Subscribe to Angle Protocol | Learn About Stablecoins
<100 subscribers
Subscribe to Angle Protocol | Learn About Stablecoins
<100 subscribers
Share Dialog
Share Dialog
Over the last few months, the supply of stablecoins has been growing at an unprecedented rate and the overall volume of stablecoins is expected to drastically increase in the next months and years. With a huge unbanked and underbanked population globally, people and businesses looking for faster, and cheaper ways of sending payments across borders, as well as with the ever increasing number of institutional investors and retail companies looking to access crypto/blockchain services like DeFi, stablecoins have indeed huge potential for growth.
A good summary of the current situation with stablecoins can be found in Joey Santoro’s FEI whitepaper: “Fiat-collateralized stablecoins like USDC and USDT are centrally controlled. This represents a regulatory risk and a point of failure for apps wishing to be truly decentralized. Crypto-collateralized stablecoins like DAI have scalability issues due to capital inefficiency”. There are several decentralized and capital efficient designs, but they tend to rely on under-collateralized protocols, and like Iron Finance showed it in June or Basis Cash in the past, these designs are not bank run resistant and can still be subject to heavy liquidity crises.
Furthermore, except for some protocols like Synthetix, most stablecoin solutions are Dollar centered and do not scale to multiple assets. There is for instance no liquid stable Euro so far. The consequence is that people from Europe using Euro in their daily lives are subject to a value change risk when interacting with DeFi where everything is denominated in dollar.
In short, there is no stablecoin solution that is scalable, liquid, capital-efficient, robust, decentralized and that is thus perfectly suited for a fully decentralized finance. That is the reason why at Angle we spent time thinking about what could be the best design for a stablecoin protocol. After months of research, we are proud to introduce Angle’s protocol: a capital-efficient yet over-collateralized design for decentralized stablecoins.
Angle’s decentralized solution remedies the flaws of current approaches and makes the best of centralized and decentralized protocols. It also has the robustness of over-collateralized designs while maintaining the capital efficiency of under-collateralized ones.
Angle innovates by enabling people to swap at a 1:1 rate with no slippage collateral against stable assets and stable assets against collateral: with 1 Euro worth of collateral, you can get 1 stablecoin, and with 1 stablecoin you can always redeem 1 Euro worth of collateral.
The protocol involves 3 groups, very common in other DeFi protocols, which all benefit from Angle:
💱 Stable Seekers and Holders (or Users) who mint, use or burn stable assets
🛡 Hedging Agents (HAs) who can get on-chain leverage under the form of perpetual futures in just one transaction from the protocol and by doing so insure the protocol against the volatility of its collateral
🍀 Standard Liquidity Providers (SLPs) who bring extra collateral to the protocol and automatically earn interests, transaction fees and rewards.
Angle will be able to support many different stablecoins, each backed by different collateral types. It will start with a stable Euro backed by USDC and DAI.
Angle’s design basically allows anyone to easily issue and burn stable assets in a capital efficient manner at oracle value with no slippage on the price and with small transaction fees.
For a Euro stablecoin backed by USDC and DAI with zero transaction fees, if you give the Angle protocol 2000 USDC worth 1800 Euros, you get 1800 tokens. At a later point in time, you can go back to the protocol with your 1800 tokens and you get 1800 Euros worth of collateral, meaning that if the price 1 EUR is now worth 1.2 USD, you can get 2160 (= 1800 * 1.2) USDC or 2160 DAI.
This convertibility is what makes the tokens issued really stable. Profitable arbitrage opportunities arise whenever the market price of the token deviates from peg and there is no need for an active governance to maintain peg.
The key question: how does the protocol manage to always have enough
collateral to sustain this convertibility?
Over the last few months, the supply of stablecoins has been growing at an unprecedented rate and the overall volume of stablecoins is expected to drastically increase in the next months and years. With a huge unbanked and underbanked population globally, people and businesses looking for faster, and cheaper ways of sending payments across borders, as well as with the ever increasing number of institutional investors and retail companies looking to access crypto/blockchain services like DeFi, stablecoins have indeed huge potential for growth.
A good summary of the current situation with stablecoins can be found in Joey Santoro’s FEI whitepaper: “Fiat-collateralized stablecoins like USDC and USDT are centrally controlled. This represents a regulatory risk and a point of failure for apps wishing to be truly decentralized. Crypto-collateralized stablecoins like DAI have scalability issues due to capital inefficiency”. There are several decentralized and capital efficient designs, but they tend to rely on under-collateralized protocols, and like Iron Finance showed it in June or Basis Cash in the past, these designs are not bank run resistant and can still be subject to heavy liquidity crises.
Furthermore, except for some protocols like Synthetix, most stablecoin solutions are Dollar centered and do not scale to multiple assets. There is for instance no liquid stable Euro so far. The consequence is that people from Europe using Euro in their daily lives are subject to a value change risk when interacting with DeFi where everything is denominated in dollar.
In short, there is no stablecoin solution that is scalable, liquid, capital-efficient, robust, decentralized and that is thus perfectly suited for a fully decentralized finance. That is the reason why at Angle we spent time thinking about what could be the best design for a stablecoin protocol. After months of research, we are proud to introduce Angle’s protocol: a capital-efficient yet over-collateralized design for decentralized stablecoins.
Angle’s decentralized solution remedies the flaws of current approaches and makes the best of centralized and decentralized protocols. It also has the robustness of over-collateralized designs while maintaining the capital efficiency of under-collateralized ones.
Angle innovates by enabling people to swap at a 1:1 rate with no slippage collateral against stable assets and stable assets against collateral: with 1 Euro worth of collateral, you can get 1 stablecoin, and with 1 stablecoin you can always redeem 1 Euro worth of collateral.
The protocol involves 3 groups, very common in other DeFi protocols, which all benefit from Angle:
💱 Stable Seekers and Holders (or Users) who mint, use or burn stable assets
🛡 Hedging Agents (HAs) who can get on-chain leverage under the form of perpetual futures in just one transaction from the protocol and by doing so insure the protocol against the volatility of its collateral
🍀 Standard Liquidity Providers (SLPs) who bring extra collateral to the protocol and automatically earn interests, transaction fees and rewards.
Angle will be able to support many different stablecoins, each backed by different collateral types. It will start with a stable Euro backed by USDC and DAI.
Angle’s design basically allows anyone to easily issue and burn stable assets in a capital efficient manner at oracle value with no slippage on the price and with small transaction fees.
For a Euro stablecoin backed by USDC and DAI with zero transaction fees, if you give the Angle protocol 2000 USDC worth 1800 Euros, you get 1800 tokens. At a later point in time, you can go back to the protocol with your 1800 tokens and you get 1800 Euros worth of collateral, meaning that if the price 1 EUR is now worth 1.2 USD, you can get 2160 (= 1800 * 1.2) USDC or 2160 DAI.
This convertibility is what makes the tokens issued really stable. Profitable arbitrage opportunities arise whenever the market price of the token deviates from peg and there is no need for an active governance to maintain peg.
The key question: how does the protocol manage to always have enough
collateral to sustain this convertibility?
When someone comes to the protocol and gives collateral for stablecoins, the protocol is subject to the volatility of this collateral relative to the acquired stablecoin. While surges in collateral prices can be beneficial to the protocol in this case, drops are less desirable as the protocol gets under-collateralized. To insure the protocol against the volatility of the collateral used to back stablecoins, Angle created a way to transfer the volatility to other actors willing to get leverage on collateral: the Hedging Agents (HAs). These people get perpetual futures from the protocol. By doing so, from their perspective, they just get leveraged on the evolution of the price of the collateral relative to the stablecoin it’s backing. But, from a protocol perspective, they insure the system against drops in collateral price, making sure that the protocol has always enough reserves to reimburse stable holders.
The flow for HAs is that they come to Angle, bring some collateral and choose the amount of collateral from stable seekers they want to cover. With their initial investment they take all the volatility of the larger amount they are backing, obtaining leveraged earnings in case of a price increase, but incurring leveraged losses when price goes down.
For the sake of the example, assume, like planned on our roadmap, that Angle also accepts ETH as collateral for its stable Euro.
If 1 ETH worth 2000 Euros is brought by someone to issue 2000 tokens, and if there is one HA bringing 0.5 ETH and committing to the variation of the 1 ETH from the owner of the tokens. When withdrawing her money the HA will get her 0.5 ETH plus the capital gains from the 1 ETH she accepted to cover.
For instance, if the price of ETH doubles from 2000 to 4000 Euros, then, the HA will get her 0.5 ETH plus the capital gain (in ETH) she would have made if she had owned the 1 ETH she covered thus 2000 Euros worth of ETH that is 0.5 ETH at current price. In the end, she will get 1 ETH from her 0.5 ETH, thus getting 4000 Euros from her initial 1000 Euros.
The protocol now owns only 0.5 ETH but it does not matter because it is sufficient to cover the 2000 tokens that have been minted: these can be exchanged for 0.5 ETH at the current market price.
Similarly, if the price of ETH decreases by 25%, then a HA withdrawing will get her 0.5 ETH minus the capital loss of the 1 ETH she covered, which is 500 Euros, worth 0.333 ETH at the new market price. The HA will therefore only be able to get 0.1667 ETH back. The protocol owns 1.333 ETH, which is sufficient to guarantee a stability with the stable assets in circulation. Note that the HAs we are describing here are similar to some vaults owners on Maker or borrowers on Compound: they are people willing to get leverage. But they can do this with the multiple they want and directly without needing several transactions for this. In Angle’s case, you just have to come to the protocol, tailor your perpetual futures to fit your needs and end-up with the leverage multiple of your choice.
In short Hedging Agents:
Take the volatility of the collateral that was brought by stable seekers
Insure the protocol against price drops
Get direct leveraging contracts with the protocol taking the form of perpetual futures
In the example from above, 1:1 convertibility between stablecoins and collateral could be sustained at all times because there were HAs always covering exactly the variations of the collateral brought by stable seekers.
Yet, at a given point in time, especially after new users come in, or HAs exit, there may be mismatches. Not all users’ positions may be covered and there may not be a full demand for the protocol’s offer in volatility taking the form of perpetual futures. A new type of liquidity providers is therefore needed to account for these temporary imbalances and to serve as a buffer between users and HAs.
Standard Liquidity Providers (SLPs) are the buffer for the moments when Hedging Agents do not fully insure the collateral that was brought by users for the protocol.
They entrust Angle with their liquidity and like liquidity providers in other protocols (Compound, Uniswap, Aave), they automatically get yield on the assets they brought. The risk for them is to incur a slippage when the protocol is not well collateralized and they want to cash out.
In exchange for lending their collateral and taking a small risk, SLPs receive part of the transaction fees that are paid by stable seekers interacting with the protocol.
Also, at each point in time, the protocol owns reserves from stable seekers which minted stablecoins, from HAs and from SLPs. In order to accumulate some yield on it and create a surplus for the protocol, these reserves can be lent to protocols like Compound or Aave or used in strategies similar to Yearn vaults. Angle’s first strategy will for instance involve optimizing for the best APY between Compound and Aave.
Part of such lending interests can be given to SLPs, which get an interesting multiplier effect. Let’s say that there is 150 USDC in the protocol, out of which 50 comes from SLPs. If everything is lent, then interests on 150 USDC will be received, but these interests will be given to the SLPs which only brought 50 USDC, meaning that they will receive 3 times the interests that they would get by lending directly to Compound. The fewer SLPs there are, the more interesting it is to be a SLP as a same amount of returns are shared among a smaller group.
In short, Standard Liquidity Providers:
Deposit collateral in the protocol and automatically accrue interests on it
Serve as a buffer between stable holders and HAs
Can get higher yield than what they would get by directly going to Compound, Aave or even Yearn because of the multiplier effect we described
The protocol will be fully decentralized in the end and will rely on its ANGLE governance token. The ANGLE token is going to be distributed through a bonding curve and through staking contracts released after launch to allow for a broad and fair access to ANGLE.
The design of the system makes it governance-minimized and it could work completely autonomously as the protocol’s tokens stability does not requany active intervention by governance.
As discussed above, the Angle Protocol has key advantages over existing stablecoin models: capital efficiency, deep liquidity, robustness to bank runs, strong stability even without intervention from an active governance.
We will soon be releasing a series of articles where we dive deeper into different stablecoins designs and see how Angle compares to it. In a nutshell:
Even more than improving over existing stablecoin protocols, Angle reunites in a single protocol most of 2021 DeFi in an attractive way: easy to mint and burn stablecoins, yield farming with more important yield than conventional lending platforms, flexible leveraging and perpetual futures in just one transaction.
The Angle Protocol is still under development by its Core Team and Community. We are currently heavily stress-testing the protocol on Kovan and Rinkeby, running some bots on the contracts.
The audit of the smart contracts will start on the 26th of July. A beta testnet version will be released in August to allow everyone to interact with the protocol.
We hope to launch in October 2021 on Ethereum mainnet with a Euro stablecoin backed by USDC and DAI. We will expand soon after launch to other collateral types (like ETH) and also new stablecoins.
As we get closer to launch, we will release more details on the protocol and how to participate!
In the meantime, any help and initiative to support the protocol is more than welcome! There is a large number of ways to build decentralized stablecoins, and we, at Angle, see the stablecoin space as a large playground where we explore ways to make a cool, sustainable and robust design! We count on the help of our community to help us make Angle the ultimate stablecoin protocol for DeFi.
The forward-looking statements in this announcement are subject to numerous assumptions, risks and uncertainties which are subject to change over time. Such assumptions, risks and uncertainties could cause actual results or developments to differ materially from the results and developments anticipated by Angle Labs, Inc. Even if our anticipated results and developments are realized, such results and developments may nevertheless fail to achieve any or all of the expected benefits anticipated by this announcement. We reserve the right to change the plans, expectations and intentions stated and implied herein at any time and for any reason or no reason, in our sole and absolute discretion, and we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
This announcement is not intended to provide legal, financial or investment or other advice and we recommend that you do not rely on, and do not make any financial or other decision based, on this announcement.
When someone comes to the protocol and gives collateral for stablecoins, the protocol is subject to the volatility of this collateral relative to the acquired stablecoin. While surges in collateral prices can be beneficial to the protocol in this case, drops are less desirable as the protocol gets under-collateralized. To insure the protocol against the volatility of the collateral used to back stablecoins, Angle created a way to transfer the volatility to other actors willing to get leverage on collateral: the Hedging Agents (HAs). These people get perpetual futures from the protocol. By doing so, from their perspective, they just get leveraged on the evolution of the price of the collateral relative to the stablecoin it’s backing. But, from a protocol perspective, they insure the system against drops in collateral price, making sure that the protocol has always enough reserves to reimburse stable holders.
The flow for HAs is that they come to Angle, bring some collateral and choose the amount of collateral from stable seekers they want to cover. With their initial investment they take all the volatility of the larger amount they are backing, obtaining leveraged earnings in case of a price increase, but incurring leveraged losses when price goes down.
For the sake of the example, assume, like planned on our roadmap, that Angle also accepts ETH as collateral for its stable Euro.
If 1 ETH worth 2000 Euros is brought by someone to issue 2000 tokens, and if there is one HA bringing 0.5 ETH and committing to the variation of the 1 ETH from the owner of the tokens. When withdrawing her money the HA will get her 0.5 ETH plus the capital gains from the 1 ETH she accepted to cover.
For instance, if the price of ETH doubles from 2000 to 4000 Euros, then, the HA will get her 0.5 ETH plus the capital gain (in ETH) she would have made if she had owned the 1 ETH she covered thus 2000 Euros worth of ETH that is 0.5 ETH at current price. In the end, she will get 1 ETH from her 0.5 ETH, thus getting 4000 Euros from her initial 1000 Euros.
The protocol now owns only 0.5 ETH but it does not matter because it is sufficient to cover the 2000 tokens that have been minted: these can be exchanged for 0.5 ETH at the current market price.
Similarly, if the price of ETH decreases by 25%, then a HA withdrawing will get her 0.5 ETH minus the capital loss of the 1 ETH she covered, which is 500 Euros, worth 0.333 ETH at the new market price. The HA will therefore only be able to get 0.1667 ETH back. The protocol owns 1.333 ETH, which is sufficient to guarantee a stability with the stable assets in circulation. Note that the HAs we are describing here are similar to some vaults owners on Maker or borrowers on Compound: they are people willing to get leverage. But they can do this with the multiple they want and directly without needing several transactions for this. In Angle’s case, you just have to come to the protocol, tailor your perpetual futures to fit your needs and end-up with the leverage multiple of your choice.
In short Hedging Agents:
Take the volatility of the collateral that was brought by stable seekers
Insure the protocol against price drops
Get direct leveraging contracts with the protocol taking the form of perpetual futures
In the example from above, 1:1 convertibility between stablecoins and collateral could be sustained at all times because there were HAs always covering exactly the variations of the collateral brought by stable seekers.
Yet, at a given point in time, especially after new users come in, or HAs exit, there may be mismatches. Not all users’ positions may be covered and there may not be a full demand for the protocol’s offer in volatility taking the form of perpetual futures. A new type of liquidity providers is therefore needed to account for these temporary imbalances and to serve as a buffer between users and HAs.
Standard Liquidity Providers (SLPs) are the buffer for the moments when Hedging Agents do not fully insure the collateral that was brought by users for the protocol.
They entrust Angle with their liquidity and like liquidity providers in other protocols (Compound, Uniswap, Aave), they automatically get yield on the assets they brought. The risk for them is to incur a slippage when the protocol is not well collateralized and they want to cash out.
In exchange for lending their collateral and taking a small risk, SLPs receive part of the transaction fees that are paid by stable seekers interacting with the protocol.
Also, at each point in time, the protocol owns reserves from stable seekers which minted stablecoins, from HAs and from SLPs. In order to accumulate some yield on it and create a surplus for the protocol, these reserves can be lent to protocols like Compound or Aave or used in strategies similar to Yearn vaults. Angle’s first strategy will for instance involve optimizing for the best APY between Compound and Aave.
Part of such lending interests can be given to SLPs, which get an interesting multiplier effect. Let’s say that there is 150 USDC in the protocol, out of which 50 comes from SLPs. If everything is lent, then interests on 150 USDC will be received, but these interests will be given to the SLPs which only brought 50 USDC, meaning that they will receive 3 times the interests that they would get by lending directly to Compound. The fewer SLPs there are, the more interesting it is to be a SLP as a same amount of returns are shared among a smaller group.
In short, Standard Liquidity Providers:
Deposit collateral in the protocol and automatically accrue interests on it
Serve as a buffer between stable holders and HAs
Can get higher yield than what they would get by directly going to Compound, Aave or even Yearn because of the multiplier effect we described
The protocol will be fully decentralized in the end and will rely on its ANGLE governance token. The ANGLE token is going to be distributed through a bonding curve and through staking contracts released after launch to allow for a broad and fair access to ANGLE.
The design of the system makes it governance-minimized and it could work completely autonomously as the protocol’s tokens stability does not requany active intervention by governance.
As discussed above, the Angle Protocol has key advantages over existing stablecoin models: capital efficiency, deep liquidity, robustness to bank runs, strong stability even without intervention from an active governance.
We will soon be releasing a series of articles where we dive deeper into different stablecoins designs and see how Angle compares to it. In a nutshell:
Even more than improving over existing stablecoin protocols, Angle reunites in a single protocol most of 2021 DeFi in an attractive way: easy to mint and burn stablecoins, yield farming with more important yield than conventional lending platforms, flexible leveraging and perpetual futures in just one transaction.
The Angle Protocol is still under development by its Core Team and Community. We are currently heavily stress-testing the protocol on Kovan and Rinkeby, running some bots on the contracts.
The audit of the smart contracts will start on the 26th of July. A beta testnet version will be released in August to allow everyone to interact with the protocol.
We hope to launch in October 2021 on Ethereum mainnet with a Euro stablecoin backed by USDC and DAI. We will expand soon after launch to other collateral types (like ETH) and also new stablecoins.
As we get closer to launch, we will release more details on the protocol and how to participate!
In the meantime, any help and initiative to support the protocol is more than welcome! There is a large number of ways to build decentralized stablecoins, and we, at Angle, see the stablecoin space as a large playground where we explore ways to make a cool, sustainable and robust design! We count on the help of our community to help us make Angle the ultimate stablecoin protocol for DeFi.
The forward-looking statements in this announcement are subject to numerous assumptions, risks and uncertainties which are subject to change over time. Such assumptions, risks and uncertainties could cause actual results or developments to differ materially from the results and developments anticipated by Angle Labs, Inc. Even if our anticipated results and developments are realized, such results and developments may nevertheless fail to achieve any or all of the expected benefits anticipated by this announcement. We reserve the right to change the plans, expectations and intentions stated and implied herein at any time and for any reason or no reason, in our sole and absolute discretion, and we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
This announcement is not intended to provide legal, financial or investment or other advice and we recommend that you do not rely on, and do not make any financial or other decision based, on this announcement.
No comments yet