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 |