Proposal to add CVX3EUR as a collateral to borrow MIM

đź’ˇIdea Discussions
1

Context

The 3EUR Pool on Curve is composed of 3 different assets: agEUR (Angle’s decentralized decentralized Euro stablecoin), EURs (Stasis - a centralized Euro stablecoin) and EURt (from Tether).
It is made up in majority of agEUR.

agEUR is the biggest Euro stablecoin in the market. It can be issued from the Angle Protocol in a capital-efficient way and at oracle value using stablecoins like USDC, DAI, FEI and FRAX.

The protocol relies on two different types of liquidity providers to make sure the stablecoin remains convertible against collateral. The protocol makes revenue by taking transaction fees and by using a portion of its collateral in yield strategies.

Currently, the 3EUR Factory Pool on Curve is one of the pools with the biggest volume on the platform. It is also one of the highest yielding pool on Curve. On the same page cvx3EUR is also one of the highest yielding pool on Convex.

agEUR has mostly grown thanks to liquidity mining of its ANGLE token. The token is going to shift model and start looking more like Curve system with a locking mechanism allowing people to lock ANGLE, meaning an important growth of the asset is to be expected.

Motivation

The 3EUR (agEUR + EURt + EURs) Factory Pool on Curve has exploded in liquidity and it would be beneficial both to LPs, agEUR holders and Abracadabra users to have cvx3EUR LP tokens accepted as collateral to borrow MIM.
This would also allow people to get some Euro exposure (through 3EUR) as well as dollar exposure (through borrowed MIM) at the same time. European users could leverage Euro stablecoins to borrow MIM and access DeFi yield and opportunities thanks to that.

This is also a safe asset to accept for Abracadabra as well as an interesting move towards Euro stablecoins which are very likely to grow in 2022.

Like Abracadabra, Angle is a multi-chain protocol (though only stablecoins can be bridged at the moment and there’s no native minting out of Ethereum L1). That would make Abracadabra a strong partner with Angle and its community. Collaborations between agEUR and MIM could therefore be expanded further than on Ethereum mainnet.
agEUR is currently available on Polygon, Solana, NEAR, and hopefully soon on Avalanche, BSC and Fantom.

Proposal

Allow cvx3EUR LP tokens as collateral for borrowing MIM with specifications similar but slightly differing from what’s done with the cvx3Pool:
Maximum Collateral ratio: 85%, Liquidation Fee: 4%, Borrow Fee: 1%, Interest 1.5%

This is however a suggestion and I am sure some community members may be better able to find adapted figures here.

Benefits

  1. Diversifies risks for Abracadabra depositors and for MIM holders as the protocol will start being collateralized by Euro stablecoins, and in particular agEUR, a decentralized, censorship-resistant asset
  2. Potentially higher return on stablecoin staking for Abracadabra depositors
  3. Building a relationship with Angle and agEUR, a protocol which is meant to collaborate with MIM across many chains
  4. Additional revenue from Cauldron fees

Considerations/Risks

Angle is quite new on mainnet - since November 3rd 2021. However everything has been done and is still being worked on to mitigate this risk

  • TVL is over $225m as of writing
  • The protocol is over-collateralized by >130% and it is backed by other USD stablecoins meaning the main risk the protocol is exposed to is the USD/EUR change risk
  • The protocol is insured of a part of its FX risk by what is called hedging agents taking long USD perpetual positions on the collateral owned by the protocol. There is also a ~$60m insurance fund made up of the deposits of other agents called Standard Liquidity Providers
  • The protocol has an active bug bounty program with immune.fi, with a bounty of $500k for critical flaws
  • The code is open source and it has been audited by two different auditors: Chainsecurity and Sigma Prime

There are also risks due to having EURs and EURt in the pool. These are centralized entities for which it is impossible to check whether stablecoins are backed. EURs has been existing for several years now with no failure at any time and EURt relies on Tether infrastructure.

We’re in the process of asking Chainlink to set up our feed agEUR/USD. In the meantime, given that agEUR has a hard peg and is used to stabilize other Euro stablecoins, you can use EUR/USD Chainlink feed (like Rari currently does for agEUR)

Links/Resources

Angle Docs
Source Code
Governance
Angle Audits
Angle Related Contract Addresses
Angle Analytics

5 Likes
2

Awesome proposal from a truly professional team!

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Hello there!

Thank you for the proposal. I will state my biggest worry here, and this is not based on 10 minute googling - hedging EUR/USD on-chain is a problem for everyone in the industry, and I dealt with it throughout Q4 2021. Better to say capital efficient hedging of EUR/USD.

My worry here is that complete market cap of all 3 EUR coins in that CVX pool is 345 million USD. That is a very small market cap for stablecoin, let alone 3 different stablecoins. Their use case in DeFi, other then farming when liquidity mining incentives are there, is non existent.

Second issue is that while having EUR cauldrons would help MIM diversify the risk, I fail to see how in the case where the actual EUR stable is backed by USD Stable. Another issue is that it’s backed by the same centralized USD stable that MIM is trying to “beat”.

I like the idea Angle has, but I think the best possible way to make a EUR stable is to back it by actual EUR through fiat ramps, and maybe some collaboration with a open minded bank/virtual IBANs.

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Hey Federico, thanks a lot for your reply! Some comments here on my side:

  • About the use cases of Euro stablecoins: it’s true that there aren’t much at the moment, but I am convinced that this is going to change as Euro stablecoins will be more integrated across exchanges and in DeFi in general. We’re all trying to solve the chicken and egg problem here, and we all have in mind that there is a real need for Euro stablecoins so kind of confident that real use cases beyond farming will be there soon

  • agEUR is backed by USDC, DAI, FEI and FRAX. So only USDC is stable here. I think there is composability everywhere, so yes it’s true that agEUR is partially backed by a centralized stablecoin, it remains a decentralized protocol run by a DAO. All protocols have to deal in some place with USDC, I guess if we were just relying on DAI we’d still have the same level of dependence on USDC as we do now

  • It’s true that a strong centralized EUR stablecoin would help, but the negative interest rates in the Euro zone + the regulatory hurdles would make it difficult for a solution like this to take over. In the meantime, I think agEUR remains the best alternative when it comes to Euro stablecoins

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Hey guys! Would like to re-open this conversation up!

3EUR has consistently been the biggest Euro pool on Curve! Given the instability of the Forex market in current conditions, I still believe that having a 3EUR cauldron could make a lot of sense for MIM, as a way to diversify the backing collateral

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6

Forex markets will eventually open within defi, when they do, international currencies will have their roll. For now, I don’t think using Eur is complimentary to the platform. I would say, if you can get GRO protocol to issue a PWRD receipt, we could use PWRD as an interest bearing stable coin to deposit as collateral. But this is not too different than cvx3pool other than it has some insurance backing it by Vault protection.

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7

Makes sense, I do however think that protocols would want to be positioned for when Forex will open within DeFi. The question is not if Forex will explode but rather when.

The GRO use case is interesting though!

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