Understanding Angle Protocol ($ANGLE)

What is a Stablecoin?

A stablecoin, as the name suggests, is an asset with a “stable” price. It maintains its value stability by pegging to fiat currencies like the US Dollar. Stablecoins are categorized into centralized and decentralized. Centralized stablecoins are issued by off-chain entities and are claimed to be backed 1:1 by fiat collateral. The most representative are USDT and USDC, issued by Tether and Circle, respectively, both pegged to the US Dollar. Decentralized stablecoins, on the other hand, do not require the involvement of institutions or third-party entities.

There are mainly two types of decentralized stablecoins: over-collateralized and algorithmic stablecoins. Over-collateralized stablecoins are backed by other cryptocurrencies as collateral, typically worth more than the issued stablecoin, hence the term “over-collateralized.” Algorithmic stablecoins, like OHM, maintain stability through a flexible mechanism of minting and burning. For instance, when the trading price of OHM is above the pegged rate, a new OHM is minted to increase supply and reduce its price, and vice versa.

Decentralized stablecoins cannot be unilaterally frozen or confiscated by any institution or third party. Their transparency also ensures that transactions are open and immutable. Stablecoins predominantly dominate all risk-averse financial controls, as users, whether profiting or losing, ultimately need to trade stablecoins as a haven.

About Angle Protocol

Angle Protocol is a decentralized over-collateralized stablecoin protocol. In August 2023, it integrated LayerZero, supporting the seamless cross-chain transfer of its Euro stablecoin, agEUR, across multiple chains including Ethereum, Polygon, Arbitrum, Avalanche, and Optimism.

The protocol consists of various segments or smart contracts like borrowing, Transmuter, and Algorithmic Market Operations Controller (AMO), allowing users to borrow the stablecoin ANGLE by providing collateral, thereby facilitating interaction between stable assets and ANGLE. Additionally, part of the revenue generated from all segments of Angle Protocol is automatically distributed to stablecoin holders through a savings product.

With the stablecoin market nearing a $150 billion scale, tokens like Ethereum, Solana, and Avalanche are rising in value. Most decentralized stablecoins are backed by the native tokens of their respective blockchains. For example, PolyQuity on Polygon uses Matic as collateral, and Ethereum’s MakerDAO uses ETH. As the value of public chain tokens increases, more stable coins are produced, expanding the stablecoin market.

Stablecoin Market Data (Source: https://www.theblock.co/data/stablecoins/usd-pegged 2024.01.07)

Team Background

Angle Labs has completed a $5 million seed round of financing, led by a16z, with other investors and individuals including Fabric VC, Wintermute, Divergence Ventures, Global Founders Capital, Alven, Julien Bouteloup (a core contributor to Curve), and Frédéric Montagnon.

The three core contributors of the Angle team, Pablo Veyrat, Guillaume Nervo, and Picodes (pseudonym), are from France. According to their LinkedIn profiles and an article by a16z, they have been classmates since 2016, studying at the École Polytechnique in Paris. In 2019, they went to Stanford University to pursue graduate studies in computer science, where they met several partners from a16z. Although other team members are not disclosed in public channels, it is inferred from Twitter interactions that the team consists of at least six members. Veyrat has been involved in ETHCC and has been actively participating in recent crypto discussions held in Lisbon, showing high levels of engagement.

Angle Protocol Design Logic

Angle Protocol is a stablecoin issuance and derivative trading protocol, supporting various stablecoins, each backed by different types of collateral.

The primary users of the Angle protocol are divided into three categories:

1. Stablecoin holders, demanders, and users in need of Euro-based stablecoins.

2. Hedging as a Service (HAS) agents, who use Angle’s perpetual contract feature to gain on-chain leverage to avoid volatility.

3. Standard Liquidity Providers (SLPs) or arbitrageurs, who provide liquidity collateral to the protocol, thereby earning transaction fees, interest, and rewards generated by the protocol.

Stablecoin Holders

Stablecoin demanders can exchange their chosen collateral for stablecoins. The design of the Angle stablecoin mechanism allows anyone to autonomously mint stablecoins or redeem collateral at the price set by the oracle, with no price slippage. The minting and destruction price of stablecoins is always based on the oracle. The Angle protocol allows users to exchange stable assets and their collaterals at a 1:1 ratio. For example, a user can obtain 1 stablecoin for 1 Euro worth of collateral, and 1 stablecoin can also redeem 1 Euro worth of collateral.

The Angle protocol introduces two different types of liquidity providers: Hedging Agents (also known as HAs) and Standard Liquidity Providers (also known as SLPS). In the event of a surge in the price of the collateral, the protocol may suffer from insufficient collateral. To protect the protocol from the volatility of the collateral, Angle has created a method to transfer volatility to other participants willing to leverage the collateral. This method is implemented through Hedging Agents.

Hedging Agents (also known as HAs)

A surge in the price of the collateral can be beneficial for the protocol, but if there isn’t enough collateral, a decline can have severe consequences. To protect the protocol from collateral volatility, the Angle protocol has created a method for transferring volatility to other participants willing to obtain leverage on the collateral as Hedging Agents. Hedging Agents use Angle protocol’s leveraged trading to hedge, ensuring the system is protected from a decline in the price of the collateral and guarantees that the protocol always has sufficient reserves to repay stablecoin holders.

Standard Liquidity Providers (also known as SLPS)

Another participant who ensures the protocol is protected from collateral volatility is the Standard Liquidity Provider (SLPS). They earn income through deposits and act as a buffer when Hedging Agents do not fully cover the collateral brought in by users and when the protocol’s reserves are insufficient. SLPS earn a portion of the fees paid by users during the minting and burning process, without the risk of impermanent loss. SLPS can also earn fees within the protocol and benefit from the returns on the protocol’s collateral investments through a multiplier effect, but they also bear greater liquidity risks. Additionally, SLPS can obtain ANGLE governance tokens.

Comparative Analysis in the Same Field

In the stablecoin market, with its hundreds of billions of dollars in scale, there are not only completely decentralized stablecoins like LUSD but also centralized stablecoins like USDT, and USDC, and partly decentralized stablecoins and algorithmic ones like DAI, ANGLE, etc.

Current Stablecoin Market Value Ranking (Source: https://www.coingecko.com/ January 7, 2024)

Angle Protocol Stablecoin ANGLE

The current Total Value Locked (TVL) in Angle Protocol is 37.15 million USD, with a market capitalization of 422,580 USD. The stablecoin issued by it, AGEUR, has a current total circulation of 17.99 million coins, with a circulating market value of approximately 19.71 million USD. It is held by over 1.7 million users, and the value locked is as high as 32 million Euros.

As a rising star, Angle Protocol supports multiple chains including Ethereum, Polygon, Optimism, Arbitrum, zkSync, and Avalanche. It has also gained favor in many DeFi ecosystems and become a partner with several platforms, such as Aave, Uniswap, SushiSwap, Curve, LayerZero, Liquity, Chainsecurity, DefiLlama, and others.

Angle Protocol Data (Source: https://defillama.com/protocol/angle)

Circle Stablecoin EURC

As a Euro stablecoin platform, Circle Internet, the issuer of the second-largest stablecoin USDC, has released EURC, a Euro stablecoin deployed on the Solana blockchain. It is now available on Coinbase, Bitpanda, Bitso, Safello, Mercado Bitcoin, Bitvavo, and Mt Pelerin, among others. The deployment of EURC on the Solana blockchain allows users to benefit from high-speed and low-cost transactions. Currently, the market cap of EURC is approximately $55 million. It supports only Ethereum, Solana, and Avalanche networks. With plans to expand support for more networks in the future, there is significant potential for growth in EURC’s market presence.

EURC Official Data (Source: https://www.circle.com/en/eurc)

MakerDAO Stablecoin DAI

DAI, the largest stablecoin in the market, has a circulation of 5.8 billion. From the official website, we can see that the total value locked in MakerDAO is exceptionally high, exceeding 14 billion USD. Part of this involves recycled lending. This is commonly understood as someone using their collateral to create a Liquidity Provider (LP) pool, which is then used to borrow from MakerDAO. The borrowed funds are used to purchase more tokens, which are then re-collateralized. This cycle of borrowing can pose significant liquidation risks in the event of a de-pegging. Additionally, DAI’s strong ties with centralized stablecoins mean that any de-pegging of these centralized stablecoins could significantly impact DAI. However, following a vote, the Angle Protocol’s agEUR was determined to not correlate with the EURUSD trading price, thereby avoiding the risks associated with the de-pegging of USDT/USDC.

MakerDAO Collateral Ratio (Source: https://daistats.com/#/ 2024.01.02)

Frax Finance Stablecoin FRAX

Frax Finance is backed by collateral and partly utilizes an algorithmic mechanism through its AMO (Automated Market Operations). The latest v3 version aims to achieve a complete peg to the US dollar. Frax offers a range of DeFi products, including Frax Swap, the lending platform Fraxlend, Fraxferry, and others. An important point to note is that Frax holds a large amount of USDC. If USDC were to lose its peg, $FRAX would be significantly impacted. In contrast, the Angle protocol would not be exposed to the market risks associated with the de-pegging of centralized stablecoins like USDC.

Frax Finance (Source: https://frax.finance/)

Liquity Protocol Stablecoin LUSD

The Liquity Protocol is a fully decentralized stablecoin project. Unlike other stablecoins, LUSD is pegged not to the US dollar but to ETH, allowing users to apply for interest-free loans by collateralizing their ETH. However, looking at the distribution of LUSD, most users choose to keep their LUSD in a stability pool to earn LQTY token rewards. This implies that the current main use case for LUSD is limited. If the proportion of LQTY rewards decreases, the size of Liquity’s stability pool will need to be reevaluated. The Angle Protocol not only supports the minting of stablecoins but also offers services like perpetual contracts trading for stablecoins, staking, etc. It also allows users to borrow stablecoins ANGLE by providing collateral, promoting interaction between stable assets and the ANGLE stablecoin.

Liquity Protocol (Source: https://www.liquity.org/)

ANGLE Token Economy and Governance

ANGLE is the native governance token of the Angle DAO. The initial total supply of ANGLE is 1 billion, and there is no token inflation plan. The specific allocation plan is as follows:

• 40% for liquidity mining, distributed to agTokens holders
• 20% for the DAO Treasury
• 18% for the core team, linearly released over 36 months (starting from October 2021)
• 12% for current and future strategic partners of Angle, for project advisors and contributing community members
• 10% for early investors, linearly released over 36 months

ANGLE Token Allocation (Source: Angle Protocol Documentation)

About veANGLE

veANGLE is the governance token of the Angle protocol, representing “voting escrowed” ANGLE. It is non-transferable and not traded on the liquid market. Users can acquire veANGLE corresponding to the duration they lock their ANGLE tokens, ranging from 1 week to 4 years. veANGLE can be used for voting on governance proposals and ANGLE emissions through AngleDAO. Additionally, liquidity providers can increase their $ANGLE rewards by holding veANGLE.

How to Purchase $ANGLE

To acquire $ANGLE tokens, you can purchase them through cryptocurrency exchanges. For example, the reputable exchange Gate.io supports the purchase of $ANGLE. You simply need to create a Gate.io account and complete the KYC process. After depositing funds into your account, you can directly purchase $ANGLE tokens.

Conclusion

Despite the stablecoin market surpassing a hundred billion dollars, it continues to grow rapidly and is not wholly dependent on bull market trends. The decentralized stablecoin $ANGLE has obvious advantages. Currently, most stablecoins are pegged to the US dollar, and there are not many platforms issuing Euro stablecoins, giving Angle Protocol a first-mover advantage. The market capitalization of Euro stablecoins is less than one percent of that of US dollar stablecoins, indicating a potential for over a hundredfold growth. Additionally, the Angle team has expressed plans to expand into more fiat currencies, such as the Swiss Franc, Korean Won, Japanese Yen, etc.

The golden era for stablecoins is just beginning. With the continuous improvement of the Angle Protocol mechanism, the stablecoin market is expected to maintain its growth momentum. It is believed that $ANGLE still has significant potential for imagination and growth.