One of the risks to Anchor’s sustainability is the process of leverage yield farming Anchor’s earn rate and potentially getting over 100% APY, greatly increasing the depletion of the yield reserve.
This is done by using aUST as collateral, borrowing against it and repeating the process multiple times. e.g.: Abracadabra’s MIM-UST degenbox. As the ecosystem evolves, new projects will offer similar strategies.
Proposal
To mitigate this risk, we could create a “staked” non-transferrable version of aUST (saUST) that have the current ~19.5% APY and change the current aUST to offer a lower yield. Credits to @mariano247 for the original idea.
To avoid loopholes such as wrapping saUST in a contract and making it transferrable, the minting of saUST must be restricted. My suggestion is to only allow non-contract addresses to mint saUST, and creating a governance-controlled whitelist of contracts that are allowed to mint saUST, like Angel Protocol and other projects that add value to the Anchor ecosystem.
Advantages:
Few/no changes to user experience.
No changes to aUST composability. Current protocols that use aUST would remain unchanged, albeit receiving a lower rate.
Short for “voting escrow,” the VE-model imagines a future where ANC is locked up to a 4-year duration.
“veANC holders will support the protocol over a longer term horizon rather than speculate on price fluctuations in the short term. Those with strong conviction are rewarded the most over time.”
The main goal of this idea is to gain much better control on the deposit side of anchor.
By using this strategy the protocol could potentially reward normal depositors who just intend to use anchor as a savings account. It would not allow other protocols to leverage this high 19.5% and prevent them from drying up the reserve this one would be reserved only for “savings account type depositors”.
“Degens” and other DeFi protocols would only be able to leverage a version of aUST that has a lower yield.
It would lead to a much more fair and sustainable protocol while at the same time allowing everbody to use anchor for whatever goal they have in mind
I’m not 100% sure of what I am about to say, but this is from my understanding on how EthAnchor works.
The way MIM degenbox works is by using EthAnchor and this proposal would need to block that way of interacting, which is bad for the expansion plans, because on the terra side every protocol will look like the same one, and we would be unable to know who’s using it. Maybe the whitelist could be done on the other side but, that would make it that much harder to configure using governance and there would probably need to be separate whitelists per EVM network. The newly launched Anchor on AVAX is most likely using EthAnchor I’d assume, so yea… that would be affected.
Protocols that bypass lockups should tell us that lockups are perhaps not the solution, and it will be incredibly hard to avoid them. Other than this, I like the direction this is approaching the issue from, and I still believe it to be feasible I just wouldn’t focus to much on the protocols whitelist part for now.
This sounds like we’re getting closer to a solution.
I would propose aUST offers exactly 50% of saUST and the dynamic rate adjusts accordingly for each.
I can envision depositing into Earn and automatically receiving 9.75% APY (in aUST), then clicking on a ‘Stake’ tab to receive the full 19.5% APY (converted to locked saUST). We just need a technical understanding of how we achieve this.
Is there a way to lock this in without a whitelist? Is there a different token type we can use for saUST that acts similar to a locked, non transferrable ‘ve’ token?
Out of all the proposals this would offer the quickest bang for the buck for slowing down the decline of the yield reserve. AVAX vultures are already circling.
I disagree with this idea, we shouldn’t be discriminating capital on the basis of where it came from, if the protocol is truly decentralized and unbiased it should accept capital from any entity. The dynamic earn rate proposal if it passes will offer the best solution to the yield reserve being drained. Also this proposal partially damages composability. Ozone insurance which is expanding for Anchor soon, will only cover aUST by swapping out aUST for UST. It will leave anyone stuck in saUST(will be mostly everyone due to the higher APY incentive) completely unable to buy insurance.
There’s no discrimination. This proposal is providing every participant with the luxury of deciding if they want to commit to solely staking in Earn or use their ‘free’ Earn collateral for ‘other stuff’ like lending/borrowing on other protocols or looping UST back into Earn.
Seems like a fantastic option on each side to me. Each user can decide which option they want. Ozone can quite easily adjust for either. Guess which one they would prefer to cover?
If saUST exists (fixed on Terra and in Anchor), it’s obvious that is the only one that makes sense to cover, not a version that’s wandering around all over the place on all chains and platforms…
We need to find a way to use ANC rather than aUST. 99% of UST depositors do not contribute at all to Anchor protocol growth and may participate in bank run in the short term.
Because there’s no consensus on this topic, a total of 6-8 people discussed this and not all of them agreed. Just because you really want something or believe it is right, doesn’t mean someone else will propose it on your behalf, if you truly want to push forward without the team’s backing, you can push the proposal yourself.
We need to form a team to branch this and work on it on git, once we got something tangible before making a pull request we can then bring it to poll.
My poll was a simple parameter change and even then it took some considerable time to organize to get it posted. (Thanks everyone’s who’s voted on it so far btw)
Big feature / functionality changes need some dev support first before they can be run through, look at the poly chain proposal it got shot down because there was community disagreement on top of strong dev pushback (for obvious reasons their focused on xanchor).
We still have time, let’s keep discussing this prop it’s a good idea but we would need to sort out the specific feature, it’s exact functionality, and the roadmap for implementation. I do really like the idea however. this runs independent of veANC and incorporates a simple strategy for removing fungibility on high yield aust.
Right now there are a lot big things on the road map like cross anchor to ETH, FTM, MATIC, SOL, DOT etc. This is eating up all dev resources. To make these next iterations work, one-click borrow also has to be implemented. Then ve-ANC is next it the cards as well.
This is also going to have a lot trouble getting the support from all stakeholders as we saw with other props that tried to address the earn side.
Moreover, this is a radical design change to aUST. I keep recommending a simple capital control measure like a withdrawal tax that dynamically moves based on the YR. This is simple to implement. Taking an earn rate of 15% a 1% withdrawal tax makes break-even 24 days to break even. This would serve as a capital withdrawal rent-seeking block that is to implement and makes sense.
I get where your going with that idea. And I think it’s great. I’ve just never seen depositor withdrawal fees before. But this adds an adjustable lever that resolves time lock issue. This also imposes a compounding tax on looping. I think given Anchors unique structure compared to other money markets this could work (other markets have to deal with having multiple lendable collaterals and not all are dollars).
Definitely anything touching earn is a hot potato, and the additional revenues / etc getting thrown around would mess around with aust value and require reworking. Even your suggestion is going to have a ton of the guys scream wolf as bash on Terra is a meme at this point.
I think most people who are thinking of the mechanism are thinking of it like just lock aust as-is, with no changes, and pay out a rewards that compensates to the additional yield.
Then that ends up looking like the polychain prop and we know that wasn’t favoured either.
I’ve never heard of fees for withdrawing a deposit in defi but I mean hey banks nickel and dime you on everything as well so I don’t see any risk from it.
Most problems stem from aust fungibility. if we’re just going to lock it for higher yield to remove that fungible feature then there’s no real point in the higher yield in the first place.
Is there a way we can implement your idea and impose a tighter tax for leverage / fungibility abuse? Right now the way I see it upon de-leveraging your aust you’ll get hit by the 1% tax every transaction. If the 1% is only applied to the withdrawal amount then this does nothing for fungibility. If it’s applied to the total principle upon each withdrawal this kills leverage abuse right away and for good.
Sorry but I didn’t understand the details of this idea. Would the withdrawal tax impact the whole amount deposited or only the final APY recieved by the depositor?
Because if the idea is to charge 1% of the entire amount retired I’m leaving anchor for good and forever. And I’m pretty sure I would not be the only one doing this.
Anchor serves the purpose of a savings account, users how expect liquidity deposit their money in there because they now they need their liquid assets to generate yield. Adding a 1% tax starts drastically impacting depositors how intend to give anchor the use it was always intended to have.
I initially like the idea of a sort of withdrawal tax as long as it doesn’t leave the depositor in an net negative position, a neutral position would be fine, but in my opinion they should have the right to take at least some interest off of their deposited amount. But that is up to the community to decide…
I think a LOT of thought needs to go into this, but that with careful planning and designing could be a step in the right direction.
I fully agree with what you said, but there’s no way to ensure fungibility and only target winnings, as there is no way to track winnings. You may deposit and hold aUST for a month, trade it with me only for me to cash out right away. But I do agree that making EARN have a potential of net negative returns is not a step in the right direction…