Angle Protocol (stUSD & stEUR) STEP Application - STEP Application

DAO Programs & Initiatives STEP Applications
1

Applicant information

Name: Angle Labs Inc. on behalf of Angle protocol

Address (Headquarters): Trinity Chambers PO Box

**City, State, Postal Code:**4301 Road Town Tortola

Country: BVI

Website: https://www.angle.money/

Primary contact

  • Name: Mariam Kouanda
  • Title:: Head of growth
  • Country: France

Email, Telegram, Forum, & other methods of contact:

  • Telegram: MariamKd
  • Email: mariam.k@angle.money

Key Information

Expected Yield

Please note that this application proposes investments in two separate products:

  • stUSD - currently 20%: Angle Protocol’s yield-bearing USD stablecoin. stUSD is obtained by staking USDA stablecoin and is currently yielding 20% APR.
  • stEUR - currently 6.9% : Angle Protocol’s yield-bearing EURO stablecoin. stUSD is obtained by staking USDA stablecoin and is currently yielding 6.9% APR.

The current average yield of the backing assets of stUSD and stEUR are as follows:

  • For stUSD, the yield comes from:
    • Assets held in the backing (price stability module)
      • steakUSDC currently yielding 7% depending on DeFi rates
      • bIB01: Blackrock ETF of short term US treasury bonds tokenized by Backed Finance yielding approximately 5% over the past year
    • Borrowing interest earned by the protocol from people borrowing USDA on Angle Morpho Blue markets
  • For stEUR, the yield comes from:
    • Assets held in the backing (price stability module):
    • Borrowing interest paid by people borrowing EURA from Angle Borrowing module across different chains

The breakdown of all the yield earnings of the protocol can be found here in Angle Analytics.

The current yields are 20% for stUSD and 6.9% for stEUR thanks to the multiplier effect that Angle’s savings solution benefits from. As explained in Angle documentation, participants in Angle savings solution for a stablecoin are automatically allocated 90% of the yield earnings the protocol makes on the backing of this stablecoin, yet if less than 90% of the stablecoins are in the savings solution, then participants of the savings product may earn more than what they would be earning themselves if they were doing the same strategies as the one of the protocol.

Savings yield therefore varies depending on the utilization rate of Angle savings solutions.

What is the multiplier effect and the utilization rate?

  • utilization rate of the Angle savings contract: The yield that the protocol distributes to stUSD holders comes from the backing of USDA. Currently, only 27% of the USDA is staked into stUSD, this means that the savings contract utilization rate is low and it allows stUSD holders to earn more.
  • earning more with Angle than if the DAO was just holding underlying RWAs: with Angle’s stUSD, users can earn more than what they would otherwise earn by holding the underlying assets/RWAs themselves

Why is the utilization rate low?

The current utilization rates on the stUSD and stEUR are low due to competing DeFi integrations that incentivize USDA and EURA holders to deposit their stablecoins in pools rather than staking them with Angle. For example, USDA supply is largely used on Aerodrome (Base Chain DEX) and Morpho rather than being staked.

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Please note that both stUSD and stEUR are separate products linked to the USDA and EURA stablecoins. The balance sheets of the stablecoins are separated as shown below.

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Expected Maturity

N/A. Angle’s EURA and USDA stablecoins are continuously backed by yield-bearing assets listed below (see Underlying Assets).

Anyone may get in and get out at any point in time from the product. The risk assumptions for holding USDA and stUSD are exactly the same.

Underlying asset

Underlying assets - In respect of USDA

As at 30 April 2024, the reserves of USDA are composed of (visible in real-time in the Angle analytics):

  • Price Stability Module:
    • SteakUSDC: the USDC deposits in the Steakhouse Financial curated Morpho vault, yielding the current DeFi money markets yield (64.70%)
    • IB01: Blackrock ETF of short term US treasury bonds tokenized by Backed Finance (18%)
    • USDC: the Circle USD stablecoin (17.30%)
    • USDA also has a safety surplus of $3M+ to further buffer overcollateralization, and this surplus is called to grow as the protocol grows. This surplus buffer is made up of the profits the protocol has built since its launch in November 2021.
  • Borrowing Facility on Morpho: For USDA, Angle delegated its borrowing facility to a Metamorpho vault curated by Gauntlet by pre-minting USDA in it. This is functionally equivalent to having a borrowing system on its own. The choice to delegate the borrowing infrastructure of USDA to the Morpho system holds benefits in terms of distribution, helps to benefit from the expertise of a reputed third party as Gauntlet and still allows the protocol to manage its risk on Morpho by proposing to adjust debt ceilings. To this date, the protocol has minted $3M USDA in the form of Automatic Market Operations (AMO) for seeding purposes in the Morpho vault curated by Gauntlet. This is always trackable in the real-time analytics and balance sheet provided by Angle. Please also see the Angle governance proposal detailing the borrowing facility set-up and the Angle documentation explaining protocol AMOs.
  • AMO (Automatic Market Operations): To this date, the protocol has also minted USDA for seeding purposes on Uniswap ($5M USDA) in a EURA/USDA Uniswap v3 pool. This is also always trackable in the real-time analytics and balance sheet provided by Angle. Please also see the governance proposal relating to the seeding of that pool and how this reflects within the balance sheet and the Angle documentation explaining protocol AMOs.

Underlying assets - In respect of EURA

As at 30 April 2024, the reserves of EURA are composed of (visible in real-time in the Angle analytics):

  • Price Stability Module:
    • bC3M: Amundi Euro ETF govies tokenized by Backed Finance (43.9%)
    • bERNX: Blackrock ETF of ultrashort bonds tokenized by Backed Finance (45.13%)
    • EURC: the Circle Euro stablecoin (10.97%)
    • EURA also has a safety surplus of $3M+ to further buffer overcollateralization, and this surplus is called to grow as the protocol grows. This buffer comes from the profits the protocol generated since its launch.

Target weights of underlying assets and variations in underlying assets weights

The Angle Price Stability module, also referred to as the Transmuter, functions according to an automatic and advanced rebalancing mechanism that safeguards Angle Protocol from overexposure to any single asset in the backing.

The Price Stability Module also incentivizes market makers to restore stablecoins reserves to their target exposures.

Target collateral weights in USDA (stUSD)
In respect of USDA, a decision voted by Angle DAO provides the current target exposures of assets in the Price Stability Module as follows:

  • 60% exposure to steakUSDC
  • 25% to bIB01
  • 15% to USDC

Target collateral weights in EURA (stEUR)
In respect of USDA, a decision voted by Angle DAO provides that ideal target weight for liquid assets in the form of EURC is 30%.

Minimum and maximum collateral weights in the Price Stability Module
The Angle analytics, in particular the collaterals page, also provides minimum and maximum target exposures for all the collaterals held by Angle.

Minimum/Maximum transaction size

While the Transmuter design can impose caps in terms of what can be minted, there is currently no minimum or maximum transaction size for investing in (1) EURA and stEUR, and (2) USDA and stUSD.

Convertibility of USDA into USDC and instant convertibility from the yield-bearing stUSD to USDC
Please note that USDA has deep liquidity with USDC, and it is possible at all times to mint USDA with USDC at zero (0) fees because and also burn USDA for USDC for zero fees two from the Angle Price Stability Module.

If there is not enough USDC liquidity to handle a burn, market makers may be incentivized to swap the other assets in the USDA backing for USDC. Typically, the steakUSDC held by the protocol can be easily converted into USDC. In general, the protocol seeks to keep >30% in highly liquid assets to enable redemptions to take place instantly.

This module is also integrated to the 1inch and Odos’ aggregators for broader and easier access by all.

Convertibility of EURA into EUROC and instant convertibility from the yield-bearing stEUR to EUROC

Please note that EURA has deep liquidity with USDC, and it is possible at all times to mint EURA with EURC at zero fees and also burn EURA for EURC for zero fees two from the Angle Price Stability Module.

This module is also integrated to the 1inch and Odos’ aggregators for broader and easier access by all.

Current AUM for product

Current AUM for product - USDA

USDA launched 2 weeks ago and now has a total $9.7M TVL.

The underlying yield-bearing assets listed below are of the following TVL in the USDA reserves:

  • steakUSDC: the USDC deposits in the Steakhouse Financial curated Morpho vault, yielding the current DeFi money markets yield (64.7% i.e. $6.26M)
  • bIB01: Blackrock ETF of short term US treasury bonds tokenized by Backed Finance (18% i.e. $1.74M).

For the full list of collaterals in USDA reserves, including non yield-bearing collaterals, please refer to the Underlying Assets section above.

Also, of the 3m USDA pre-minted on Angle Metamorpho vault, approximately 75% of it has been borrowed using wstETH as a collateral, enabling Angle to earn a yield on this.

Current AUM for product - EURA

EURA launched in November 2021 and now has a total $29.8M TVL.

The underlying yield-bearing assets listed below are of the following TVL in the EURA reserves:

For the full list of collaterals in EURA reserves, including non yield-bearing collaterals, please refer to the Underlying Assets section above.

There are also multiple collaterals that have been used to borrow 3.8m EURA, including: wstETH, wBTC and wETH on Ethereum.

Current AUM for issuer

See above in Current AUM for product.

Volume of transactions LTM

Volume of transactions - USDA

196 million of volume have been registered for all USDA-related transactions since launch.

Volume of transactions - EURA

13 billion of volume have been registered for all EURA-related transactions since launch.

Source of first-loss capital

The source of first-loss capital is the equity of the protocol that acts as a buffer in case of unexpected events.

Equity buffer of USDA - $3M+

The equity in USDA is now up to $3.3m. Please see the USDA balance sheet also provided below.

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Equity buffer of EURA - $3M+

The equity in EURA is now up to $3.9m. Please see the USDA balance sheet also provided below.

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Anti bank-run design and fair treatment of all holders in case of black swan event

The USDC depeg in March 2023 has revealed that many decentralized stablecoins were not equipped to handle emergency situations in a fair, automatic and streamlined way for all their holders. That’s why Angle built its unique Price Stability Module: “the Transmuter”.

One of the features built-in in the Transmuter is a redemption feature that ensures fairness in case of unpredictable events.

Imagine if there is token 1 and token 2 in the reserves, and token 2 collapses.

EURA/USDA holders will able to either (i) redeem EURA/USDA for a portion of the reserves (50% of token 1 and 50% of token 2) or (ii) burn EURA/USDA to get one asset of any asset in the reserves but at the price of the collapsed asset + a fee.

This introduces fairness in case of extreme events, some people will not be able to rush and redeem EURA/USDA against “solid” assets and leave the collapsed assets to other holders as we have seen happen in other protocols during the USDC temporary depeg.

Angle’s Transmuter has been built to be the most scalable, resilient and secure stablecoin infrastructure and support USDA’s and EURA’s safe developments.

While this redemption feature provides some strong guarantees in case of a DeFi black swan event, it’s also available at any time which ensures that any stablecoin holder can get a portion of the assets in the backing.

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Basics and background

1. How will this investment improve Arbitrum’s RWA ecosystem?

This investment will improve both the Arbitrum RWA ecosystem and the DAO’s holding in the following ways:

  • Eliminate acquisition costs of RWAs for all: investing in both, or either of stUSD and stEUR, gives the Arbitrum Foundation the ability to save on all acquisition costs and overhead related to investing in RWAs. Indeed, Angle Protocol directly supports the acquisition costs of the RWA with Backed Finance. Minting USDA and EURA to benefit from the yield provided by Backed Finance assets only costs the gas fees associated with the transactions.
  • Liquidity, convertibility and no redemption time with USDC: Please note that USDA and EURA have deep liquidity with USDC and EURC from Circle, and it is possible at all times to mint USDA and EURA with USDC or EURC at zero (0) fees and also burn them for the same tokens for zero (0) fees two from the Angle Price Stability Module.
  • Transparency: choose an audited, auditable and transparent solution with institutional grade transparency standards for its ecosystem with real-time analytics available,
  • Instant yield, no minimum, no lock-up: provide and get access to both RWAs and a USD yield-bearing stablecoin allowing instant yield, minimal fees, no lock-up and no minimum deposit,
  • Earn more: The Arbitrum Foundation will earn more and improve the return of assets of the DAO with stUSD compared to just holding bare RWAs thanks to Angle’s multiplier effect (see explanations on the “utilization rate” above). The stUSD yield will not stay at 20% forever but in any case and given the current and upcoming integrations for USDA, it has a high chance of remaining at least above the base US Treasury yield. In fact, the global policy for the DAO is to offer the best of very low DeFi and TradFi yields through the stUSD product.
  • Reliability: by investing in stUSD and stEUR, the Arbitrum Foundation will choose a system that is based on a reliable and predictable automatic design that favors reliability and access to collaterals onchain in case of a black swan event. The Angle stablecoins are also stablecoins that have been reviewed in light of existing regulations (legal opinion available upon request).
  • Over-collateralization: Thanks to the equity buffer in place for both stablecoins, USDA and EURA are the stablecoins with the highest equity to liability ratio in the industry (19% for USDA, 15% for EURA) ****and therefore the higher relative amount of first-loss capital.

2.Identify key management personnel and individual experience. Also include third parties utilized for managing assets and their qualifications.

Founding team

Angle Protocol was created by 3 French Mathematics and Computer Science engineers (all Stanford alumni, including one Code4rena warden) as follows:

  • Pablo Veyrat

Background: Economics, Mathematics and Computer Science at Ecole Polytechnique and Stanford

  • Picodes

Background: Mathematics and Computer Science at Ecole Polytechnique and Stanford, Code4rena warden

  • Guillaume Nervo

Background: Economics, Mathematics and Computer Science at Ecole Polytechnique and Stanford

These are still contributing to the Angle Protocol through a development entity called Angle Labs.

Key Third Parties

In addition, the protocol is also assisted by:

  • **Steakhouse Financial: Steakhouse** has a proven track record in managing Defi risk and assists the Angle governance in assessing and calibrating the distribution of its reserves. In particular, Steakhouse runs asset liability management advisory for the Angle DAO.
  • Gauntlet: Gauntlet is also a trusted service provider in risk management in DeFi that is currently the curator of a Morpho vault serving as borrowing facility for USDA.
  • Audit firms: Angle is a multi-audited protocol with ongoing bug bounties that puts security at the forefront.

3.Describe any previous work by the entity or its officers/key contributors similar to that requested. References are encouraged.

The Angle team operates the protocol since 2021, initially with (1) EURA (ex agEUR) and stEUR, a yield-bearing stablecoin, and now with (2) USDA and stUSD, its yield-bearing USD stablecoin.

Angle Labs, one of the major contributor to the Angle Protocol, is also behind Merkl the smart incentivization tool that is trusted and used across the Arbitrum ecosystem by major dApps (Uniswap, Camelot, Dopex, Radiant, Gains etc.) and the Arbitrum Foundation itself.

For reference, Angle’s EURA (Euro stablecoin) stablecoin (which is designed with the same Price Stability Module as the USDA) has been chosen by the Celo Foundation treasury as diversification asset.

4.Has your entity or its officers/key contributors been subject to an enforcement action, criminal action, or defaulted on legal or financial obligations? Please describe the circumstances if so.

No.

5.Describe any conflicts of interest for your entity and key personnel.

N/A

6.Insurance coverages, guarantees, and backstops

****The protocol has an equity buffer for each of its stablecoins that acts as a backstop in case of loss of capital/value in the reserve as follows:

  • USDA’s balance sheet has $3.3M equity buffer,
  • EURA’s balance sheet has $3.9M equity buffer;

It’s possible to buy coverage for Angle Products on Nexus Mutual and Insurace. Coverage remains slightly limited though.

7.Historical tracking error in your proposed product, or similar to that being proposed

Angle stUSD and stEUR products are not designed to track a given index or performance. While the overall policy is to offer the best of very low risk TradFi and DeFi yields, historical tracking error is not relevant to this application.

8.Brief reason for above tracking error

N/A

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

The Angle contributors have significant experience working with DAOs and providing services to them both through its stablecoin offering and with the Merkl incentives hub. Notable and/or continued work relationships have been established with:

  • Aave,
  • Lido,
  • Uniswap,
  • Camelot,
  • Radiant,
  • Gains Network,
  • Celo, etc.

Angle itself is also a decentralized DAO with onchain governance, and believes in decentralization as proven by our actions. The Angle governance forum can be found here.

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

As at 30 April 2024, the Angle TVL is $40.1M divided as follows between EURA and USDA:

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11.How many of these assets held are present on Arbitrum One, if any?

As at the above date, $2.4M of TVL related to EURA are on Arbitrum.

Plan design

1.Please describe your proposed product, including a description of the underlying assets and, if more than one asset, the proposed allocation among assets and general investment guidelines. Where appropriate, include targeted maturity mix and credit quality. Attach supplementary documents as appropriate.

USDA’s reserves

In its reserves, relating to USDA, Angle has two yield-bearing assets (for full reserves breakdown see above or visit the analytics) as well as secured debt.

  • SteakUSDC: the USDC deposits in the Steakhouse Finance curated Morpho vault, yielding the current DeFi money markets yield (72.16% i.e. $5.45M)
  • IB01: Blackrock ETF of short term US treasury bonds tokenized by Backed Finance ****(23.02% i.e. $1.74M)

In respect of the RWAs tokenized by Backed held by Angle Protocol

Public information is available in respect of the Blackrock ETF of short term US treasury bonds tokenized by Backed Finance on Backed Finance website as follows:

The Backed IB01 $ Treasury Bond 0-1yr (ticker symbol: bIB01) is a tracker certificate issued as an ERC-20 token. bIB01 tracks the price of the iShares $ Treasury Bond 0-1yr UCITS ETF (the underlying).

The investment objective of the underlying is to track the investment results of an index composed of US Dollar denominated government bonds issued by the US Treasury, with remaining maturities between zero and one year.

In respect of the SteakUSDC assets held by Angle Protocol

These assets are USDC collateral assets held in the Morpho vault curated by Steakehouse.

In respect of the secured loans held on the balance sheet

These are USDA lent on Morpho on a vault that’s curated by Gauntlet.

EURA’s reserves

In its reserves, relating to EURA, Angle has two yield-bearing assets (for full reserves breakdown see above or visit the analytics) as well as secured loans through its Borrowing module.

In respect of the RWAs tokenized by Backed held by Angle Protocol

Public information is available in respect of the bC3M and bERNX bonds tokenized by Backed Finance on Backed Finance website as follows:

bC3M

The Backed GOVIES 0-6 Months Euro Investment Grade (ticker symbol: bC3M) is a tracker certificate issued as an ERC-20 token. bC3M tracks the price of the Amundi ETF GOVIES 0-6 Months EUROMTS Investment Grade UCITS ETF (the underlying).

The investment objective of the underlying is to replicate as closely as possible the performance of the FTSE Eurozone Government Bill 0-6 Month Capped Index. This index measures the performance of short-term sovereign bonds of certain Eurozone States with a maturity between 0-6 months

bC3M is designed to give eligible cryptocurrency market participants regulatory-compliant access to the performance of Eurozone Government bills whilst maintaining the benefits of blockchain technology.

bERNX

The Backed ERNX € Ultrashort Bond (ticker symbol: bERNX) is a tracker certificate issued as an ERC-20 token. bERNX tracks the price of the iShares € Ultrashort Bond UCITS ETF Euro (Acc.) (the underlying).

The investment objective of the underlying is to track the performance of an index composed of Euro-denominated investment grade corporate bonds.

bERNX is designed to give eligible cryptocurrency market participants regulatory-compliant access to Euro-denominated investment-grade corporate bonds performance, whilst maintaining the benefits of blockchain technology.

In respect of the secured debt held as part of the Angle Borrowing module

The protocol holds EURA debt as part of its borrowing module that’s secured by over-collateralized positions in wstETH, wBTC, or wETH. Details on the Angle Borrowing module can be found here.

2.Do investors have any shareholder, investor, creditor or similar rights?

The publicly available legal and product documentation available in respect of Backed assets states that investors have a primary claim to the collateral allocated to the specific product.

In respect of the RWAs tokenized by Backed held by Angle Protocol, please note that comprehensive legal and product documentation is available on the Backed Finance website as follows:

In respect of bIB01

In respect of bC3M

In respect of bERNX

3.Describe the legal and contractual structuring for your product including regulatory bodies overseeing your business and the product and identifying all legal jurisdictions interacting with your product. Attach supplementary documents as appropriate.

The publicly available legal and product documentation available in respect of Backed assets indicates that Backed Assets GmbH, the issuer of the tokenized assets is incorporated in Switzerland. It is provided that the Securities Note relating to bib01 has been approved by the Financial Market Authority Liechtenstein (FMA) as of 9th May 2023, as well as in Switzerland by BX Swiss AG as of 23rd May 2023.

Please refer to the registration document and any additional and/or updated legal documentation available at all times on Backed Finance’s website to complete or ascertain the information provided.

4.Would Arbitrum’s assets be bankruptcy remote from your own entity and its officers/key contributors? If so, please explain the legal and contractual basis. On a confidential, non-reliance basis, provide any third party legal opinions to support the conclusions.

Bankruptcy remoteness of Backed Finance assets held by Angle

Upon review of the Backed documentation and confirmation from the Backed team, all Backed products are bankruptcy remote. bTokens are issued by an SPV, which is legally separated from Backed Finance AG, the tokenizer and the operator of the majority of employment activity. A 1:1 ratio of underlying is maintained at all times. It is supervised by both a “proof-of-reserve”, which is published the collateralization status onchain, and by an appointed security agent, which has the authority to seize the assets on behalf of token holders in case there is any deviation from the commitments the issuer has made.

Direct redemption of assets with Angle Protocol and fairness mechanism in case of unpredictable events.

In any case, Angle allows the direct redemption of underlying collaterals held through its Transmuter (including Backed Finance tokenized assets if one is KYC’s with Backed or Keyring). This redemption feature, detailed here, is strengthened by the fairness mechanism built in the Angle Price Stability Module that prevents any one person from redeeming strong/valuable assets and leaving in the protocol only weak assets for other stakeholders.

5.How are Arbitrum’s assets protected vis-a-vis the bankruptcy of the brokerage or applicable financial institution (e.g., bank deposit insurance, securities insurance, etc.)?

In addition to direct credit risks relating to Backed Finance, the Arbitrum Foundation would be indirectly exposed to credit risks that Backed Finance is exposed to, including credit risks of financial institutions.

6.Does the Issuer issue more than one asset? If so, what is the priority relationship between different asset classes?

Backed Finance issues a diversity of tokenized assets listed here. Based on publicly available information, these assets are held in custody in segregated accounts.

7.Provide a detailed cash flow diagram that shows the flow of funds from ARB/Fiat conversion, investment in underlying asset, payment of expenses, sale of underlying asset, and repayment (Fiat/ARB conversion), including the counterparties and legal jurisdictions involved.

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The cashflow diagram below shows purchases and redemptions from USDC. USDA can be minted with USDC at 0 fees, and with a Circle KYC, Arbitrum can purchase USDC from Circle from fiat USD.

This means that the Arbitrum Foundation will have the ability to:

Mint

  • Use USDC to mint USDA 1:1 through the Angle dApp or aggregators such as 1inch or Odos for zero (0) fees. Only gas fees would be paid.
  • Use EURC to mint EURA 1:1 through the Angle dApp or aggregators such as 1inch or Odos for zero (0) fees. Only gas fees would be paid. Angle can facilitate introductions with Market Makers to acquire EURC with a minimal spread from USDC if needed.

Bridge

  • Bridge USDA to Arbitrum through LayerZero
  • Bridge EURA to Arbitrum through LayerZero

Stake

  • Stake USDA for stUSD and start earning the stUSD yield currently set at 20%.
  • Stake EURA for stEUR and start earning the stEUR yield currently set at 6.9%.

Burn

The stablecoin can be burnt for any asset in the backing, in particular USDC and EURC for respectively USDA and EUROC.

Burning USDA and EURA against RWAs requires that the Arbitrum Foundation be KYC’d with Backed Finance to be able to redeem the tokenized assets against dollars.

6.Describe anticipated tax consequences (if any) in transacting on the underlying and/or receipt of yield.

Tax-related questions shall be addressed with a tax advisor by users and/or investors using USDA and stUSD who are solely responsible for their tax filings and obligations.

7.Describe the process and expected timeline for liquidation of assets, if given instructions to do so by Arbitrum governance.

The Arbitrum Foundation would be able to immediately liquidate all stUSD for USDC and all stEUR for EURC using the Angle Transmuter and/or aggregators such as 1inch or Odos on Ethereum. stUSD is redeemable 1:1 from into USDA on Arbitrum, and USDA can be bridged directly from Arbitrum.

8.What amount of first-loss equity will Sponsor provide to ensure over-collateralization, how is the first-loss equity denominated, and what is the source of capital?

The current amount of first-los equity is $3.3M for USDA and $3.9M for EURA.

These equity buffers are respectively denominated in USDA and EURA. The source of capital is the revenue of the protocol since its deployment.

As at 30 April 2024, the equity to liability ratios of USDA and EURA are as follows:

  • USDA’s equity to liability ratio is 19%
  • EURA’s equity to liability ratio is 15%

9.Describe the liquidity and stability of the proposed underlying assets, including anticipated settlement times from the sale of the underlying to the repayment of ARB.

The main advantages of the Angle savings solution include both liquidity with USDC/EURC (highly liquid and accessible assets) and reliability of the stability mechanism behind Angle:

  • deep liquidity and convertibility of stUSD/stEUR with USDC and EURC: stUSD and stEUR enable access to RWAs-related yield to the Arbitrum Foundation while dealing with USDC and EURC i.e. (1) dealing with mainly the most liquid stablecoin onchain i.e. USDC, and (2) enable the use of Market Makers to swap EUROC for USDC if needed. In addition, instead of solely relying on the liquidity of the tokenized T-bills issued by Backed Finance and held in reserves by Angle, the Foundation will be able to instantly redeem its stUSD for USDC and its stEUR for EUROC. However, if necessary burning the Angle stablecoins for the RWAs directly is also an available option and would be done following Backed Finance settlement times.
  • stability of the underlying assets: The reserves ensuring USDC and EURC stability and collateralization can be monitored through the Circle’s online balance sheets and weekly reserves disclosures available here. In addition, the Backed Finance assets held in reserve by Angle Protocol are also ETFs that are regarded as stable investments with low default risks including short term US T-bills (bIB01); short term eurozone sovereign bonds (bC3M) and ultrashort Euro investment grade corporate bonds (bERNX).

10.If relying on the blockchain for any of the transactional flows, please describe any blockchain derived risks and mitigations.

The following risks (applicable to any DeFi dApps) may be taken into account in this case:

Smart Contract Risk

Angle is built on smart contracts. While these are undergoing regular audits, there may be a fatal error or a vulnerability out there that would leave a portion or all the funds of the protocol to be hacked.

Blockchain Risk

There is also an inherent risk with having smart contracts operating on blockchains which may not be bulletproof. Angle is deployed across multiple chains. If one of the underlying chains gets exploited, or if one of the bridge systems that the protocol leverages is manipulated, then the protocol could be left with a loss and get undercollateralized.

The protocol has a unique security system to mitigate this risk and reduce the relative exposure to a bridge or blockchain hack.

Oracle Risk

Angle is dependent on oracles (Chainlink, Redstone, Pyth among others) to assess the price of the assets it has in its reserves. The protocol has important safeguards in place. Failure of some of the oracles on which the protocol relies may lure the protocol into giving away its assets at a deflated value thus leaving the protocol under-collateralized.

Collateral Risk

Angle stablecoins are backed by collateral assets. Within the Transmuter for instance, these should be denominated in the same currency as that of the stablecoin. For instance, EURA has in its reserves bC3M a tokenized representation of a Euro ETF.

Every collateral of a protocol’s stablecoin may pose some relative risk.

Counterparty Risk

Some of the collateral assets of the protocol (EURC, USDC for instance relating to Circle or tokenized RWAs relating to Backed) are controlled by centralized entities. There is therefore a counterparty risk related to these entities. Bankruptcy remoteness and the ability to claim the underlying assets of the supported collaterals is an important aspect of the collateral selection process.

As part of its direct deposit modules, the protocol invests stablecoins and a portion of its treasury into other protocols (Uniswap, Aave, Morpho for instance). The hack or failure of any of these underlying protocols may lead the protocol to lose funds.

11.Does the product rely on any derivative product (swaps, OTC agreements)?

No.

12.List all the third party counterparties linked to your assets including and not restricted to prime broker if any, custodian, reporting agent, banks for derivatives or loans and provide primary contact details for the third party counterparties

As a reminder EURA and USDA backing is composed of RWA’s tokenized by Backed Finance (Blackrock ETFs), Circle’s stablecoins, and in the case of USDA, USDC deposited the a Morpho vault curated by SteakHouse Finance.

The third parties related to the underlying assets are:

  • Backed Finance and indirectly, the Security Agents and Custodians acting on behalf of Backed Finance
  • Morpho, as decentralized finance protocol
  • Steakhouse Finance, as curator of the Morpho vault whose USDC are admitted as collateral in USDA
  • Circle as stablecoin issuer of USDC and EURC
  • Gauntlet as a curator of a USDA Morpho vault where the protocol minted some USDA
  • Uniswap as a liquidity protocol where Angle seeded some EURA/USDA liquidity pools

13.Can you explain how is risk management (inv and operational) being done? Can you provide a copy of your risk management policy?

Mitigating and monitoring operational risk

Angle’s core contributors and infrastructure setup participate to operational risk mitigation as follows:

  • security: multiple audits and ongoing bug bounties, as well as extensive code testing (fuzz, invariant, unit) on all the protocol smart contracts
  • cross-chain and bridge risk management: Angle has implemented a unique security system that reduces the relative exposure to a bridge or blockchain hack. As part of this system, Angle implements total and hourly limits to further reduce exposure to hacks.
  • internal security processes: the protocol has a “guardian” multisig on each chain on which it is deployed. This guardian multisig is made for time-sensitive situations where it may be necessary to update parameters, pause or unpause contracts functionalities. However please note that the guardian has limited ability to impact the protocol and cannot for example, modify references to an oracle contract and hence manipulate prices to its advantage. Major decision and minor decisions that have not been delegated to the guardian lie with the DAO. Note that it’s this guardian multisig that is responsible for updating the APYs for stEUR and stUSD onchain. The multisig cannot however increase the rate above a threshold defined by governance and decrease it below 0.
  • onchain decentralized governance: Centralization risks can exist within any system, even decentralized protocols. Angle is managed by a fully onchain governance system, where ownership belongs to a Timelock contract with a 24h delay on each chain where the protocol is deployed. Governance attacks can be mitigated by an emergency multisig (4/6) which has the right to veto decisions that are obvious governance attacks. The Timelock contract ensures that even if “bad” policy decisions are taken by Angle DAO members, any stakeholder has the ability to leave the protocol before changes are actually enforced.

Mitigating investment/counterparty/economic risks

The main following points mitigate investment risks with Angle:

  • a design of the price stability module that centers automatic rebalancing of reserves and target weights in order to avoid exposure to certain assets that would exceed recommendations retained during risk assessments,
  • an asset liability management committee with Steakhouse Financial that assesses the risk faced by the DAO and helps Angle governance optimize its balance sheet under hard solvency and liquidity constraints. This committee is what’s behind the recommendation and strict measure of always keeping at least 30% of the backing in liquid assets that can be redeemed/liquidated at T+0. This committee is what performs, on the Transmuter side, most of the collateral onboarding evaluation process.
  • a Borrowing Facility curated by Gauntlet on Morpho.

Performance reporting

1.What are your proposed performance benchmarks? If this is substantially different from the underlying assets, please explain why.

Performance Benchmarks - Underlying assets:

Underlying Assets: The foundational benchmark for both stUSD and stEUR are the yields derived from their respective backing assets:

  • stUSD is backed by the Blackrock IB01, as tokenized ETF by Backed Finance of US Treasury bills, by steakUSDC, as USDC used in a SteakHouse Financial-curated vault and by secured loans on Morpho. The policy for stUSD is to offer the best of very low risk TradFi and DeFi yields.
  • stEUR is backed by two tokenized ETFs, the Amundi C3M (Euro t-bills) and the Blackrock ERNX (ultra short-term corporate bonds), as well as secreted debt

Given that the abovementioned RWA are traditionally lower-yield, highly secure investments, the baseline yields for stUSD and stEUR without any enhancements (from DeFi or from the multiplier effect with Angle) would align closely with the performance of these assets

As a reminder, the abovementioned assets in the backing of stUSD and stEUR have produced the below average yield in the past year:

For stUSD:

  • steakUSDC is a relatively new asset which has provided a yield close to the Aave base lending yield
  • bIB01: Blackrock ETF of short term US treasury bonds tokenized by Backed Finance ****yielding approximately 5% over the past year

For stEUR:

Enhanced Yields through the Multiplier Effect and Utilization Rates in Angle:

The utilization rate refers to the proportion of stUSD and stEUR that are actively earning yields through our savings solutions. A lower utilization rate means fewer coins are in circulation for yield, allowing those in the savings contract to earn a higher return. Due to the current utilization rate, stUSD is currently earning 20% return and stEUR 6.9%. The yield is updated every week following the utilization rate. The Arbitrum Foundation is expected to benefit from the multiplier effect that is created by low utilization rates.

2.Describe the content, format, preparation process, and cadence of performance reports. This should include proof of reserves, if appropriate. Please include a sample report.

Angle Protocol will provide

  • real-time tracking of performance: the real-time tracking of the historical performance of both stUSD and stEUR.
  • real-time tracking of balance sheet and reserves: the Angle analytics provide balance sheet information and all protocol events in real-time.
  • monthly reports: in addition, Angle Protocol will provide a monthly report relating to the balance sheet and performance of the Arbitrum Foundation’s investment.

As an example, please view the section of the Angle App that provides the real-time historical performance tracker of stEUR

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3.Who provides the performance reports in respect of the underlying assets?

Performance reports in respect of the below underlying RWA assets are made available on the publicly available website of Blackrock or Amundi as follows (links provided below):

Performance reports in respect of the Morpho deposits can be tracked across several Morpho analytics.

4.Describe any formal audit process and timing of such audits.

  • Security audits and reviews relating to Angle protocol
  • All third-party reviews that help the protocol with risk assessment (mainly by SteakHouse Financial)
  • In general, thanks to Angle’s unique infrastructure for Real World Assets, it’s possible to audit in real-time the composition of Angle assets and liabilities. Angle Analytics provides a user-friendly way to track this.

Pricing

stUSD and stEUR are the most cost efficient and best earning solution to be exposed to a stable asset and earn yield derived from RWAs.

The only costs associated with investing in stUSD and stEUR will be gas fees and potential spreads in acquiring USDC or EUROC (very unlikely due to deep liquidity).

Investing in stUSD and stEUR does NOT incur any fees for the Arbitrum Foundation relating to the management or acquisition of the underlying RWAs.

stUSD and stEUR are built to receive 90% of the yield the Angle Protocol is earning on its reserves. Given that the APY for stEUR and stUSD is updated by Angle governance once a week, there may be some period where the Angle DAO distributes more or less than these 90%, and this split is in a way the cut that the protocol takes but it can also be seen as a buffer the protocol takes to avoid temporarily over-distributing.

1.Provide a copy of your standard contract, or one similar to what is being proposed here.

N/A. No fees or pricing applicable with the Angle stablecoin savings solution.

2.Fee summary: Inclusive of the full scope of services requested.

N/A. No fees or pricing applicable with the Angle stablecoin savings solution.

3.Describe frequency of fee payment and its position vis-a-vis payment priority compared with other expenses (i.e., cash waterfall)

N/A. No fees or pricing applicable with the Angle stablecoin savings solution.

Smart Contract/Architecture

1.How many audits have you had and name of auditors?

Angle has conducted 5 audits with:

  • Code4rena,
  • ChainSecurity, and
  • Sigma Prime.

All copies of audit reports are available here.

2.Is the project permissioned? If so how are you managing user identities? Any blacklisting/whitelisting features?

The project is not permissioned. Anyone can buy Angle stablecoins directly from the smart contract.

Some features of the protocol are however permissioned. Typically, it’s not possible for addresses that are not KYC-ed with Backed or that haven’t passed their Keyring KYC to redeem tokenized securities (e.g the RWAs) from the Transmuter.

Some interfaces building on top of the protocol, like the one developed by Angle Labs, have out of caution put restrictions in place to prevent users from some countries like the US or other sanctioned countries from interacting with the protocol.

3.Is the product present on several chains? Are there any cross chain interactions?

Angle stablecoins are currently available on 12 different blockchains including but not limited to Arbitrum, Polygon, Optimism, Base, Celo, Ethereum, Avalanche and BNB Chain.

Cross-chain interactions are mainly facilitated through Layer Zero.

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

Backed Finance tokenized assets are available in other protocols and ecosystems such as Morpho, Mauve, BNB Chain, etc. and there are Chainlink feeds available for some of the Backed Finance assets used by Angle.

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

All decisions in Angle protocol are taken by the DAO upon onchain votes by veANGLE holders. Details of the functioning of Angle DAO can be found here. Ownership of the protocol smart contracts is given to a Timelock contract with 24h delay.

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As a reminder, the protocol has a “guardian” multisig on each chain on which it is deployed. This guardian multisig is made for time-sensitive situations where it may be necessary to update parameters, pause or unpause contracts functionalities. However please note that the guardian has limited ability to impact the protocol and cannot for example, modify references to an oracle contract and hence manipulate prices to its advantage. Major decision and minor decisions that have not been delegated to the guardian lie with the DAO.

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

N/A.

Supplementary

  1. Please attach any further information or documents you feel would help the screening committee or ARB tokenholders make an informed decision.

N/A

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