Reserve Fund diversification considerations and Angle Protocol stUSD

General
1

Applicant information

Name: Angle Protocol and stUSD passive income solution

Key information:

  • stUSD is a savings solution built on top of the USDA decentralized stablecoin by the Angle Protocol. It seeks to offer a yield that is the best of the lowest risk TradFi and DeFi yields in a permissionless way.
  • Risk and asset liability management for the reserves handled by Steakhouse, Gauntlet and Re7. Their main goal is to advise the DAo on the optimization of the balance sheet of the stablecoin under solvency and liquidity constraints.
  • Available with no fees from USDC. No lock up period, and withdrawable at any time into USDC with no fees as well.
  • System trustlessly managed by the Angle Protocol and an onchain governance system
  • Built in the aftermath of the USDC depeg, USDA primary modules incorporate strong resilience and anti-depeg mechanisms to limit the impact of a failure in one of the counterparties of the stablecoin and protect stakeholders in such a situation.
  • Transparent and 24/7 real-time monitoring of the reserves available

Expected APY:
From 6% to 25% historically, stabilizing recently at around 8.5%. The APY could go lower, but it should never go below the base RWA yield.

  • 30 day APY: 9.94%
  • 60 day APY: 14.1%

Yields are currently high (even with Angle policy of targeting lowest risk assets) because not all USDA are invested into the stUSD solution, but 90% of ALL the protocol yield earnings (including the earnings made on the USDA that are not in stUSD) are going towards the stUSD passive income solution.

Underlying assets
These can be monitored in real-time from Angle analytics here.
Most of the reserves are made up of:

Note that Angle Euro and USD stablecoins are fully independent stablecoins with independent underlying assets.

Minimum/Maximum transaction size
No minimum and maximum. Yield would be non dilutive here in the sense that the underlying yield sources for the protocol are scalable

Current AUM for asset

  • $27m in TVL for USDA at the moment with 22m USDA in circulation.
  • $54m in TVL for Angle Protocol.

The instant liquidity for USDA to be converted into USDC with no fees at the time of writing is $14m.

Volume metrics
Above TVL acquired in ~3 months (but Angle has been live with its Euro stablecoin for almost 3 years).
The total transaction volume for Angle stablecoins since launch is ~$15bn.

Proposal Summary

Brief outline of the requested allocation of Ethena’s Reserve Fund to your asset/product and benefit to Ethena.

Angle could easily support the whole allocation of the reserve fund assets and the USDT backing of USDe through its scalable infrastructure, yet we understand Ethena’s interest in diversifying their providers and to this extent we can accomodate with an allocation of any size (given that there’s no minimum investment amount in Angle).

One thing to note is that beyond a certain TVL threshold invested into Angle (e.g $20m), we can envision a system where Ethena gets granted some ownership into Angle based on the TVL they contribute to over a given time frame.
Like Ethena with this RFP, Angle’s mission is already to balance between RWA/TradFi sources of yield and DeFi sources of yield (uncorrelated from Ethena) to provide the highest risk adjusted returns without compromising on security or liquidity.
Getting Ethena to “own” a portion of the Angle stablecoin infrastructure could align interest, increase the overall efficiency of the system and avoid doing twice the same optimization + management work which is by the way getting quite commodified.

When it comes to the product details, stUSD is a permissionless, liquid, and scalable savings solution built on top of the battle-tested and proven smart contract systems of the Angle Protocol.

Leveraging different smart contract modules (our price stability module aka the Transmuter, internalized and externalized borrowing systems, as well as direct deposit modules) it is built to offer the best of very low risk DeFi and TradFi yields in a passive way. While Angle counterparties include many of the protocols or systems which should apply to the RFP, Angle mechanisms are designed so users can optimize their returns between TradFi and DeFi sources of yield without any overhead on their side.

The system has undergone multiple smart contract audits, relies on an onchain governance to further reduce trust assumptions and its investment activities into DeFi products work autonomously in an automated way.

While the yield offered on the stUSD is important, there are two other priorities which prevail for the system: solvency and yield.
USDA and stUSD come with a $3.5m equity buffer (equity to liability ratio of 11% - one of the highest in the space) to protect stakeholders in case of an unforeseen event.
We also work with Steakhouse and Gauntlet on the asset liability + risk management of the protocol to ensure that solvency can be maintained in all circumstances, that the allocation policies across the different underlying assets of the system are sound and that the stablecoin remains a liquid asset which can be sold with size instantly by anyone if needed.

stUSD is designed to be a safe, transparent, reliable and secure, deeply liquid (same liquidity as USDC) passive income solution into which anyone can get in or get out at any time with no fees.
It is available across different chains (Ethereum, Optimism, Arbitrum and Base). On Ethereum, Arbitrum, and Base, users can get in the product with no fees from USDC in a single transaction and they can also redeem USDC from the protocol directly from stUSD.

Supplementary docs:

Basics and background

How will this allocation improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?

The goal for Ethena is to optimize the earnings it makes on its assets without harming the whole security of the system (=staying solvent) and remaining a highly liquid asset which can easily be redeemed. To this end, in the yield optimization process, it should tap into highly liquid products to ensure that it can painlessly handle significant drawdowns in its market cap all while continuously earning.
With stUSD, Angle provides a yield source that is uncorrelated with Ethena (the protocol has so far no exposure to USDe) and that is derived from the RWAs that the protocol earns on its backing and the low risk DeFi strategies it performs (lending USDC/USDA on Morpho).
The solution is designed so there are no frictions to get in, get out or access the yield. stUSD is a yield bearing token obtained by staking USDA (which can be minted with no fees from USDC), and the stUSD yield accrues block by block. You may stay a block into stUSD and earn 12s worth of yield.

Beyond this yield component, Angle is firstly managed to optimize for solvency and liquidity.
While the USDC deposited into Angle are used to buy tokenized securities, or to invest in the lowest risk DeFi protocols, a portion is always kept as a liquidity buffer to provide a facility for people to exit the protocol if they want to at any time. Most of the yield investments of the protocol are also highly liquid and redeemable at T+0 (this is typically the case for the steakUSDC held by Angle).
With all this, USDA holders can redeem instantly, in a permissionless manner, in a single transaction for USDC.
In the Ethena setting here, you could even build contracts on top of Angle so anyone can by launching a permissionless transaction pull funds from Angle and release USDC/USDT for users who would be looking to burn USDe. The important aspect to note here is that it could increase the trustlessness in the management flow for USDe operations, reduce the operational overhead for the team at the Foundation which wouldn’t need to manually ask for the redemptions when needed.
In case there are several layers of products chosen through this RFP, Angle and stUSD could make up the first layer, that is to say the first one that is sold in case of an emergency on the Ethena protocol.

Overall, the idea with stUSD, like many other DeFi native first assets, is to increase the efficiency for Ethena’s reserve management by earning a yield without compromising on liquidity.
Asset allocation breakdown is transparent (available here 24/7) and is not meant to change in the short term (beyond the eventual addition of USDM in the backing), which means that stakeholders get a full predictability in terms of where the funds are allocated and what their counterparties are and will be.
Contrarily to many other DeFi native assets, the RWA + DeFi components combined in Angle stUSD guarantee a lower bound on the APY provided that is on par with RWA yields and DeFi base lending yields.
On top of this, stUSD is available across many different chains (and can be minted there with no fees from USDC). This means that if Ethena started to accumulate a treasury on other chains, the flow of what’s built on Ethereum could also be useful there.

Last thing here is that the mechanisms behind USDA were designed in the aftermath of the USDC depeg. Black swan events like the USDC depeg happen, and protocols need to have systems in place to ensure that every stakeholder can get a full predictability of the behavior of their protocols in these situations (independent from any governance output), that these systems guarantee a fair treatment to stakeholders and that these protocols cannot get arbitraged by insiders in these situations (like what happened to Maker’s DAI during the USDC depeg). Angle transmuter mechanism (which docs can be found here) is the solution to all this, and ensures fairness, efficiency, resilience, and robustness in the face of black swan events.

Please describe any experience your firm has in working with decentralized organizational structures

Angle is itself a decentralized stablecoin protocol, so all our processes are built to enable us to work with other decentralized organizational structures.
To integrate our USDA and EURA stablecoins across different venues, we’ve already had to navigate processes with DAOs, and handle performance reporting with the stakeholders we were involved with.
The last example is the STIP allocation that Angle received from the Arbitrum DAO and where we consistently gave reports for our grant, and gave back the ARB incentives we had received but not used with the protocol.

Angle Labs, one of the main contributors of the Angle Protocol also operates the Merkl product that many decentralized organization (like the Uniswap, Arbitrum, Optimism, or Lido foundations) use for their onchain incentives. We consistently provide them with reports on the output of their campaigns.

What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?

Angle is a decentralized stablecoin protocol behind 2 stablecoins, EURA & USDA. While the backing of the stablecoins is independent, the cumulative TVL across the 2 stablecoins is at the time of writing $55m. There are 22m USDA in circulation and 11m USDA are so far invested into the stUSD passive income solution across Ethereum, Optimism, Arbitrum and Base.

The full breakdown of which assets are held and where is available in our analytics here.

Legal design

Do holders of your product have any shareholder, investor, creditor or similar rights?

USDA and stUSD are trust-minimized, pure DeFi products with no corresponding legal rights or responsibilities.
That being said, in the Transmuter system of the protocol, there is a function which guarantees a redemption right for USDA. Any USDA can be redeemed for a portion of the assets which make up the backing of the protocol.

Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.

There is no contractual agreement between depositors and Angle Protocol. While its the goal of the protocol and its stakeholders to minimize risk as much as possible and reduce trust assumptions to the maximum extent, Angle is not liable for anyone’s deposits and there are also no lockup or deposit contracts between the parties.
Deposits into Angle are permissionless and there is no onboarding required. This is a pure Defi product, USDA holders remain in control at any time.

How would the proposed allocation be treated in a bankruptcy or insolvency situation?

Angle was designed with specific fallback modes when bankruptcy or insolvency situations.
What needs to be prevented in these cases is bank runs and first arrived first served situations where the first to exit can get $1 for their stablecoins while the last few ones will get $0.
Angle breaks the sequentiality mechanisms in these cases by automatically preventing burning the stablecoins for individual assets in the reserves when an asset in the backing depegs.

In these situations, users would be able to redeem with their USDA a portion of all the assets in the backing in Angle Transmuter. This ensures that everyone is handled the same way and can earn in this case a fair value of collateral for their stablecoins.

If Angle Labs or other contributors to the protocol were to go bankrupt, the protocol would continue to work as normal.

Smart Contract/Architecture

How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.

Angle has undergone 5 different audits by Code4rena, Chainsecurity and Sigma Prime among others.
Audit reports can be found here

Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?

Angle USDA and stUSD are permissionless assets, open to anyone who supply USDC in the Transmuter.
The only whitelisting feature in place for the protocol is used within the Transmuter so the protocol never sells tokenized securities to users which are not non-US accredited investors.
Apart from this, there is no blacklisting/whitelisting features in place.

Is the asset/product present on several chains? Are there any cross chain interactions?

Angle stablecoins and passive income solutions are products available across different chains. The rate offered for stUSD, based on the aggregated balance sheet of Angle, is the same across every chain where the protocol is deployed.
For the purpose of this integration, there would be no cross chain interaction needed, and Ethena could directly mint/burn stUSD on Ethereum from USDC there.

For more details around Angle crosschain setup built on top of LayerZero, you may check the docs here. TL;DR is that Angle is built around the idea that it’s not a questions of if bridges are going to fail but rather when and so the system incorporates the fallback systems needed to protect the protocol against a bridge failure.

Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.

stUSD and USDA are integrated across several DeFi platforms, protocols and systems, including:

  • onramp and offramp solutions: Ramp, Holyheld
  • perpetual DEXes as a collateral: d8x, Lynx
  • CeDeFi type of apps for users to easily get access to a yield: Okto, BrightyApp, Stakekit, Nash
  • fixed yield products: Spectra
  • other DeFi apps, DEXes and systems: Exponential, Kinto, ExtraFi, OneArt, Nektar/Enzyme, Nabla Finance, L3x, Galaxy, Goat Protocol, Swing.xyz, Contango, Summer, …

Onchain companies and DAOs also use it as a treasury reserve for the reasons outlined above like Morpho Labs, Angle Labs (of course), Nash and Exponential

How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?

Angle is a decentralized protocol, with distinct roles:

  • a governor role: held by a 24h timelock contract itself controlled by the onchain governance of the protocol. On some chains a 4/6 multisig may share these governing rights with the Timelock contract of the protocol.
  • a guardian role: 2/3 multisig responsible for non sensitive actions (setting non critical parameters, pausing the smart contracts, enforcing the rebalancing rules setup by the protocol)
  • a keeper role: responsible for updating the rate of the savings contract based on the earnings made by the protocol

These roles are meant to update the parameters of the protocol or changing rules, but when no changes are needed, the protocol can function in autopilot.

More details on the protocol governance and access control here.

Is there any custom logic required for your token/product? If so please give any details.

USDA is an ERC20 token that can be minted from the Transmuter (which works like a DEX). The stUSD system which is accruing the yield is a vanilla ERC4626 contract.

Large aggregators like Odos, Paraswap or 1inch all integrate Angle systems and support going from USDC into stUSD back and forth.

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