In recent months, everyone who uses Anchor has noticed that the Yield Reserve was running out. Anchor is a lending platform on the Terra blockchain that guarantees 19.50% on the Ust stablecoin. This APY has been constant since its inception.
What is Anchor's income?
1) The interest that borrowers pay to ask for a loan: Net APY (Net APR = Borrower APR - APR ANC)
2) Collateral (bLUNA and bETH) of users are staking
Thanks to this mechanism, the depositor gets 19.50% on UST.
YIELD RESERVE
Almost all of Anchor's income ends up in the Yield Reserve which allows it to pay this APY (19.5%), however over time it has practically depleted. If the interest earned by Anchor (thanks to the borrowers) is greater than what it needs to pay (to the lenders), this excess goes into what we know as the Yield Reserve. Conversely, when the accrued interest (Net APR of Borrowers) is less than what is required to be paid, the protocol will draw from the Yield Reserve to maintain the rate of 19.5%. When the market is uncertain (probable Bear Market), deposits in stable continue to rise while loans disbursed decrease over time.
Recently, Terraform Labs co-founder and CEO Do Kwon published a survey asking users how many million Ust they wanted in the Yield Reserve (it was filled with about $ 400 million). Already in July 2021, following the major collapse of May 2021, it had been increased. The idea was to add new collaterals and changes to the protocol.
OLD SOLUTION
In July 2021 it was possible to block as collateral sono bLUNA. Later bETH was added and the maximum LTV was increased to 60% (I take 50% of the collateral and am liquidated at 60%). Remember that the Loan to Value ratio is defined as the ratio between the loan amount granted and the collateral (guarantee). It represents an indicator of the risk of the loan itself.
HOW TO SOLVE THE NEW ANCHOR PROBLEM
Anchor is essential for the entire ecosystem of Terra because it contains 50% of the TVL of DeFi On Terra. Surely this is a form of centralized and Luna should part with the Anchor addiction. Sure Mars Protocol could help.
However, a solution must be found because without Yield Reserve, if the APY falls below 10% there would be no major incentives to deposit UST on Anchor (although it is a safe and reliable platform). UST is key for Luna: every UST mint burns $ 1 of Luna. If Luna drops too much in price and uncontrollably, this would trigger liquidations on Anchor and other Luna market sales. If UST loses the peg with the dollar, it would be a real catastrophe for the entire Terra ecosystem (Luna + USD).
1) In order for Anchor to continue to enjoy good health, the LTV was first raised to 80% (settlement threshold), I basically take a loan of 70% of the collateral and am liquidated at 80% (this increases the demand for the borrow)
2) The integration of other collaterals is definitely something that should be done: Avax, Sol, Atom. The few collateral limit the amount of interest Anchor could earn from borrowers
3) If the collaterals are increased, the ANC issuance must increase otherwise the cost of the borrow would increase (because it is to be distributed to more collaterals). In fact, the "Net APR" that is paid for the borrow is reduced precisely because rewards are also distributed in the ANC token. If, on the other hand, the distribution emission of ANC was increased to keep the Net APR low, there would be greater inflation of the token so ANC would go down. In this regard, therefore, it would be useful to incentivize the holding of the ANC token and that is what is being voted on in governance; in fact the greater quantity of tokens held will lead to a higher interest in ANC tokens (boosting ANC APR). The upgrade is to replace ANC with veANC for voting in governance (ANC is blocked for up to 4 years, like Curve Wars). This would direct a portion of the protocol earnings as a reward to veANC token holders and a larger share of future ANC issues to veANC token holders in the form of borrower rate subsidies.
4) Dynamic Earn Rate: change the UST APY according to the decreases / increases of the Yield Reserve. The APY can decrease or increase
Do you use Anchor? What possible solutions do you see on the horizon?
In your opinion, is this the safest and most convenient platform to deposit stablecoins?
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