Stader proposes addition of LunaX as collateral to Anchor protocol. Here are the benefits for Anchor and key stakeholders in the Terra ecosystem.
Alternative Luna collateral on Anchor, providing choice for Anchor users and increasing decentralization
Anchor borrowers (using LunaX) earn Luna staking rewards and air drops
Reduce risk for Anchor from reliance on a single pool
Retain governance rights while enjoying the benefits of Liquid staking (Phase 2)
Detailed Proposal:
2. Stader Introduction:
Stader background: Staderās smart contracts launched on Terra on Nov 20th and we already have:
8.5 M+ Luna staked across Stake pools, LunaX and Stake+
30k+ unique wallets staking with Stader pools
LunaX: Over 15k wallets are staking with LunaX contracts and over ~1.9 M Luna is staked with LunaX. Additionally:
Total Luna <> LunaX LP of 1.65 M+ Luna across Terraswap, Loop and Astroport
LunaX is already integrated with Mirror, Edge. Several other DeFi integrations are in the pipeline.
LunaX contracts are open sourced and have been audited thrice by reputed audit firms incl. Halborn, Certik and Z-institute. Here is the link to Github with all audit reports.
We have a 5 on 8 multisig for LunaX Admin composed of distinct individuals/ entities highlighted below:
Stader team
DACM fund
Key TFL member
Accel Partners
Key Community validator 1
Key Community validator 2
Solidity Ventures
Key Terra Community member
3. Validator pool for LunaX:
Currently, LunaX pool has 20 validators. Will be expanded to 35+ by mid-May.
Staderās validator selection for Stake Pools is based on stringent and transparent performance criteria including:
99.85% uptime
No slashing history for >3 months
<2.5% and >0.25% voting power at the time of selection (Average voting power of LunaX Validators is ~1%)
We will additionally add the following criteria to the next set including:
Governance participation on Terra
Additional areas of community participation (including developer tooling, validator community support etc.)
Staderās KYV (Know Your Validator) solution tracks key validator performance data including Up time, Oracle commits, APR, commission changes etc. Validatorsā performance will be reviewed monthly and the pool will be rebalanced accordingly.
4. Governance for LunaX stakers (Phase 2)
In Phase 2 (timeline will be shared later), Stader will create a proxy-vote contract capable of aggregating votes for its LunaX and associated partner contracts and finally, in a programmatic & time-sensitive manner, will cast the aggregated vote.
Stader will always vote thereby amplifying the participation of stakers in governance.
Finally an additional Terra asset on Anchor. Itās always good to have diverse options as collateral.
Although off-topic, LTV for this asset should be higher than bLuna given that the yield is added to the token value.
How do we plan to fund Anchor Earn with assets like these though?
Seems to compliment the sAVAX proposal / collateral onboarding.
While I am not sure of the amount of TVL it will drive, LunaX will add additional flexibility for the Anchor end-user and works as easy marketing for both Anchor and Stader.
Willing to support this proposal if the team deems the risks of adding a liquid staking token safe.
Quick disclaimer: I work at Lido, so my opinion might be biased. Iām writing this on my own behalf though, and the following opinions are my own only.
I think adding LunaX to Anchor is a no-brainer, especially with the upcoming completion of the move towards Anchor V2.
I would recommend listing LunaX with a Max LTV of 0.6 (60%) pending the migration of the LunaX <> Luna pool to Astroport. Dual incentives from Stader and Astroport should help dramatically increase the depth of liquidity.
The borrow side of the Anchor protocol must move in the direction of additional sources of collateral to help flatten the yield reserve. LunaX is a great option to add as collateral. Support the proposal wholeheartedly.
If this passes, though, whatās the point of bLuna anymore? I canāt imagine anyone would want to use it.
LunaX yield substitutes bLuna yield as collateral, i suppose, and derived yield from LunaX goes toward earn reserve?
I donāt like the centralisation factor here, where voting power in the ecosystem increasingly gets diverted to validators which Stader Labs approves of. I of course trust Stader, but Iām still uncomfortable with thisā¦
Definitely a good step towards more collateral options and therefor more income streams for Anchor. I donāt agree with a high max. LTV under the current V1 borrow model: There is the risk of substantial amounts of bluna leaving and being converted/replaced with LunaX. That would actually reduce the income from Luna as a collateral. We should carefully define a middle ground for users and the sustainability of the protocol. Under V1 conditions I would be in favor of a max LTV of 60%. Bluna will have some advantage because of the high LTV for Degens and LunaX combines both use cases of auto-compounding asset and the ability to safely collateralize it.
With V2 coming this could be adjusted to the same LTV for bluna and LunaX alike.
The centralization around LunaX needs to be discussed in detail and Iām not fully informed about their Delegators, numbers and centralization yet.
There are w few areas to inspect here - some of which require clarifications IMO.
Decentralisation
bLUNA is currently the main collateral in Anchor. LunaX is another form of liquid staking derivative of LUNA, which lessens reliability on LIDOās infrastructure, contracts and validator set. That is obviously good.
max LTV
I concur with what @Spaydh mentioned - we should not propose the same maxLTV for LunaX as we have for bLUNA. At least: not at the very beginning. bLUNA-LUNA LP on Astroport is a stableswap pool with $700m of liquidity and an Astroport gov-vote is underway (not for long though: 38 mins left at the time of writing with 99.83% in favor) to increase the scale amplification factor in Astroport, which would further concentrate liquidity around 1:1 ratio.
In comparison, LunaX-LUNA LP on Terraswap is a xy=k pool with $117m of liquidity. In case of liquidations and (potential) selling pressure, that provides for a much smaller cushion that the bLUNA-LUNA LP does.
maxLTV 60% + possible increase to 80% once migration to Astroport stableswap model is completed seems to be a good idea. Even better: increase to maxLTV 80% only after new type of pool is implemented on Astroport that would let concentrated liquidity follow a price-point that moves in time (ideal for xTOKEN-TOKEN type of pools). Otherwise, with increasing LunaX : LUNA ratio the price would go further and further away from 1:1 ratio where liquidity is concentrated, turning stableswap into āxy=kā-like pool again.
Interest
In case of bLUNA, staking rewards are swapped to UST and captured by Anchor Protocol. The proposal doesnāt say anything about how borrowing would work with LunaX. Would the protocol chip away at LunaX at the pace of staking APR (so as to keep the amount of underlying LUNA constant)? Or would the borrow rate be increased by the LunaX APR instead, while allowing collateral to compound?
More details are needed here.
Hey @AgilePatryk, good to see we have similar thoughts!
I was wondering how to incorporate an auto compounding token within Anchorās current frame of work too, so I had a look at the sAvax listing and I think @bitn8ās comment is relevant here.
Afaik, the protocol wonāt chip away at the collateral, nor will the collateral have its own interest rate: rather, once all legacy collateral types (bLUNA and bETH) have been replaced with ledger token liquid staking derivatives (stLuna and wewstETH), then the interest rate for borrowing UST on Anchor will adjust upwards to reflect the new model.
I believe I understood it the same way. Go-to model is:
mainly auto-compounding LSDs as collateral
no staking rewards taken away by Anchor Protocol
overall borrow interest rate increased and will not depend on the collateral type provided
@bitn8ās comment on Anchor being quite expensive to borrow from is spot-on too. Farmer D Brown every now and then reminds us on Twitter that actual cost to borrow on Anchor is pretty darn highā¦
Well yeah, I think itās a question of perspective too.
Early DeFi lending/borrowing platforms had huge opportunity cost on top of the borrow rates (no staking rewards) but users were not factoring these costs in. Then Anchor came around and actually levied that cashflow: great idea! The protocol was making money out of something nobody was really caring about anyway. Ironically, I think that contributed to raise awareness about the staking yield, which now makes it seems like Anchor is prohibitively expensive due to its high Earn APY.
Adding assets like LunaX will change Anchorās model as the protocol will not receive the yield from staked assets to help subsidize the platform. I would support adding LunaX as collateral on Mars, but not Anchor.
The model is changing to be more capital efficient. We currently donāt take sAVAX staking rewards. We have some new changes coming in a soon-to-be-announced v2.1 model that will allow LUNA borrowing and swapping on the back end to get LSDs to retain the staking rewards for the protocol.
In short, LUNAx is a great addition for many reasons.
