AIP-55: Seed PancakeSwap pool on BNB Chain using protocol surplus and debt-collateralized agEUR

Hi everyone,

This is a proposal to seed an agEUR-USDT pool on PancakeSwap to bootstrap Angle liquidity on BNB Chain.

Context

Angle Protocol recently deployed agEUR on BNB Chain, as announced on October 21, 2022 on the protocol’s Twitter account.

BNB Chain is a major Layer 1 with now more unique adresses than Ethereum. Given its great number of protocols deployed and number of users exceeding all other alternative chains, building agEUR liquidity on BNB Chain is an important step to the development of agEUR.

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 on BNB Chain and more particularly on PancakeSwap.

One way of supporting liquidity is to seed a first pool using both the protocol surplus and agEUR minted in the market through Direct Deposit Modules.

Proposal

The proposal is to use 150k USDC from the protocol’s surplus, to be converted to USDT and bridged to BNB Chain, mint a corresponding amount of agEUR on BNB Chain, and then seed a agEUR/USDT pool on PancakeSwap

The exact amount of agEUR to mint will depend on the initial EUR/USD price at the time of the implementation.

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 $150k 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 pool on PancakeSwap is intended to unleash a wide range of opportunities for agEUR in the BNB ecosystem allowing it to be more easily integrated with the protocols that are getting built there.

Bootstrapping agEUR liquidity on BNB Chain through PancakeSwap is also an efficient choice for the protocol as PancakeSwap is the most popular and most used DEX on BNB with roughly $50m to $100m+ daily volume.

Risks

This proposal bears a risk of bad debt also possible with the agEUR paired with USDT 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.

3 Likes

That liquidity could be more effective once Pancake rolls out V3 (expected in Q1 2023).

2 Likes

Yes indeed I do agree, but on that, different things:

  • with the protocol, I think we should rather aim for the solution with the lowest IL possible (that is to say with full range liquidity)
  • we could migrate to V3 I guess once it’s live
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if the pool has less then $1m in it and is full range then the slippage would make it unusable to traders trading more then a few $k.

2 Likes

Indeed good point, this pool should be coupled with other incentives from the PCS team, so hopefully this is just a first step, and incentives will nudge people into providing more liquidity

1 Like