AIP - 64: Add support for bIB01 on Angle Borrowing Module on mainnet

sogipec · April 26, 2023, 4:38pm

Hello,

This is a proposal to accept bIB01 as a collateral for agEUR on mainnet.

Context

bIB01 is a token issued by Backed Finance, a Swiss company issuing tokenized structured products that track the value of publicly traded securities.
Tokens issued by Backed are backed 1:1 by the underlying asset held in a 3rd party licensed custodians. These tokens are always redeemable for the cash value of the underlying assets, and the overall setup enabling this relies on a compliant regulatory framework, based on the Swiss DLT Act.

bIB01 is the Backed token corresponding to BlackRock IB01 ETF. This ETF seeks exposure to US Dollar denominated short term government bonds issued by the US Treasury. In particular, it seeks to track the investment results of an index composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year. The current average yield in $ from owning IB01 is 4.52%.

Backed maintains an oracle, compatible with Chainlink interfaces, for the bIB01 token on Ethereum.

Currently the bIB01 token has very little on-chain liquidity but it can be minted 1:1 by KYC-ed addresses, just like it can be redeemed this way.

Proposal

The proposal is to add IB01 as a collateral for agEUR on Ethereum mainnet, with the parameters proposed in this pull request and with the oracle implementation suggested here.

Implementation

The Backed products must only be sold directly to qualified investors and licensed resellers. On top of that the tokens must not be made available to U.S Persons or for the account or benefit of U.S. Persons, just like the tokens must not be marketed, offered, or solicited in the U.S. or in any other prohibited jurisdiction.

To this extent, we suggest using a different implementation of a VaultManager contract here where only whitelisted liquidators will be able to participate in the liquidation of vaults. This ensures that in an event of liquidation, the protocol will only be selling bIB01 tokens to addresses with a KYC from Backed.

The guardian (and of course the governance address) of the protocol will be able to whitelist liquidators provided that these are already KYC-ed from Backed. There are currently some KYC-ed agents with Backed with liquidation bots ready on Angle. On a side note, KYC-ed liquidators will have access to the token’s primary market liquidity with Backed and hence participate in liquidations with minimal slippage.

Suggested implementation can be found here.

Beyond that, the implementation of this new collateral asset does not differ from other collateral assets in the Borrowing module. Having bIB01 as a collateral asset will not imply any extra maintenance.

It’s important to note that, if bIB01 is accepted as a collateral asset in the protocol, front end interfaces on top of Angle will not be able to make this product available to U.S. Persons. The bIB01 vault will be meant only for qualified investors and licensed resellers that are not U.S. Persons or acting for the account or benefit of U.S. Persons.

Value to the protocol

Adding bIB01 as a collateral for the protocol is a way for the protocol to offer leveraged yield on tokens that are not purely DeFi tokens.
It is currently possible to borrow against such ETFs on Flux, and almost all available liquidity is utilized.
Here people will be borrowing for cheaper than on Flux. They’ll face a small USD/EUR exchange risk because they’ll be borrowing a EUR denominated product from a USD denomiated yield product, but the lowered and fixed borrowing cost is thought to offset this.

It would enable Angle to pioneer and become the cheapest place where to leverage on non-DeFi productive tokens.

Risks

The main risk is to accumulate bad debt from bIB01 liquidations (happening after a decrease in USD or a rapid global interest rate increase leading the $ value of IB01 to decrease as well). The oracle used here for bIB01 is not a Chainlink oracle, but an oracle maintained by Backed.

The protocol will also take a counterparty risk from Backed and their custodians.

As this type of asset remains somehow new for the protocol, and to mitigate these risks, suggestion is to start with a small debt ceiling equal to 200k agEUR. This one could later be increased by the guardian multisig. The liquidation discounts parameters have been set to make it profitable for liquidators to come and liquidate even after small price movements. If a position fails to be liquidated rapidly enough, parameters are also such that the protocol will not lose any money if the position is liquidated at its max discount.

backed-finance · April 28, 2023, 2:12pm

Hello Angle Community,

Thank you for your interest in using bIB01 as collateral for agEUR on mainnet. We appreciate the proposal and would like to express our support for this initiative.

As the issuer of bIB01, Backed believes that this token can be a valuable addition to the Angle protocol, providing leveraged yield.

Backed Finance AG (a Swiss company registered in Zug) issues EVM-compatible security-tokens via its subsidiary, Backed Assets GmbH, that track the value of structured products. These structured products are fully backed by the underlying, which is held in a secure third-party Swiss custody account, separate from the bank’s balance sheet and thus bankruptcy remote, removing third-party exposure. Backed Assets GmbH has filed and approved a prospectus for the security-tokens with the FMA in Lichtenstein.

bIB01 is a price tracker for the iShares $ Treasury Bond 0-1yr UCITS ETF (IB01), an index composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year.

Soon we will have official Chainlink and Pyth oracles in place; until then, Backed will be operating its own oracle, which is updated daily.

Thank you for considering bIB01 as a potential collateral asset for the Angle protocol. We hope the community votes in favor of this proposal, and that Angle protocol will find more of Backed’s products useful in the future.

You can find more information here:

bIB01 Factsheet

Backed Assets legal documentation

DISCLAIMERS
The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended or with any securities regulatory authority of any State or other jurisdiction of the United States and (i) may not be offered, sold or delivered within the United States to, or for the account or benefit of U.S. Persons, and (ii) may be offered, sold or otherwise delivered at any time only to transferees that are Non-United States Persons (as defined by the U.S. Commodities Futures Trading Commission). The following information may not be distributed outside of jurisdictions where prospectus will be approved and/or passported, in particular not in the United States or any other restricted jurisdiction.The offering or sale of the securities in certain jurisdictions may be restricted by law including because of the underlying(s). For a description of certain restrictions on offers and sales of the securities and on the distribution of this refer to the product documentation.The information does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If the laws or regulation of a jurisdiction require that an offering of securities described herein be made by a licensed bank, securities firm or insurance company or any of its affiliates, the offering shall be deemed to be made by such other party or such affiliate on behalf of the Issuer or holders of the applicable securities in such jurisdiction. Some of the information published contains forward-looking statements. Users are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. Backed Assets GmbH undertakes no obligation to publicly update or revise any information or opinions published. Backed Assets GmbH reserves the right to amend the information at any time without prior notice. Past performance is not an indication or guarantee of future performance of a Backed product or underlying asset. The value of any investment may be subject to high fluctuations and, in some circumstances, investors may not recover the original amount invested. The information contained may not be considered as being a substitute for economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content delivered herein. An investment decision with respect to Backed equities must only be made on the basis of the official documents published in accordance with applicable securities laws. Users should consult their investment advisers or other advisers prior to making any decisions.

0x095ea7b3 · May 5, 2023, 6:29pm