AIP - 9: Scale Euler Algorithmic Market Operations

TL;DR

This is a proposal to scale the protocol's algorithmic market operations on Euler. In particular, the proposal is to give a mandate to the governor multisig to mint/burn agEUR from/to Euler to make sure that the borrowing cost remains inferior to 3%.

Proposal includes a cap on the agEUR minted from this medium equal to 10% of the agEUR circulating supply.

Details on the proposal

If the borrowing cost is superior to 3.5%, agEUR will be minted to Euler, and if it goes inferior to 2.5%, the protocol will withdraw agEUR from Euler.

These operations are planned to be done manually by the governor multisig and not programmatically in the first place, as such there may be some latency in implementing the mint/burn.

Context

The Angle Protocol has already minted 1m agEUR on Euler as part of its algorithmic market operations, in order to boostrap the agEUR market here. Lending/borrowing rates have continuously been high with sometimes peak at 7% to borrow.

As a reminder, agEUR minted from AMOs are not technically unbacked: they only come on the open market when they are borrowed under which case they are over-collateralized by the deposits of people who borrowed on Euler.

Added Value to Angle and its users

This will continue the efforts we have made of making agEUR cheap to borrow in multiple places in DeFi.

On top of that, it will increase the revenues of the protocol on its AMOs. Remember that the long term plan with revenues of AMO is to keep a portion to keep agEUR safe, and also to distribute it to other agEUR holders from an agEUR savings rate product.

Risks

The risk from this operation is essentially the Euler risk. If bad debt accrues on Euler, then it will reflect itself in the protocol which would have been making a loss.

Another risk linked to AMO is that if it does not scale well and get too big, then potentially too many agEUR could end up in the open market and it could empty the reserves of the protocol in case people want to burn it for USDC.

This is not a threat to the peg of agEUR per se, as there would be arbitrages possible among borrowers of agEUR to bring the stablecoin back to peg. Like if agEUR price is below 1€, then borrowers would have incentives to buy agEUR on the open market for less than 1€ and repay their debt.

On the other side, they would be incentivized to borrow agEUR for 1€ and sell it for more than 1€ on the open market.

Voting Options

1. For, implement the proposal
2. Against, do nothing