[ARFC] stEUR Onboarding on Aave V3 Ethereum Pool

[MarcZeller]

---

title: [ARFC] stEUR Onboarding on Aave V3 Ethereum Pool
author: @marczeller - Aave-chan Initiative
date: 19-10-2023

Summary

This ARFC proposes the onboarding of stEUR as a collateral-only asset on the Aave V3 Ethereum Pool. stEUR represents staked agEUR, a decentralized EUR-peg stablecoin minted by the Angle Protocol.

Motivation

• Decentralized Stablecoin Diversity: At the ACI, we support the diversity of decentralized stablecoins. EUR stablecoins, in particular, are underrepresented in the ecosystem, and onboarding stEUR can help bridge this gap.

• Growth in a Controlled Environment: While stEUR and agEUR have relatively small market caps (5M$ and 20M$ respectively), onboarding stEUR as a collateral-only asset with limited caps will allow it to grow in a controlled environment, minimizing risks for the Aave protocol.

• Collateral Potential: stEUR, being a staked version of a decentralized EUR-peg stablecoin, presents a promising collateral candidate for Aave.

Specification

• Asset: stEUR
• Contract Address: 0x004626A008B1aCdC4c74ab51644093b155e59A23

Price Feed

For the price feed, we propose implementing a price adapter that calculates the value of stEUR based on the value of agEUR/USD and the exchange rate of agEUR/stEUR.

This replicates precedents such as with sDAI.

Risk Parameters

We propose the following parameters for stEUR onboarding:

Parameter	Value
Isolation Mode	No
Borrowable	No
Borrowable in Iso	No
Stable Borrowing	No
Collateral Enabled	Yes
Supply Cap (stEUR)	3,000,000
Borrow Cap (stEUR)	0
Debt Ceiling	N/A
LTV	70%
LT	75%
LB	8%
LPF	10%
Reserve Factor	20%
Base Rate	0%
Slope 1	8%
Slope 2	80%
Optimal Ratio	80%

Next Steps

1. If consensus on ARFC stage is reached and risk service providers provided feedback on risk parameters, escalate to ARFC snapshot stage.
2. If ARFC snapshot stage outcome is YAE, escalate to AIP stage.

Disclaimer

The Aave-chan Initiative is not presenting this ARFC on behalf of any third party and is not compensated by Angle for creating this ARFC.

Copyright

Copyright and related rights waived via CC0.

[ChaosLabs]

Overview

Chaos Labs supports listing stEUR in Isolation Mode as part of an overarching strategy to increase the offering of AAVE protocol with additional assets. As a low market cap asset, stEUR is susceptible to price manipulation. We recommend listing it with borrow disabled to prevent a dump attack scenario, and an appropriate debt ceiling is crucial to prevent a profitable pump attack.

Liquidity and Market Cap

The stEUR token was introduced by Angle on September 19, 2023, and since its launch, its liquidity has increased to approximately $5 million.

Source: Angle Analytics

At present, stEUR has no liquidity on decentralized exchanges. However, as stEUR can be redeemed seamlessly through the Angle Savings smart contract, we focus on assessing agEUR liquidity.

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of agEUR is ~$19M, and the average daily trading volume is ~$1.7M (CeFi & DeFi).

Liquidation Threshold

To establish the Liquidation Threshold for stEUR, we will examine the price volatility of agEUR, which is a representative indicator of stEUR’s volatility.

Analyzing agEUR price volatility over the past, we observed daily annualized volatility of 46.91% and 30-day annualized volatility of 9.09%.

Considering this volatility and the history of agEUR on other chains, we recommend an LT of 75%.

We recommend listing stEUR as a collateral-only asset as there doesn’t appear to be a clear use case for borrowing it.

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $2M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for stEUR as Medium-High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

Given the ability to mint new stEUR using agEUR, we assess the present liquidity of agEUR to derive stEUR Supply Cap. Based on our evaluation, we recommend a 8% Liquidation Bonus and a derived supply cap of 3M stEUR.

Recommendations

For the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves, we recommend aligning the parameters to FRAX on Ethereum V3.

Following the above analysis, we recommend listing stEUR with the following parameter settings:

Parameter	Value
Isolation Mode	Yes
Borrowable	No
Collateral Enabled	Yes
Supply Cap (stEUR)	3M
Borrow Cap (stEUR)	0
Debt Ceiling	$2M
LTV	70.00%
LT	75.00%
Liquidation Bonus	8.00%
Liquidation Protocol Fee	10.00%
Variable Base	0.00%
Variable Slope1	4.00%
Variable Slope2	75.00%
Uoptimal	80.00%
Reserve Factor	10.00%
Stable Borrowing	Disabled
Stable Slope1	0.50%
Stable Slope2	60.00%
Base Stable Rate Offset	3.00%
Stable Rate Excess Offset	8.00%
Optimal Stable To Total Debt Ratio	20.00%
Flahloanable	Yes
Siloed Borrowing	No
Borrowed in Isolation	No

[jengajojo]

Based on the analysis from @ChaosLabs I support the parameters recommend by them for onboarding stEUR

[Gauntlet]

Should the community wish to list stEUR, Gauntlet recommends the following parameters. We give further color below.

Parameters

Parameter	Recommendation
Isolation Mode	YES
Borrowable	NO
Borrowable in Isolation	NO
Collateral Enabled	YES
Supply Cap	2m
Borrow Cap	N/A
Debt Ceiling	1.5m
LTV	70%
LT	75%
Liquidation Bonus	8%
Liquidation Protocol Fee	10%
Reserve Factor	N/A
Base Variable Borrow Rate	N/A
Variable Slope 1	N/A
Variable Slope 2	N/A
Uoptimal	N/A

agEUR / USD price

stEUR represents staked agEUR on Angle and accumulates native agEUR yield at 5.3% APY and is atomically convertible to agEUR via smart contract. agEUR is inherently overcollateralized by a variety of products, including EURC, USDC, etc.

Isolation Mode

We recommend listing stEUR in isolation mode due to low TVL and circulating supply for agEUR.

Supply caps

We employ our conservative methodology for new asset listings. Given agEUR is pegged to EUR, we consider stEUR as a non-stablecoin. We recommend 2m for the supply cap, limited by 25% depth for agEUR.