AIP - 59: Restore agEUR's peg

This is a vote for how to restore agEUR's peg.

Context

After Euler’s repayment, a process to swap the received ETH was voted. 7,408.83 ETH were swapped to a total of 15,541,130 USDC, and half of these USDC will be shortly swapped to EUROC.

The current state of the protocol can be consulted here.

Now that the funds back agEUR are mostly USDC and EUROC, one way to restore the peg is to allow agEUR to be traded against the Core Module reserves.

As the protocol should be expected to be reworked, keep in mind that this should be a transitory solution that is expected to last a few weeks.

Also, the accepted collaterals wouldn’t change, and the HAs functionality (Perpetual Futures hedging the protocol exposure) would stay paused, accordingly to what was voted here.

Proposal

With this context in mind, there are several possibilities:

1. Unpause only the burn of agEUR, allowing people to sell agEUR to the protocol at 1€.
2. Unpause mint & burn of agEUR, allowing people to buy and sell agEUR to the protocol at 1€.
3. As proposed in this governance proposal (option 1), a third option can be to provide the protocol EUROC liquidity to the Curve agEUR-EUROC pool, allowing agEUR to get back to its 1€ peg.
4. Do a mix of the options 1 and 3: allow agEUR redemptions for USDC through the Core Module, but also stabilize agEUR-EUROC using protocol reserves while we transition to V2.

All options would allow arbitrageurs to buy agEUR on the market and sell it at 1€ to the protocol.

Note that the Core module comes with fees, and there would be fees applying for people burning (and minting if option 1 is chosen) through this mechanism.

We propose to set the fees to the value they had on Friday 10th of March (before the USDC depeg), that is to say 0.5% when it comes to burn fees.

Solution 1 has the advantage of only reducing the protocol exposure to USDC by allowing users to sell agEUR against the reserves, with the drawback of potentially reducing a lot the agEUR supply and Angle TVL.

Solution 2 has the advantage of “fully” reopening the protocol and allowing people to mint agEUR with the Core module again, with the drawback of potentially increasing the protocol exposure to USDC.

Solution 3’s advantage is that it removes the need from having to reopen the protocol and taking potentially additional risks. Its drawback is that it is going to be less direct for people to burn they agEUR as they’ll most likely end up with EUROC. In practice, when the agEUR / EUROC price is < 0.995, this voting solution will allow the Governor or Guardian multisig to use the protocol EUROC to either:

• add EUROC to the pool if the total pool liquidity is < 5M€, or
• buyback agEUR with EUROC and burn agEUR when the total pool liquidity is > 5M€ On the other hand, it will also allow minting agEUR in the pool when the agEUR/EUROC price is > 1.005.

Solution 4 combines both solutions 1 and solutions 3 for maintaining peg. It might be slightly less efficient than solution 1 alone when it comes to allowing the protocol to get rid of its USD/EUR exposure.

Considerations

It was voted on this vote as well to unpause SLPs. Currently, as it stands (and as can be seen here), there are:

• 7,376,036.52 USDC on the PoolManager contract with claims of SLPs worth 5,269k USDC and claims of agEUR holders worth 15,620k USDC (as of the 14th of April)
• 4,110,262.81 DAI on the PoolManager contract with claims of SLPs worth 1,372k DAI and claims of agEUR holders worth 1,658k DAI (as of the 14th of April)
• 6,942,822.80 FRAX on the PoolManager contract with claims of SLPs worth 4,997k FRAX and claims of agEUR holders worth 1,888k FRAX (as of the 14th of April).

Should option 1, 2 (and also 4) be chosen, the protocol would not have immediately all the USDC available to handle all redemptions. Given this, we suggest to swap the 3.4m DAI received from Euler to USDC. There would be a 2.6m USDC gap needed to handle everyone. In case more is redeemed, the protocol could use the obtained EUROC from the swap to sustain agEUR’s peg.

Once again, all the four options are meant to be transitory options, to use at most till a Core module V2 is live and running.

Voting Options

1. Unpause agEUR burn Unpause agEUR burn on the Core Module, allowing to sell agEUR to the protocol at 1€.
2. Unpause mint & burn of agEUR Unpause agEUR mint and burn on the Core Module, allowing to buy and sell agEUR to the protocol at 1€.
3. Maintain peg on Curve Provide EUROC liquidity to the Curve agEUR-EUROC pool, allowing to sell agEUR at 1€ against EUROC on the pool.
4. Unpause burn + Curve peg Mix options 1 and 3 and maintain peg by unpausing agEUR burn on the Core Module and providing EUROC liquidity to the Curve agEUR-EUROC pool.

Given the fact that keeping a depegged agEUR is harmful to the protocol, this vote is going to last for a limited timeframe.