As everyone is surely aware, agEUR token is off peg, resulting from the loss of a significant amount of USDC collateral and liquidity from the protocol reserves as a result of the Euler hack,. agEUR is now trading at a similar discount to the percentage of assets left in the DAO holdings compared to outstanding liabilities. While USDC was the only asset stolen, it seems the entire set of collateral and liquidity providers’ assets are now in play to serve as backing for the system. Assuming that we will need to write off the Euler funds to zero, figuring out a way forward to bring back full backing to agEUR while making depositors and liquidity providers whole should be the main focus.
First, I’d like to thank the Angle Team for their quick response and efforts to address the situation. I appreciate their dedication to finding a fair solution for all affected parties. agEUR has been a solid stablecoin, and the mechanism has worked well through the volatility of the past year. Unfortunately, the loss of funds was due to where the collateral was stored within the system. Going forward, there can be key risk limits placed on such actions, or the protocol could decide not to rehypothecate collateral and accept lower yield in the system. This is a discussion for later.
Here are the key figures based on the spreadsheet provided by the Angle team:
- Total value of sanTokens before the hack: $11,801,160.12
- Total value redeemable by HAs before the hack: $71,073.11
- Total value of agEUR issued by the Core Module and not held by the DAO before the hack: $18,350,455.33
- Value of the tokens claimable from the Core Module before the hack: $30,466,061.26
- Total value of the DAO’s token holdings (excluding agEUR) after the hack: $19,563,873.35
- Shortfall: $10,902,187.91
Looking at the DAO token holdings sheet, there is enough DAI, FRAX, and ETH to fully pay out those sanToken holders. The sanUSDC deposit came with this unique risk of the third-party lending system, and it seems like mostly we need to figure a way to make USDC depositors and LPs whole, as the rest of the assets are available on the balance sheet.
Based on these figures, I’d like to propose the following solution:
- Allow sanETH, sanFRAX, and sanDAI holders to withdraw from the protocol at 1:1 with their assets from the DAO holdings.
- Allow agEUR borrowers against FRAX, DAI, and ETH to wind down their debt (agEUR is cheaply available off the market now). This will reduce the outstanding supply of agEUR, limiting it to just the USDC collateral.
- Issue ANGLE tokens or a debt token tied to protocol revenue that will cover the difference for USDC depositors and LPs.
- We could also allow other LPs and depositors to participate in the debt token or token coverage if they are willing to trade those for their claim on the underlying assets. Then this solution would encompass the entire community.
The alternative are something like the DAO takes on the bad debt (likely not possible based on the size of the loss and DAO holdings) or that all users take a haircut (doesn’t make sense when only USDC is missing from the system).
I kindly request all community members, including those not directly affected by the hack, to consider this proposal and participate in the upcoming discussions. Please feel free to share your thoughts, concerns, or suggestions in the comments below.