Hey guys,
Pablo from Angle here! Thanks for the initiative here.
The USDC & USDT big opportunity cost
Like some suggested above, I do think that finding ways to earn a yield on the USDC and USDT that are kept idle on the Polygon bridge contract on Ethereum L1.
This wouldn’t be a novel thing to do for a chain and the playbook of Gnosis Chain and Blast kind of speaks for itself.
At current rates and taking for a baseline the 5% risk free from US Tbills (even if in DeFi currently there are ways to get better rates than this), this is approximately:
- $50m that is lost away in yield every year to Tether with the USDT held
- $10m missed out on by holding USDC instead of other yield opportunities.
I’m not that deep into the Polygon DAO to know what’d be the best way to allocate this money, but I just know that there is an easy catch to do, and that one should never say no to at least $60m in revenue on a yearly basis.
Taking advantage of a permissionless yield bearing stablecoin
Ok there’s $60m to be made, but what’s the best way to actually get this knowing that:
- you don’t want to risk funds that are bridged and prevent users from going back to mainnet: what if the USDC/USDT are invested in a protocol that gets hacked or in a centralized solution that leaves with the money? Risk tolerance should be very minimal and I don’t think that the policy should be about going for the maximum yield, but rather the highest risk-adjusted yield
- you want to care for the liquidity of the underlying sources here. Typically let’s say that the USDC investment is solvent but you can only redeem USDC back from what was bridged at T+1, this creates a pretty bad experience for the user bridging back. And so typically, a liquidity buffer needs to be thought of or aim should be for the most liquid products possible (redeemable instantly)
- not all yield products can be accessed permissionlessly. There are many solutions which impose a KYC on the primary market. While tracking customer funds and doing some AML is key to unlock integrations with the “real-world”, this is often inadequate for smooth and permissionless solutions like the Polygon bridge. There are some yield-bearing stablecoins which through an optimistic approach are able to pass these KYC requirements and unlock access to these yield markets.
I’ll be speaking for our own name at Angle, and there may be other solutions to look into, but I want to suggest the Angle USDA stablecoin, with its stUSD yield solution as a candidate for a yield solution if this had to be implemented.
Angle yield solution and stUSD
Angle is a decentralized stablecoin protocol behind 2 stablecoins, USDA and EURA.
Our stablecoins are fully backed and collateralized and work with several submodules, including a smart price stability module enabling anyone to mint USDA with USDC, and a borrowing infrastructure enabling people to borrow our stablecoins from secured.
The protocol is earning a yield on its reserves (borrowing interest, tokenized securities - RWAs held in the backing, very low risk DeFi lending strategies) and this yield is allocated to people who deposit their USDA into our stUSD yield product.
Average APY for stUSD over the last 30 days was 18.2% (APY was high because not all USDA are in the savings product but savings product receives full yield earned on all the USDA)
You may find more detailed docs for how the stablecoin works and operates here.
As a fully decentralized and onchain system, the backing and the reserves of the stablecoins can be accessed transparently and in real-time on our analytics dashboard.
The protocol is of course fully audited and the systems behind Angle have been running in production for almost 3 years now (on the Euro stablecoin at first)
In general, Angle stablecoins are meant to optimize (and in this order) for:
- solvency: reserves are managed by the DAO, but DAO is advised by an asset liability management committee made up of professionals like the Steakhouse Financial team. The equity to liability ratio of USDA is the highest among all other USD stablecoins.
- liquidity: there are no fees for minting or burning USDA. The stablecoin can be minted and burnt with no fees from USDC. From the Polygon perspective, there will be no fees taken when entering or leaving from a position in USDA and stUSD. The protocol also keeps a liquidity buffer to ensure there is always enough USDC available when burning the stablecoin
- yield: the goal of the protocol is to optimize its balance sheet under solvency and liquidity constraint. The policy for the stUSD yield product is that it should offer the best of very low-risk . We’re risk averse in essence, so while we do our best to earn a yield, yield is sourced from the lowest risk platforms. Typically, protocol lends USDC on Morpho immutable lending protocol, or buys securities tokenized by Backed to earn the RWA yield.
All of this should make Angle and stUSD a perfect candidate for Polygon’s needs.
Contrarily to other solutions in the market, Angle stUSD is also not going to deprecate any time soon, and so this could be a long lasting solution to serve Polygon use cases.
Probably going too far, but if we go with a full-scale integration for this, we could envision a deeper integration where Polygon also unlocks ownership into the Angle Protocol based on the TVL and volume contributed. This way, Polygon would not only earn the yield that the protocol is providing but also get ownership into the protocol, making USDA & EURA become de facto Polygon stablecoins.
Happy to further discuss on this in case there are any questions.