Algorithmic Market Operation on Euler

Hey!

Following the recent success of the vote on the proposal to mint 1m agEUR on Aave, I am proposing to perform something similar but on Euler this time.

Context

Euler is a decentralized permissionless lending protocol: agEUR has been on Euler from day 1, and part of the reason why we focussed on growing an agEUR/ETH pool was to have a robust oracle for Euler.

Current yield for lending agEUR on Euler is 2.36% for $2.87m of agEUR lent. Over the last week, this yield has been quite volatile, meaning that utilization ratio of the agEUR liquidity has varied quite a lot.

The reason for this is that Euler is launching their liquidity mining program which is going to reward borrowers of agEUR (and other tokens) with EUL rewards.
One desired goal would be to have a large amount of people borrowing agEUR, not only to create an interesting yield but also to have a significant share of EUL owners to vote for agEUR related pools.

The way EUL rewards are going to be allocated is through weekly gauge votes, like in the Curve system.

Proposal

The proposal is to mint 1m agEUR on Ethereum mainnet and to deposit it on the Euler agEUR pool.

This will allow the protocol to make a yield on its lent liquidity, and also increasing the available borrowing liquidity meaning more people could borrow to farm for cheap.

The counterpart for this is that a portion of the lending yield would be captured by the protocol and not all by people who could be minting agEUR (helping the protocol make a revenue) to get this yield. There is therefore obviously a trade-off here.

At first the protocol would just lend the liquidity there, but in a future proposal we could imagine implementing a more advanced folding AMO consisting in lending agEUR and borrow against the lent agEUR to help the protocol’s maximize EUL rewards. This would come at an extra risk as it would imply having the protocol pay a yield on agEUR, which have not really been issued per se. But this would be consistent with the strategy of Angle to become one of the core protocols on Euler.

Implementation

We would need to upgrade the agEUR contract to give the minting right to another address (the 4/6 governor address).

2 Likes

Bumping up on this, we’re getting ready to upgrade the AgToken contract and give the Governor multisig the minting right. This is something which could be dangerous if the multisig is compromised and so I want all veANGLE holders who are going to vote on the proposal have this in mind.

Will soon open this to a vote so that we can move forward and really start doing some interesting things with our AMOs.