquidate and that having these tokens as a collateral will not cause any threat for the protocol or to agEUR’s peg.
There may be also price manipulation risks with Curve LP tokens. These two pools however are not subject to the most common price manipulation attacks you might see on Curve.
We are going to use similar oracles than the ones which made their proofs with Abracadabra.
Super happy to hear thoughts on this. We’re around 1/2 weeks away to have this fully ready, but I think it’s important to launch discussions right now on the matter.
Could also give ideas of other LP tokens to integrate on other platforms.
