In an effort to increase agEUR and stEUR adoption, maximize the stEUR yield by optimizing the allocation of Transmuter assets to high quality, yield bearing tokens.
Proposal
Reduce EUROC balance to 5.3M
Increase bC3M balance to 7.0M
Increase bERNX balance to 7.0M
agEUR
Today
Target
Allocation
Transmuter
EUROC
12,455,569
5,311,956
bC3M
6,858,389
7,001,001
bERNX
-
7,001,001
Borrow Module
4,270,411
4,270,411
AMOs
1,156,756
1,156,756
KRIs
Liquidity Ratio
258%
110%
Capital Ratio
732%
217%
Secondary Metrics
Capital surplus
1,745,644
1,745,644
Total Assets
24,741,124
24,741,124
Capital at Risk
245,598
813,228
Asset / Capital
7.06%
7.06%
Liquidity Outflow
4,829,051
4,829,051
Liquid assets
12,455,569
5,311,956
Rationale
This allocation is calculated to maximize balance sheet yield while maintaining a healthy buffer for both credit and liquidity risks.
Credit Adequacy
Both bERNX and bC3M are designed to have very limited credit risk. As such, applying Capital at Risk percentages of 1% to bC3M and 3% to bERNX at the new allocations (along with conservative numbers for the Borrow Module collateral) leave the protocol with a healthy Capital Surplus buffer.
Liquidity Adequacy
In order to determine there is adequate liquidity in the protocol, we computed the maximum liquidity outflow that happened historically during the time period needed to liquidate the ETFs (estimated at 3-days)
Based on history (excluding the Euler hack), there were 3 historical occurrences of >15% drawn down in market cap within 3 days, 0 occurrences >21% in 3 days. So in order to balance stability and asset allocation optimization, we proposed a constant liquidity ratio of at least 21%
Value to Protocol
Increasing risk by reallocating towards bERNX and bC3M to capture a higher yield
Decrease EUROC exposure to reduce non-yielding assets while keeping sufficient liquidity
Improve the stEUR yield to [6.0]% from [3.5]% (all else equal and assuming 100% distribution)
for EURC: max exposure at 70% (so we don’t block someone who would do a large mint to much), min exposure at 10%
for bC3M: max exposure 50%, min exposure at 25%, no mint fees, burn fees at 50 bps to compensate for acquisition costs
for bERNX: max exposure 50%, min exposure at 25%, no mint fees, burn fees at 50 bps to compensate for acquisition costs
This is what would be enforced onchain and more the security measures in terms of the max that we want to have on the protocol.
The rebalancing rules would have to be set through offchain coordination, and rely on the setup we voted in the past with the guardian to subsidize the acquisitions of tokenized securities when exposures go beyond certain thresholds.
Ideally we want 35% in IB01, 35% in ERNA, the 30% remaining in EURC
With this:
if EURC exposure is above 40%, we rebalance till 30% exposure to EURC
if EURC exposure is below 15%, we rebalance till 30% exposure to EURC
When it comes to the oracles, there is currently an issue where when oracles deviate from their target prices it affects the burn price for all other collateral assets. We can apply for each collateral a deviation threshold below which small deviations are not considered:
for EURC: we take a base rate of 1 and apply no deviation when EURC trades plus or minus 5bp with its current price
for bC3M: we use Redstone oracle and then compare this rate with the ATH observed for this token as the target price, with no deviation reported when current price is within 50bp of the max price
for bERNX: we use Backed oracle and then compare this rate with the ATH observed for this token at the target price, with no deviation reported when current price is within 100bp of the max price ever observed
Overall implementation of this proposal implies swapping 7m EURC into ERNX
