Hello Angle community!
This is a continuation proposal to keep funding the Atlendis agEUR pool to Sirox finance, generating yield for the DAO and other agEUR holders (transparency disclaimer: I am one of the co-founders of Sirox).
Context
As outlined in AIP-20 in July, the DAO committed in monthly tranches up to one million agEUR tokens to fund the agEUR pool on Atlendis, a credit protocol allowing vetted institutional to access revolving lines of credit in a transparent and capital efficient fashion. The main goal of the proposal was to generate revenue for the DAO but also to incentivize current agEUR holders to provide liquidity to the pool as the RWA borrowing rates not only are base on non-blockchain based utility but are also higher.
After 6 months, we would like to present the results that lead us to present AIP-20 as a success and propose a path going forward for the Atlendis <> Angle relationship.
Please find below the table presenting the monthly utilization for the pool liquidity and the liquidity provided by the DAO:
| Month | Committed by DAO | Borrowed | % used |
|---|---|---|---|
| August | 100k | 105k | 105% |
| September | 200k | 15k | 7.5% |
| October | 500k | 220k | 44% |
| November | 750k | 500k | 66.7% |
| December | 1m | 1m | 100% |
| January | 1m | 355k | 35.5% |
| Total | 3.55m | 2.19m | 61.8% |
With the January loan still ongoing, it’s worth noting that the pool is oversubscribed over the 1m approved TVL for the approved lender (1.29m current TVL), fulfilling the goal to incentivize the usage of agEUR for current stablecoin holders.
(Pool summary provided by the Atlendis protocol)
Additionally, as noted by the Atlendis protocol, with an average historical borrowing rate of 5.8% and an average 61.8% fund utilization, the returns of the investment for the DAO have been well over the rate provided by on-chain lending protocols like AAVE.
(AAVE agEUR supply rate during the last 6 months)
Additonally, regarding risk, the mandatory 30 days repays have been flawlessly respected by the pool approved borrower.
On the arranger side, Sirox finance has dedicated the funds to serve the debt necessities from 2 short-term receivables originators:
- Payroll advancing company with a debt cycle of 30 days, with the employer paying back the advanced funds directly to the company at the end of the month
- Instant refund company with a debt cycle of 30 days, with the merchants paying back the refunds directly to the company as soon as the return is processed
Both companies are now benefitting from a growth financing extremely more flexible than the current debt raised through traditional TradFi channels and are currently in the process of increasing the capital raised with Sirox.
Proposal
We propose 2 main options as potential next steps for the next 6 months:
-
Option 1: [PROPOSED] Given the success of the AIP-20 both generating revenue for the DAO and utility for the current agEUR holders, this new proposal aims to push the Atlendis <> Angle relationship forward by:
- Maintaining the current 1m investment for the month of February at regrouping the funds at 7% yearly interest rate (to enable individual agEUR deposits in the 2% - 6% range be picked up first)
- Depositing an additional 1m into the pool at 7% interest rate (total deposited 2m) in the first day of March
- Maintaining the 2m deposited for the months of March, April, May and June
- Unwinding the 2m position at a 1m agEUR monthly withdrawal rate on the first days of July and August
The resulting Angle position in the pool would be:
| Feb | Mar | Apr | May | Jun | Jul | Aug |
|---|---|---|---|---|---|---|
| 1m | 2m | 2m | 2m | 2m | 1m | 0 |
The new tokens deposited in the proposal will execute following implementation 1 in the following paragraph.
-
Option 2: Don’t increase exposure, regrouping the current 1m position at 7% interest rate and maintaining it for February, March, April and May, then winding it down during the following 3 months at a rate of 333.3k agEUR (1m agEUR / 3 months) withdrawal per month from Atlendis (June, July and August)
The resulting Angle position in the pool would be:
| Feb | Mar | Apr | May | Jun | Jul | Aug |
|---|---|---|---|---|---|---|
| 1m | 1m | 1m | 1m | 666.6k | 333.3k | 0 |
- Option 3: Progressively divest the current 1m position during the following 6 months at a rate of agEUR 166.67k per month. The resulting Angle position in the pool would be:
| Feb | Mar | Apr | May | Jun | Jul | Aug |
|---|---|---|---|---|---|---|
| 1m | 833.33k | 666.67k | 500k | 333.33k | 166.67k | 0 |
- Option 4: Completely divest the position today. The resulting Angle position in the pool would be:
| Feb | Mar | Apr | May | Jun | Jul | Aug |
|---|---|---|---|---|---|---|
| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Implementation
As for AIP-20, we observe two possible implementation methods for the option 1 proposed:
- [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 but the newly minted agEUR could become “unbacked” if the USDC value decreases (would need to use the protocol’s surplus to offset the “loss”).
- 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 7% on the borrowed agEUR represents a very profitable opportunity.
As for AIP-20, 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.
For options 1 - 3, to wind down the invested position the withdrawal TX can be signed and executed from the Angle lending MS during the pool cooldown period. As soon as the debt is repayed every month, a 24h cooldown period is activated to enable withdrawals before a new loan is given out from the pool.
For option 4 (completely divest the position), the withdrawal TX can be signed and executed from the Angle lending MS during the next pool cooldown period (19th February the latest), as soon as the current loan is repayed.
Value to the protocol
Providing liquidity to the proposed pool, as proved, not only generates profits for the protocol, but has also incentivised agEUR holders to provide liquidity to the same pool (~30% oversubscription in the pool currently) and capture new users to buy and hold agEURs to benefit from the pool’s lending rates.
Risks
Following implementation 1 (minting debt-collateralized agEUR, as reccommended), the risk of borrower default could create some bad debt on the provided agEUR but this risk is significantly reduced after the success of AIP-20 where the capacity of the borrower to operate and repay the committed amounts has been proved.
Additionally, Atlendis being a fairly new protocol to the Polygon environment, even if audited, could represent a small smart contract risk, although this risk is now reduced after 6 months operating with them.
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).