Idle <> Angle partnership proposal via Euler PYTs

Main goals of the proposal

  • Deploy $750k worth of agEUR, currently in Euler, into the agEUR Senior Tranche built on top of Euler protocol;
  • Whitelist Euler agEUR Senior Tranche in the IDLE gauges, allowing Angle to receive governance power in Idle protocol;
  • Plan some cross-communication and community engagement to amplify the launch of this new risk-adjusted agEUR yield product.

Benefits for Angle

  • Improve the resiliency of the Angle treasury thanks to the built-in coverage;
  • Accrue IDLE rewards from Gauges, on top of the yield generated by Euler;
  • Stimulate the liquidity provision on the Euler market via the Junior Tranche (thanks to this Senior deployment);
  • Outperform APYs provided by other €-based assets with the Junior Tranche;
  • Expand the stablecoin use cases, introducing agEUR Senior Tranche as a conservative fund allocation to DAOs willing to diversify their treasuries while generating a yield.

Context and motivation

Idle partnered with Euler to develop the Perpetual Yield Tranches (PYTs) based on their lending markets, providing a new risk-adjusted approach to yield generation. With PYTs, Euler pools can target both risk-averse users like DAOs’ treasuries and institutional with the Senior Tranche, as well as risk-oriented liquidity providers with the Junior one.

The first pool that will be released is USDC, followed by other stablecoins and ETH-based pools.

We know Angle’s relationship with Euler is optimal too, as reported in this conversation:

Given the openness and vision alignment between Angle, Euler, and Idle communities, we’d like to propose the launch of the agEUR PYTs based on Euler protocol.

The new market would represent a new product suitable for other DAOs’ deployments, and protocols looking to unlock on-top composability on Euro-based assets.

This would be a way to cement a long-term relationship and open up the doors to build up other synergies on the product side further down the road.

If the Angle community provides positive feedback, in about a week we will submit our proposal on Snapshot.

Proposal details

  1. $750k liquidity deployment

Today, Angle DAO owns $1m worth of liquidity deposited in the single-sided agEUR pool on Euler (2.08% APY).

With the deployment of 75% of that amount ($750k) into Euler Senior PYT, Angle would be able to generate a yield almost equal to the underlying one while providing a 15-20% APY on the Junior side.

In the case above the coverage for Senior would be minimal, but Junior side APY would have an ample incentive to drive liquidity deployments. With an equal amount of liquidity ($750k) coming into the Junior side, the Senior APY would be half of the underlying return, while the Junior one will outperform it by +50%. In this scenario, Angle’s deposit would be covered by Junior funds.

There you go, whether you’re a conservative LP or you’re a risk-on one, you now have a new bootstrapped agEUR yield product tailored to your profile.

With the support from Angle community for this deployment, Euler agEUR PYTs will be launched on mainnet and will be accessible via Idle website.

  1. Whitelist Euler agEUR Senior PYT’s gauge with Idle DAO

The scenario reported below presents how Angle can increase the generated yield (roughly 2x) by receiving only 10% of the stream allocated to Senior Tranches (990 IDLE/day).

Once Euler agEUR PYTs are live, Angle can whitelist the gauge to enable its Senior Tranche receiving IDLE incentives.

The governance process is described in the documentation here.

Protocol due diligence

Here below is the most important information about the Idle protocol.

  • Longevity – Idle protocol is active since 2019.

  • Total Value Locked – $70m.

  • Decentralization – The Idle DAO was launched in 2020 and the protocol is fully permissionless.

  • Tokenomics – Governor Bavo (on-chain governance) + veToken model (IDLE distribution on PYTs via Gauges).

  • Fee – 10% performance fee on gains (no maintenance or withdrawal fee).

  • Security – 6 audits from Quantstamp, Consensys Diligence, Certik.

  • Backers – Consensys, Gumi Cryptos, Long Hash, Dialectic, GreenfieldOne, The LAO, Imran Khan, Qiao Wang.

More info about the product suite and architecture is available in the documentation.

About Idle DAO
Idle DAO is a decentralized organization that builds yield automation infrastructure for DeFi. From brand new DeFi protocols to institutional and DAO treasury managers, businesses of every size use our protocol to optimize capital efficiency and manage their treasuries within DeFi.

We believe that everyone deserves the best for their idle funds, both in terms of returns and risks. Over the past three years, Idle has rolled out the features and services, defining and shaping the yield automation space. Your money won’t ever sit still.

Hi Davide, thank you for the proposal !

2 questions for now:

What would be the apr split between Junior and Senior Tranche ? 80 / 20 ?
In the vote options, what vote options do you see for this proposal ? I think we could make an option where the liquidity deployment is conditioned by the gauge whitelisting on Idle.

Thanks @sogipec for the questions.

The APR split ratio is dynamic, allowing Senior LPs to receive most of the underlying yield when liquidity is low on the Junior side, or receive a guaranteed minimum portion of the underlying yield when Junior liquidity is high.
Junior Tranche receives outperforming APYs, no matter what the amount of deposited liquidity on the Senior is.

More info on the Adaptive Yield Split is available in this Medium article.

I agree that conditional approval could be the right solution to align the interests of both communities. The vote options can be: “Do nothing”, “Abstain”, and “Proceed after IDLE gauge whitelisting”.

The expected journey can be split into the following passages:

  1. Angle DAO approves the liquidity deployment via Snapshot
  2. Idle DAO deploys the agEUR Euler PYTs
  3. Angle DAO requires the IDLE gauge whitelisting
  4. Idle DAO approves the agEUR PYT gauge whitelisting
  5. Angle DAO finalizes the liquidity deployment

How does it sound?

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Ah so you changed model since the fixed x% / y% split ! It’s indeed a huge improvement.

My main concern is about the scope of the insurance provided by Euler PYTs, as it covers only partial losses, that is to say in the case of Euler a bad debt caused by the failure of an other collateral.

All cases implying a total loss of funds are not covered, and they are to me the current main risk when depositing on Euler: smart contract risk (both on Idle and Euler) and oracle manipulation risk

So I personally think that the cost for Senior Tranches depositors should remain significantly lower than an insurance on Nexus or a similar platform.

However, it looks like with this new dynamic APR split ratio that the coverage cost may be compensated by IDLE rewards ?

Thanks! The Adaptive Yield Split provides higher flexibility and scalability in comparison to a fixed split.

The cost of the built-in fund protection varies according to the underlying APY and deployed liquidity on each Tranche: at the time of writing, the cost is 0.02% APY when there is low coverage - up to 1.22% APY with high coverage.

Assuming a standard 2.6% yearly cost, Senior Tranche will be cheaper than an insurance protocol until the underlying yield is 5.2% APY.
Even in that scenario, Angle protocol should also consider direct and indirect benefits: IDLE rewards, doubled liquidity on Euler, Junior APY that is approximately 50% higher than the Euler’s one.
In comparison to traditional insurance protocols, Tranches enable liquidity providers to enter and exit at any time (no locking periods).

Furthermore, Tranches empower stablecoin issuers to scale faster their liquidity deployments: instead of directly depositing capital into the underlying source, which is subject to potential socialized losses, the protocol can incrementally increase its Senior-side deposit according to the covered amount available on the Junior Tranche.
The deposit of $750k would act as a pilot allocation, to let Angle start receiving coverage while fostering liquidity provision on Euler.

Here below is the overall yield spectrum generated with a 10% gauge weight. The outcome outperforms the current Euler’s yield whatever is the covered amount.

Thank you Davide for your always detailed answers. I indeed think we should consider other benefits, but still the cost / benefit ratio of the coverage is what I will based my decision on.

I am not very sensitive to the doubled liquidity or to the Junior Tranche APY arguments as the yield obtained by our PoL will be redistributed to agEUR or ANGLE holders so will be used to increase liquidity no matter the setup, so the question is more if it’s more efficient with this setup than elsewhere.

Your simulation looks nice, so the cost would likely be 0 in the end. You chose a 10% gauge weight, do you think it is a reasonable assumption ? What gauge weight do you expect ?

The gauge weights are solely decided by the stkIDLE holders (IDLE stakers).
At the time of writing, IDLE holders locked about 900k+ tokens for up to 4 years and the resulting stkIDLE supply is ~ 600k tokens.

There are a couple of ways to achieve the 10% threshold:

  • organic voting: you would need 60k stkIDLE votes (assuming that all stkIDLE are used to vote) and they can be collected across the Idle community via partnership awareness;
  • Voters Extractable Value (VEV): veToken platform will allow LPs to reward stkIDLE holders that vote for their Gauge.
    It’s likely possible that the IDLE stream allocated to the voted Gauge can be substantially higher than the rewards provided to voters.
    For example, the multiplier on Balancer, which unlocked VEV functionality about 2 months ago, is still around 4x (with some pools at 12x).
    Via veToken, you can increase the capital efficiency of your deposit by rewarding voters and receiving IDLE incentives that outperform the underlying Euler’s yield.

Before moving to the snapshot phase, you may want to add multiple options for the amount of PoL deployment, as I personally 750k is a to large share of the protocol owned eagEUR, as well as a duration

Thanks Picodes for the feedback.

In order to have more vote flexibility, the proposed options can be:

  • Deploy $250k worth of agEUR into Euler Senior PYT
  • Deploy $500k worth of agEUR into Euler Senior PYT
  • Deploy $750k worth of agEUR into Euler Senior PYT
  • Do nothing

In relation to the duration, as this can be considered a pilot case to let Angle get familiar with Idle, the options can be the following ones:

  • 1 month
  • 2 months
  • 3 months

As a result of the success of the initiative, it will be possible to extend the duration as well as the allocation size.

Open to hearing further considerations!

Looks good to me @Davide_IdleDAO ! Feel free to post the vote on snapshot when you’re ready :slight_smile:

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The voting phase for the Idle <> Angle partnership is now live :ballot_box:

:arrow_right: Poll to determine the liquidity deployment size: HERE
:arrow_right: Poll to determine the duration of the liquidity allocation: HERE

:alarm_clock: Polls will close on 2022-06-30T14:00:00Z

Happy voting! :writing_hand:

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