Liquidity as a Service Partnership with Paladin

Hey everyone,

This is a proposal to engage in a Liquidity as a Service (LaaS) agreement with Paladin. We would do this in a setup with Ondo as described in this governance post.

Context

LaaS

Liquidity as a service consists in lending agEUR minted by the protocol as part of its algorithmic market operations. These agEUR are then matched to the governance token of the partnerring DAO to be put in a liquidity pool for a certain duration.

At the end of the program, lent agEUR can be redeemed by the protocol plus a fee decided upfront. The DAO gets the rest and assumes the impermanent loss on the pair.

As mentionned in the governance proposal about LaaS above, the benefit is that it increases the amount of tokens which are paired with agEUR, and hence utility of agEUR while helping the protocol make revenue. The risk is that if impermanent loss gets too big, it may lead to the creation of bad debt for the protocol (the protocol currently has a >=$5m surplus) so it can resist some bad events.

Paladin

Paladin is a decentralized protocol specialized in the lending and borrowing of voting power across other protocols. It notably has a product called Warden to borrow veCRV voting power. They have recently made a LBP in which they launched their PAL token, and will soon release a product called Quest that will enable them to double down their offerings on Curve and later on any project that has a ve-model.

Proposal

This proposal echoes a similar proposal made by Paladin on their governance forum for this program. I invite you to take a look as it’s super explicit.

Specifically, we would be lending 500,000 agEUR for a length of 3 month and at a 4% APR (which means 5000 agEUR of fees over 3 months).

Implementation

If voted positively, the governance multisig will be minting 500,000 agEUR to be deposited on Ondo’s smart contracts. Ondo will then take care about pairing these agEUR with the PAL tokens from Paladin DAO.

We could then continue this program after the 3 months, in which case we will have to submit this to a vote.

Let us know your thoughts on this! We’ll soon open this to a vote, and will launch the program if it is also voted positively on the Paladin side!

2 Likes

I am against this because the IL will probably create a loss for the protocol. If we were in a bull market, I might have a different opinion. But 4% apr to pair lent agEUR to a new and unproven token is much to low for the risk we are taking IMO.

Hello, we understand your worried but this is actually a fairly riskless process as our DAO has over 1M$ of treasury. We will be able to compensate Angle in case of IL.
Also, we are on the verge of releasing a major protocol update that shoud significantly impact price action.

In this case, IL will be taken by Paladin. There would be no loss for the protocol unless the PAL token price decreases by 75%. The way we should view it is like a way to mint agEUR from PAL with hedging agents being here till a 75% price decline and the protocol being fully covered against the PAL token price variation

Could you provide the address of the treasury? Is it Paladin tokens or hard assets?

Liquidity is very thin. Selling 500k PAL is having a price impact of 38%. And that’s when everything is good.

It’s not strategic for Angle as 5k€ is nothing and having liquidity for PAL token is not useful neither (not even on token lists).

So to make sense, we will need to repeat this strategy with many other young protocols and at some point it will fail badly (rug, team leaving, smart contract bug, …), leaving a serious taint on Angle (on top on having lost money).

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Agree on the fact that this can be risky for Angle, and should not be conducted with any DAO. Goal here with Paladin is to gain experience in working with a “trusted” protocol and liquidity as a service.

LaaS programs should be launched with a super careful scrutiny on the tokens with which we perform the (what liquidity, for how long, ability to pay IL, risk of rug, …)

PAL liquidity and utility on token lists will come someday and we’re better off having this liquidity with agEUR rather than with another token

Hello Sebastian,
Thank you for voicing your concerns. We are aware our liquidity is thin, the goal of this proposal is to solve this.
An important information to take into account is that there currently are only 3.25M PAL in circulation, 1.2M of are currently used by the DAO to provide liquidity. So the potential sell pressure is much less dangerous than for most protocols.

Secondly, payment for IL would happen OTC, not on the market, to avoid massive slippage.

Our treasury is currently held in PAL-ETH Curve LPs and Balancer PAL-USDC owned by this address: 0xB28B013FB941C4C04616E15B6F8F6f4C56B538C9

The idea of this proposal is to create a win win partnership between Angle & Paladin. We get deeper liquidity for a competitive price and Angle can test drive LaaS at a smaller scale with a friendly protocol.
Let me know if I can answer any more of your questions.

1 Like