Algorithmic Market Operations would be a really significant addition to the Angle Protocol.
The protocol is better at allocating the capital itself than indirectly by incentivizing users behaviors. For “safe” places, it should be the protocol acting on behalf of the users and providing them a “risk-free” interest rate. With a stacking contract providing 2% to agEUR holders, there would be a clear reason to use agEUR vs fiat-backed alternatives. It is also something easily provided by exchanges and apps.
Those AMO will also be a kind of market-making and exploit the ability of Angle to issue and endless stream of agEUR for collateral use. To keep a lending example, if if someone is willing to borrow 1M agEUR at 2%, it doesn’t matter for Angle if it put 1M (100% usage, 2% return), 10M (10% usage, 0.2% return) or 100M (1% usage, 0.02% return). It gets the same profitability as it is not capital constrained. Another key application area is on term products. Term products cost a lot of capital to make liquid markets yet don’t return much.
Regarding the Aave v3 proposal on Polygon, the main risk is one of a run, yet it is not something significant with 1M agEUR. Each agEUR borrowed from this source will decrease the amount of agEUR minted somewhere else. Therefore, it’s a good start.
On the implementation side, I would prefer those agEUR to be minted on Ethereum so there is only one source of truth. We shouldn’t be able to mint agEUR on Polygon (but we can mint some on Eth and send them to a buffer on Polygon).