We are incredibly appreciative of the reception and feedback offered to our proposal both on this forum, Twitter, and other venues. Anchor Protocol certainly stands out as having a lively and engaged community, which is one of the many reasons we are incredibly optimistic about the future of the project.
We have carefully reviewed feedback and questions and have distilled them into key themes that we will describe and address below. Before we do that, we wanted to take a moment to re-underwrite the intent and spirit of our proposal. A stronger ANC results in a stronger Anchor Protocol. Our proposal is purpose-built to induce greater borrowing, make depositors owners in order to align incentives, and importantly, make the Anchor Protocol sustainable through enhanced ANC utility and value accrual. A strong, sustainable Anchor will bring new depositors into the ecosystem and spread UST far and wide. Our proposal greatly diminishes future need for hundreds of millions of UST injections from Terra to meet depositor interest payments, freeing up that capital to be reinvested and deployed into new projects on Terra while Anchor is able to self-perpetuate. A strong, sustainable Anchor means a strong, sustainable Terra ecosystem.
When it comes to community feedback, we have bucketed it in three main categories. Please find them, and our responses, below:
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Many users just want yield. This is absolutely true! For this reason, we want to emphasize a key component of our proposal: the UST component of deposit interest is freely claimable and liquid upon accrual. To be specific, if a user vote-escrows their ANC rewards, they can claim and use accrued UST interest while the ANC vests. In the proposal’s current state, a user could vote-escrow their ANC rewards for a year and get 17% APY paid out in liquid UST. This is only ~3% less than the current Anchor Rate and far outpaces other DeFi yields, CeFi yields, and, of course, TradFi yields.
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Some users don’t want to participate in governance. That is ok! It is of course our preference that all ANC holders participate in governance, but we understand the reality that for a variety of reasons, that isn’t the case. For those who do want to engage in governance, we think it’s important to give them the ability to maximize their vote if they’re willing to accept a tradeoff (illiquidity) in doing so, hence the creation of vote-escrowing. For those who won’t participate in governance yet receive ANC as part of their yield, you get to experience the economic outcomes of one of the largest protocols in DeFi, not just in the form of yield, but in the form of ownership. By paying a portion of yield in the form of ANC, ownership of the protocol is extremely broad and enables holders to behave in ways beneficial to their interests at an individual level and for the protocol in its entirety.
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This sounds complex. It is difficult to understate the importance of user experience. It can very easily be the tipping-point between project success and failure. We know that and it deeply informs our approach. In our proposal, a user will face one question upon depositing assets: how long do you want to escrow your ANC rewards? On the Anchor interface, we envision a simple slider where a user can explore escrow duration and the resulting expected APY. After selecting a duration, they click deposit and that’s it! Users are well on their way to earning industry-leading APY, 85% in UST and 15% in ANC. A frictionless, easy-to-understand process that allows users to determine what is right for them.
A beautiful part of the Anchor Protocol is the diversity of its participants. From minnows to whales to crypto funds to TradFi funds, users of all walks come to Anchor to earn large, consistent yields and borrow at highly competitive rates. We are confident that our proposal maximizes the experience of each and every single participant, regardless of means and motives. As stated at the top of this response, we place immense value on Anchor’s community, which is why we took time in formulating the proposal and this response. We understand that it may not answer every question, but it tackles the most consistent themes. We look forward to continuing engagement with the community asynchronously and hopefully, via AMA!
cc: @Matt_Hepler