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