AIP - 45: Launch an Angle Gold Stablecoin

Hello,

This is a vote to deploy a new decentralized Angle stablecoin pegged to one ounce of gold, and to choose with which implementation this stablecoin should be made:

• immutable contracts
• same flexibility and setup as agEUR

Context

Angle started in November 2021 as a decentralized stablecoin protocol by launching agEUR. It quickly became the largest decentralized euro stablecoin, and the most traded EUR stablecoin altogether. The protocol was designed from scratch to be able to launch different stablecoins.

Angle is now at a phase where it is ready to welcome a gold pegged stablecoin alongside agEUR.

Argument #1: The gold market is a great opportunity, both on-chain and off-chain

PAXG & XAUt, the two biggest gold stablecoins, represent a close to $1B market for gold on-chain. Off-chain, gold is a ~$12T market. These two numbers represent both a great opportunity for gold stablecoins, and a acknowledgement that there is some demand for it on-chain.

As a comparison, the total euro supply (M2) was around 15T€ in November 2022 (source: ecb) for an on-chain euro market of $250M (source: Euro-stablecoins dashboard by SebVentures).

Argument #2: There is no decentralized gold stablecoin yet

One of the most prominent argument for an Angle Gold stablecoin might simply be that there is no decentralized gold stablecoin on-chain yet. This offers an interesting opportunity for Angle to lead DeFi forward.

Argument #3: It creates a great opportunity to expand Angle to something bigger than a Euro-only protocol

Looking beyond this proposal, the addition of a new stablecoin to Angle allows the protocol to move from the “Euro decentralized stablecoin protocol” corner to the “DeFi products and infrastructure provider” one.

From a marketing standpoint, a truly decentralized gold stablecoin can therefore be quite positive for the protocol.

Design

A debt-based gold stablecoin

Angle has two ways of issuing stablecoins: the original Core module, and the more recent Borrowing module.

Though the Core module brings a lot of value, it relies on a complex equilibrium to be sustainable. On the other hand, the Borrowing module has a different value proposition (stablecoins are minted as debt collateralized by crypto deposits), but requires much less maintenance.

It would hence be more efficient for the Angle Protocol to launch a gold stablecoin with the Borrowing module: where people would deposit crypto assets to borrow up to a certain quantity of Angle’s gold stablecoin. The question if this stablecoin had to be launched is therefore which implementation to use.

Different implementation choices

On the one hand, the protocol could keep the same setup and flexibility as with agEUR, with upgradeable contracts, and the possibility to do direct deposit modules on protocols like Curve. On the other hand, to further extend the narrative of a decentralized permissionless gold, it'd be easy to deploy the stablecoin with fully immutable contracts, and only uncensorable assets as collateral (like ETH or LUSD).

In all cases, contracts would rely on an audited infrastructure and use Chainlink oracles.

Option 1: Immutable contracts

In this setup, the protocol would deploy a slightly revised version of the agToken and VaultManagers implementations to reduce the impact a wrongful governance could have on the stablecoin.

While there would still be some parameters that can be updated by governance, like the debt ceiling or the possibility to add new collateral assets, most of the parameters would be immutable, and contracts would not be upgradeable.

In particular, it would be impossible for governance to add new minters that are not specific VaultManager contracts, and the governance will not be able to engage into AMOs with Angle gold stablecoin or mint it through other means than borrowing. Governance will not be able to pause contracts or to add repayment fees.

Pros:

• Absolutely no counterparty risk or exposure to another gold stablecoin
• Real decentralized use case to push, like RAI or Liquity (even though in this case I’d still be possible to add new collateral assets), and the marketing impact + narrative it creates for the protocol is not to neglect
• It’s a guarantee that it won’t take too much development time to protocol contributors once it’s launched since it’s going to be hard if not impossible to change the protocol

Cons:

• Based solely on the proposed CDP model, Angle Gold stablecoin peg would be a soft peg with respect to gold. While statistical arbitrageurs may come to the protocol, there will be no direct incentive to bring the gold stablecoin back to peg (a bit like Liquity today which trades 2/3% over peg)
• There will probably be more frictions immediately when launching the stablecoin to grow liquidity for it as there will be no means for the protocol to directly mint on Curve or on Uniswap for instance. And over the long term, protocol would not have the full flexibility to expand this Angle Gold stablecoin by taking advantage of one power of decentralized stablecoins: direct deposit modules to for instance bootstrap liquidity in lending protocols (like Aave)

Option 2: Same flexibility as with agEUR

This means that contracts for Angle Gold stablecoin would be the same as for agEUR, in the sense that they would be upgradeable, and it’d be possible to add new minters to the contracts. This could make it easy for instance to do direct deposit modules with the protocol, like governance could vote to enable the protocol to mint agGOLD in a Curve pool with PAXG whenever there are more PAXG than agGOLD hence stabilizing agGOLD price.

Pros:

• Possibility to add a form of price stability module on Curve for the stablecoin hence improving the stablecoin’s peg
• if it ever takes off, then governance would have the means to engage in AMOs, and the protocol would be flexible enough to take any action that maintains the flywheel for the product
• It’d probably be more coherent in terms of the Angle Protocol brand if all stablecoins work roughly the same way, otherwise we’d have to be clear on the fact that agGOLD is more decentralized than agEUR which could create confusion

Cons:

• Still a decentralized stablecoin governed by the Angle governance, but there is a significant risk in this setup that agGOLD ends up being backed by a majority of PAXG (through Curve deposit modules) which would increase the counterparty risk of the stablecoin
• Mutability means there could be more incentives to spend time amending it/developing the protocol even if gold may not be the highest ROI thing the protocol should focus on

Growth

In terms of growth, the perspectives are the same for both of the implementations. The main use cases for Angle’s gold stablecoin should be for holding gold on-chain in a permissionless way, and to trade gold against other crypto assets. Beyond that, borrowing the gold stablecoin from Angle could be used by traders to short Gold against the vault collateral.

The first step for growing it will be to create a Curve pool with PAXG and push to have a gauge, and a Uniswap V3 pool with agEUR to have access to all of agEUR’s liquidity.

With time, PAXG and XAUt holders looking for a more trustless alternative should progressively move towards Angle’s gold decentralized stablecoin.

Cost

The only upfront cost for an Angle Gold stablecoin is the deployment cost (estimated around $1k). The development time (around 2 weeks) is also a factor to have in mind.

Maintenance cost should be null as well (assuming no oracle cost), as the borrowing module can turn with no external intervention. The only added cost from oracles would be that we’ll potentially have to pay for the XAU/USD oracle from Chainlink, but this is the same when adding any new collateral asset for the Borrowing module.

Main costs will be that of the incentives for the gauges we make: agEUR-agGOLD, this is something which should be voted by veANGLE holders, but it won’t result in extra incentives, so just an opportunity cost. There is no budget planned for Curve incentives, we could specify in a future proposal using a portion of the Curve bribe budget to bribe agGOLD-PAXG (diverted from agEUR-EUROC).
There will be potentially a seeding cost for pools to be addressed in a subsequent proposal once the result of this vote (and the implementation chosen) is known.

Risks

The main risk for the protocol is that it accumulates bad debt due to a failure in liquidations of vaults having issued the gold stablecoin. Keeper infrastructure to liquidate the stablecoin vault will work like for agEUR.

Other than that, there is the reputation risk that the stablecoin doesn’t maintain its peg. Though this would be negative, there would be no direct consequence for agEUR or other working parts of the protocol itself outside damaging the reputation.

Voting Options

1. For, deploy with immutable contracts
2. For, deploy with same flexibility as agEUR
3. Against, do nothing