PEP-01: Refinancing the Angle loan

Dear community,

Some of you might have noticed we never proceeded with PGP-XX.

Initially Paladin was supposed to refinance its Angle loan with Atlendis. However, the market conditions for lending have radically changed since the FTX debacle.

Atlendis communicated they were no longer ready to support us for the operation a few days before the deadline, which pushed us to ask for a new deadline before the end of the initial loan.

This hard deadline was set on 31/01/23.

Since then, we have spent a considerable amount of time negociating with lenders in order to find another taker for our refinancing.

We pride ourselves in being a healthy DAO, and have offered a 12 month loan at 15% APY, which the DAO could easily pay off considering its revenue (39,000$ / month on average for S2-2022).

The current impermanent loss in the pool is of 292,000 agEUR + 14,000 agEUR of interest, for a grand total of 306,000 agEUR.

Bear in mind that Angle controls 1 000 000 PAL from the LP which they intend to dump if we don’t pay them whole. Additionally, not honoring our debt would create significant backlash on our reputation, and prevent us from doing business with some DAOs in the future.

Here are the solutions I have in mind:

  1. We are currently in serious talks with Mimo Labs to refinance the loan, but in case the negotiations fail, we have to prepare alterative solutions;

  2. Liquidate DAO assets to pay off the loan.

We own almost 600,000$ of liquid assets (150 ETH in LP, 135 000 CRV, 1200 auraBAL, 30 000 of Quest fees) and we can sell some of them to honor the debt.

However, this would mean we halve the Curve LP’s size.

  1. Open a community debt pool at 15% APY over 12 month where we try to refinance ourselves directly with our community;

  2. Offer a higher borrowing rate (25-30%) and try to see if any lenders will bite.

This is highly risky for multiple reasons:

  • 30% APY are rates for distressed entities, we are very far from being one, it might send the wrong message to the markets;

  • 30% APY on 300,000$ is almost 90,000$ of interests, and i believe it to be terms that we should never offer;

  • We have a very limited timeframe to pay-back Angle and I am not convinced someone will accept lending us on such short notice;

We can of course mix in various solutions, the goal is simply we mobilize the required funds.

3 Likes

Update: We have negociated acceptable terms with Mimo Labs. We will now proceed with a vote to ratify them (or negate them, which will imply liquidation of assets).

The terms are the following:

  • Paladin will borrow 300,000 PAR at 15% APR (3750 PAR of interest per month);
  • Paladin will provide a collateral of ~150% composed of: 300,000$ of WETH/PAL + 87,000 CRV + 50,000 sdCRV as well as a warrant from my dev. company;
  • The collateral will be deposited in a 3/3 Multi-sig with one member of Mimo Labs, one representative of Paladin and one independant third party, a public figure who’s reputation is above the amounts at play;

Funds will be transfered to the multisig today as it is the hard deadline but we will honor the DAO’s choice in the end.

4 Likes

Since I’m biased , I’ll vote abstain

1 Like

To answer the initial post (which should be in PGM category as about the treasury), I believe that we should avoid to liquidate strategic assets unless if we have no choice.
The strategies have been deployed recently and are very lucrative for the DAO, so I’m in favor of exploring the options 1, 3 and 4 first.

As seen on this transaction, the agEUR-PAL LP have been withdrawn 8 days ago, and 291125 agEUR are missing. Adding 14000 agEUR of interest to pay: At the current rate that’s 332.5K$ to pay back.

Here is an overview of the total of fees generated by the protocol (which can be sold minus the PAL and CRV, so 40800$)
image
The total debt can be reduced to: 332.5k - 40.8k = 291.7K, let’s say 295k$ to get a small margin, so 270k if we borrow in Euro, which can reduce the loan of 10%

Since Mimo is interested in Option 1 it seems the best lead, however i’m a bit worried in borrowing PAR as we get exposed to slippage (270k PAR to agEUR swap has 1.1% slippage on defillama) & depeg risk as the liquidity is low, as well as the mainnet MCap: 7M$
I would be more comfortable borrowing in USDC if that’s possible

As for the collateral, makes totally sense to over-collateralize, and 150% might be a bit low.
The PAL-WETH POL is worth 490k$ and the PAL-USDC is worth 77K$ so a total of 567k$
By using the as collateral which requires less management, we could have a ratio of 192% (567/295k$), and keep the sdCRV which are in process to be sold for CVX locked, and the CRV that have to be allocated to st-yCRV.

About the multisig, 3/3 seems limited security and can add issues when managing the POL yield.
5/8 or 6/9 might be better with 3 from Paladin, 3 From Mimo Labs and 2-3 public figures to insure safety and fluidity on this multisig (which would only have to claim & send yield to the Locked Msig once or twice a month)

Also, do we have more infos on the loan terms ?
I guess it’s a 12 month debt, but do we have to pay back only interest each month and the capital at the end or both linearly?
Can we pay back by anticipation part of the loan over the year to recalculate & reduce the interest left to pay ?

Looking forward for the answers and thanks a lot to MimoLabs for the proposed solution !

1 Like

Hello, thank you for such a thorough opinion.
I think its pretty obvious that a stablecoin provider wants to lend its own asset, not another one. Furthermore, PAR is far more stable than implied.

However, if you are worried about a risk of depeg, you should see this more as an opportunity to pay back the loan cheaper than anything else as the DAO will not be holding PAR for other reasons than paying back the loan.

  • Concerning slippage, we have found a pathing to get down to 0.6% slippage, which is acceptable for such quantity.

  • I am not sure which issues could happen with a 3/3 MS concerning the PoL management could you expand? This is clearly a a detail that can be modified further down the like.

  • Regarding the loan term, its for 12 months with monthly interest expected to be paid, but I haven’t gotten any answers yet on paying back in anticipation

  • Finally, on the subject of PoL vs CVX, I heavily disagree. A lender will prefer liquid assets, and having someone with liquidation power own half or more of the PoL means he can reduce our liquidity to smitherens if worst comes through. We believe it is much better for us to swap to CVX and lock on the liquidator’s MS, and then delegate to paladin-voter.eth if possible. Similarly while I agree we should swap the Quest fees to stablecoin, I disagree that we should use them now to reduce the loan size.
    Instead we should focus on building a stablecoin treasury to either swap out the assets used as collateral, reimburse the loan in anticipation, or simply prepare the capital necessary to pay it back in full in 12 months.

Vote will be up once we have the info on repayment options.

I was thinking about the other side of the depeg ofc, but this can be arb quickly so agree it shouldn’t be a big issue.

Interesting, which path ? Just checked and DefiLlama shows 295k agEUR for 300k PAR.

I just meant that we more tx to do with locked assets as we vote and farrm assets as we might compound. Sure this can be changed after but it’s important imo.

You say liquidators want liquid assets, then that we should lock assets on their multisig, the POL is more liquid than vlCVX.

Not sure to understand why borrow more than needed and pay interests on a bigger amount ?

Agree, but which assets will be sold and how to accumulate the stable treasury will be another topic, the terms should be that the Loan multisig periodically (monthly ?) send the Paladin yield to one of the Paladin Msigs which will manage it’s treasury (maybe after selling enough to cover the interests but it requires more interactions on the Loan Msig)

Okay the deal was finalised with the same terms as above but with the loan denominated in USDC, the installments due monthly, and the possibility to pay back in anticipation.

2 Likes

Vote live: Snapshot

Quorum for PEP-1: 178686 votes

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