Well if a high amount people aren’t borrowing with high yield incentive (shown by borrowing yield still high), how are they going to borrow when incentives are lower. Especially when the risk is so high with liquidation.
Yes, those are big headwinds to ANC’s price 1st year.
The big lesson is that we need less risky methods to support the entire Anchor platform.
It seems most things in Anchor just rely on the Borrow side, aka people taking massive risk. That isn’t a good model. Anchor needs to be supported by revenue that doesn’t require people to take massive risk. A combination of moderate and and high risk will sustain anchor
To add more arguments for the percentage tier for Holding anchor.
- Incentive to hold ANC because you get a higher yield %
- Those that don’t hold the designated amount of ANC in their portfolios get 15% Earn
- ANC price will rise because everyone wants to get higher yield.
- The 2nd tier to all this, is choosing whether your yield gets paid out in UST or ANC.
- Highest yield you can get is when you choose to get rewards in ANC and have a certain percentage of your Earn in ANC.
- Those holding ANC will now get exposed to to high yields and capital appreciation.
- Protects yield reserve more.
The guys at Orion.money aren’t going to like this…
I think most investors are very used to the idea of better rewards for those with more skin in the game. Higher rewards for those that time lock ANC (3 months?) and certain thresholds for higher rewards. Yes, this can reward whales, but smaller depositors can lock for longer to get more earnings which levels it up. When institutions come in, you want their commitment. The lock does not have to be absolute … if they want out before “maturity” perhaps they should get penalized with less interest. The net reward should be lower than someone who never time locks. The penalty from early redemption can go to support reserves and interest payments for depositors.
Are you suggesting that Anchor generate revenue outside of borrowing? Or different borrow mechanics?
Outside of borrowing, good to not have all your eggs in one basket mentality. It builds resilience. Which anchor needs. As we all are scrambling for funds with limited revenue source. This is how most successful businesses run. Multiple products and services.
Now the harder question, what alternative revenue stream.
TLDR; I dump ANC every time I earn it. I wouldn’t if my Anchor Earn yield was dependent on it.
I agree with both the subject of this post as well as the proposed solution.
As crypto winter approaches, sellers will look to put their stables to work. The best tokenomic models for this situation will incentivize users with higher yields on stablecoins for hodling, not borrowing.
If offering 200%+ for borrowing isn’t doing the trick, then it’s time for change. I propose cutting the ANC borrower incentive in half (which would still equate to 100%+ for borrowing) and using the other half to further incentivize Anchor Earn.
Someone more mathematical than me can crunch the numbers, but something like Nexo’s Loyalty Tiers which rewards lenders with higher yield the more native token they hodl has proven to be an excellent model.
Why would you want to further incentivize Earn if Borrow isn’t generating enough demand?
The issue here is how to fix Borrow. Earn is fine. If the demand for Borrow isn’t figured out, ANC is going to $.25 (or lower) imo. Investors will start dumping this when their 200 million ANC start vesting in a few months.
From March-May utilization was 70%+. Liquidations rocked the system, but the bands will converge closer over time.
If you don’t want early investors to dump their ANC, give them a reason to hodl it by 1) driving demand for ANC which will increase price 2) further incentivize their Earn savings only if they hodl their ANC
You do realize that ANC Borrow would likely fall to well under $50 million if you pulled 50% of the incentives and the ANC Earn rate would then likely fall to 5% or so. How would that impact the price of ANC?
Currently borrowing is only available to LUNA hodlers. Borrow demand will not be an issue once other assets are bondable. Borrowers are paying 3-7% to borrow right now. You don’t think they’ll be interested in earning 100% to borrow?
I’d consider making the reward relational to the borrow rate (currently ~15%). At equilibrium, this would mean free borrowing which is attractive already, anything above that is
The ANC borrower issuance is to aggressive. Consider offering the initial issuance to all accounts who have borrowed up to this point to keep your word and reward early borrowers, and new issuance schedule from then forward.
How do other financial institutions generate income? Gotta get out of the mentality of just relying on Borrowing because it obviously ain’t working.
They pay deposit fees that are sustainable to their business. The problem is, right now 19.5% is far from sustainable
I do agree on the fact that ANC need additional utility / value accrual schemes.
Not that sure on whether introducing tiers in deposit yields would be a good option though. Anchor’s value proposition is to provide yield - this key feature should be kept as simple as possible imo
Also might be worth considering for methods to remove the circulating ANC supply. I think Luna tokenomics are quite well structured here, where supply decreases as network adoption increases. Would there be a way to have ANC tokens burnt as the amount of deposits increase?
Wasn’t the plan when the yield reserve was build up to a sufficient level to increase the % of the excess yield that goes to buying back ANC? If this is still the case, the value accrual problem would be solved by working on the system deficit and creating a plan for the yield reserve. The bigger problem with ANC value is that there’s too little guidance for ANC investors to understand what to expect in terms of future return.
For example, what is the optimal amount in the yield reserve before ANC rewards are boosted? What can we expect the rewards to be boosted to? What is the plan and expectation on when we can expect the boost to happen? Of course, these are basic concepts in Investor Relations for any business with a large investor base.
Burn mechanisms reward ANC holders not participating in governance. Is that the intention?
I think you just highlighted another issue, ANC only has value during the good times (yield reserve sufficient), maybe ANC token should have value during “good” and “bad” times.
I think this is the main issue with Anchor in general. It works well, when we are in “good” times and building mechanisms only based on optimistic scenarios. There needs to be a shift in mentality to “Designing for worse case scenarios” instead of designing for optimistic scenarios.
I know nobody likes to think of worse case scenarios, but look where it got us…Scrambling for a solution when it actually did happen.
+1 here. Research on protocol consolidation should take place.
As mentioned ANC only accrues sufficient value during the “good times” where excess yield is plenty. Ideally its value should proportionally increase with the total deposit size
Agreed. Relatedly, what do you propose we do to address the current system deficit?
I completely agree with keeping it simple, maybe tiers are complicated. But tying additional utility/value of ANC to Anchor’s key feature would likely produce maximum benefit.
I also don’t think the burning model LUNA uses is all that great. You think price is going up because of burning? or because people are buying LUNA to stake and earn more yield and airdrops?
See MKR for example. They’ve been using the burn model for many years and still can’t get ahead. While the burning model technically lowers the supply, it’s difficult for investors to realize. It isn’t a directly impactful benefit in the way increased yield is.
Perhaps I’m misunderstanding what you’re saying here, but if you’re implying that there needs to be value accrual when the yield reserve is being drawn I would really like for you to elaborate here (beyond the 1% liquidation fees).
I think it could be a good idea to add more function to ANC, but I don’t see why there is a desperate need for it. There is, however, a need for enhanced communication to ANC holders on the value of the token.
Other similar investments to ANC (e.g. equities) are able to be priced ‘through the cycle’. It’s difficult to find a company on the S&P500 that hasn’t ever had a loss-making quarter or a string of quarters and yet their market values did not plummet to zero. Investors are able to understand the concept of future expected cashflow returns.
Pricing through the cycle requires effort in investor relations. Not to pump up the value, but to set the proper expectations so investors can understand the roadmap to yield surplus and a model on how to assess long-term value of the token.
Even the most engaged of us really have no idea what’s going on in the internal discussions of Anchor. We know that certain features are coming at some point, but no idea how they are going to work in practice (for example bETH implementation unknowns… deployment timeline, ANC distribution, borrowing rate, LTV requirements, etc.). If the folks on the forum don’t understand how all of this will work, then how is the average ANC holder supposed to understand the value of the token?
If I understand what you’re saying correctly then you are implying that we should expect extended draws on the yield reserve regularly in the future (30 days+ periods). Is this the design intention? Or is this growing pain associated with an experimental system? Of course, this affects the decision on how large of a yield reserve is needed which in turn affects the value of the ‘excess yield’ value accrual mechanism. I think ANC holders can value future potential of this mechanism, but quite frankly, there’s way too many unanswered questions for them to do this without a significant risk-adjustment associated with protocol design uncertainty.
It is possible that holders will dump the anc price to near zero if no value is soon discovered. That could obviously have a dramatic effect on borrowing incentives. At all time lows, I personally find it difficult to hold. Perhaps requiring new protocols to hold anc when accessing anchors Earn side function would be helpful. I agree that it’s a tough sell as a collateral asset or staking token due to its depreciating value. It needs a demand that is tied to the protocol imo. Thanks