Hey everyone,
This is a proposal to improve the yield strategies the protocol makes on its DAI and USDC in reserves.
Context
So far, the yield strategies implemented by the protocol simply consist in lending agEUR to Compound and Aave. The protocol optimizes to where it lends its liquidity and looks for the best yield between both protocols.
Strategies are the main source of revenue for the protocol and they’re what enable revenue distribution to veANGLE holders. They should be balanced in order not to imply too much risk for agEUR holders because the collateral they invest is in the end collateral backing agEUR, and should be made with in mind the idea that the protocol with the liquidity it controls can have big market impacts on protocols it invests in.
There is far better that the protocol can do in terms of strategies, with like higher reward/risk ratio and over the last few weeks we’ve been working on an improved yield strategy on Aave. This strategy could later be generalized to Compound as well.
Proposal
The strategy described is a folding strategy. For the case of USDC, it consists in lending USDC, borrowing USDC against it, re-lending this USDC.
The reason for doing this is that it can help maximize the AAVE rewards given to lenders and borrowers: imagine lending at 1%, borrowing at 2% but with a 1% AAVE reward, then it’s optimal to do such folding.
Angle Protocol folding strategy is forked from Yearn (which has Gen Leverage strategies), but tries to improve over this: in Yearn the leverage ratio is hard coded, in Angle it is dynamically computed to make sure the protocol seizes the best opportunities possible: it folds as much as possible to make the best yield. This strategy if it is often harvested should thus make more yield and Pareto improve the lending strategy already in place within Aave.
This strategy was thoroughly tested by Core Team and reviewed by several team members. We will soon open-source it as we’re ready to deploy it.
Basically, we could start with a 10% debt ratio on this strategy when launching it in production to monitor how it works and the yield of it. It’s also a way to reduce the risk we have on it.
Then, after some weeks (like 2), if the strategy proves to work well, we could “kill” the old lending strategy (set a debt ratio of 0 on it), and then increase the debt ratio of the new one to 95%.
In the meantime, we would make sure to have a Compound folding strategy ready short after.
Let us know what you think of this! This is obviously hard to evaluate the quality of the strategy without open-source code, but we’ll soon release an article about this new strategy, which should present a far better risk/reward ratio for the protocol and ultimately increase revenue for the protocol and for veANGLE holders.
It should be the best folding strategy built-out in DeFi so far, thanks to mathematical tricks we have found in it.