ANC-UST LP Incentives

I heard about that from genesis ANC UST LPs are given ANC as rewards. But there are limited token up to 1000,000,000 ANC. So after 4years of distribution plan, what incentives are ANC UST LPs get? And is it possible 99% APY or more attractive then this after 4years?

Rewards end in March.


So after march what happen to ANC UST LPs in Anchorprotocol. Don’t they get ANC token anymore?

That’s correct. ANC rewards will either end in March or earlier if the community votes to curb token emissions. From then on, LPs will not receive extra ANC rewards, but they’ll still earn trading fees on their positions.


Hey thanks for that response, been trying to figure this out.

I was confused because in the ANC docs in the distribution schedule, it does show LP incentives in each of the 4 years.

But a little below that, it states its 50m distributed linearly over 1 year. I originally took that to mean distributed linearly over 1 year, for each of the distributed years. I guess I was wrong.

Your response does raise another Q for me: You said ANC rewards end as in ANC token rewards, but trading fees are still distributed. Will that be distributed in UST? And will that be at the same APY of the LP pool?

Sorry if this is a stupid question, just really want to have it clear. Thanks.

Yeah I know that can be a bit confusing but it is the cumulative amount. If you read further down the text explains this.

Rewards will be going through Astro going forward so you will get Astro tokens for making ANC-UST markets, not ANC.

Trading fees are earned on both sides of the pool so in this case ANC and UST

Awesome. Thanks for confirming that. Really appreciate you taking the time to reply. Thanks.

yeah that caught me out as well.

I posted a thread on redirecting a small portion of the borrower incentives to the LP rewards, but the post was automatically hidden and needs to be cleared by a mod.

I’ll attempt to carry on the discussion here for now.

The problem we face is that the LP rewards will experience a cliff event where the APY drops drastically, and this will certainly cause liquidity to leave the ANC token very quickly.

As the borrowing rates are supported by the borrower incentives, and the borrower incentives are in turn paid out in ANC tokens, it makes sense to offer price support to ANC tokens, by way of preventing the token from crashing further once the LP rewards run out.

Hence my suggestion of shifting a very small portion of the borrower incentives towards the ANC-UST LPs.

The Astroport ANC-UST LP is $132M in volume, half of that is ANC tokens, Which means that about 20% of the market cap of ANC is tied up in this liquidity pool at the moment. Terraswap has about $8.5M in liquidity or $4.25M in ANC tokens. if $50M of tokens were to get sold over a month, the ANC price is going to plummet, and with it, borrower incentives, and that sure as hell will spook UST holders.

Just based on this, there is some rationale to actually keep supporting the ANC LP rewards pool at current rates while other sources of demand for ANC token can be found, but we must acknowledge that we don’t need 22% of ANC available going towards LPs.

This suggests that people are only farming holding ANC to create an LP farm. We need people to borrow more to increase fees (both governance stake and LP holders are affected by this because of trading fees) which would then increase governance staking which would then incentivize people to stake. ANC-UST is not the only place to earn more ANC tokens. You can governance stake ANC.

You are not wrong in your assertion as to what the main strategy should be, which is getting people to borrow more. I fully agree with you.

To help that to happen, we have borrower incentives, this is the bulk of the platform’s committed ANC expenditure (40%). But it’s not just volume we need to be aware of, it’s the price of ANC.

But what the proposal seeks to address is liquidity flight that will arise from a sudden drop off in ANC-UST LP rewards, this will certainly impact the stability of the ANC token price, with that, a fall in borrower incentives, as the ANC tokens they receive are worth less. People can stake ANC tokens in governance for returns, yes, but a very large proportion of the market cap lies in the LPs.

The proposal seeks to CUT LP reward rates, to ensure that the LPs decrease in size, but also seeks to support it to prevent a drop off. Maybe 50% of current rewards for 6 months might not be the right number. But there is no way of actually calculating what the exact right rewards might be. Half the rewards for half the time seemed to be a good rough guide.

If anything maybe half the rewards for one more year might be an even better idea. But someone can put forth that extension 6 months down the line.

Right now is probably not an ideal time to pass a poll like this. The price of Anchor directly affects the loan distribution APY. All focus from every major stakeholder is to get the borrow fired up. Directing rewards away from that is not going to get support right now with Anchor’s price being so low.

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I’d like to point out a very interesting model that Larix is using to buy more time before focusing on token price.

They actually use a similar rewards model to anchor, provide larix as rewards to drop USD interest rate to near zero after rewards are compensated. However they do it FAR more efficiently. This wouldn’t affect us borrowers that much as I have tested their model and have seen similar results to claiming rewards and dumping on market with this system.

The difference that they do is they lock up the rewards in LP for 90 days, once that lock up is done the borrowing rewards are released to be claimed (obviously with the added bonus of LP rewards). If the borrower wants to withdraw rewards before the 90 day mark they pay an 80% penalty on their rewards.

This will drive LP and borrowing demand. for the USD part of the LP Larix asks the user to supply the necessary USD and then it is auto-staked with the Larix rewards into a 90 day lockup. That way no Larix is sold before the 90 day mark. This HEAVILY reduced sell pressure on Larix and makes the token more valuable.

This is precisely what needs to be done actually, such actions are supposed bolster the price.

You are saying what I’m saying, the ANC price directly affects the loan distribution APY, hence why we should use the borrower incentives to directly help stabilise any potential fall in ANC price.

We barely have enough borrowing rewards to serve the interest rate pool, nobody will agree to redirecting that to LP rewards also will need some source of funding. Which is the main aim of the proposal to redirect borrower incentives to LP rewards.

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If you look at larix metrics people are happily doing it so what your saying isn’t true.

Also borrowers provide the USD stablecoin for the rewards so there’s your source of funding. Borrowers are happy to LP if it means the token price is more stable.

Like I said borrowers and LPs are on the same side of the Anchor coin.

I don’t disagree, but what you are suggesting can be built upon the 1/2, 1/2 suggestion. We will still need LP rewards, and that has to come from somewhere. How long will implementing what Larix is doing take? If we are not going to continue LP support indefinitely, is it worth deploying a smart contract for the stop gap?

Bear in mind it’s meant to be a tapering solution not a change of regime to support LPs well into the future, because this APY cliff is kinda a short sight on the design team,

If we do it like larix they got a split of 10x for borrower’s staking their rewards (180 day lockup in LP). Plus an additional 100% APR for LP rewards. Borrowers receive the additional 100% LP reward APR as well since they own the LP. I have no idea how long it would take. Not entirely sure how they did it themselves. I would imagine it wouldnt be the same numbers we’d have to work it out.

Also I would add that Larix asks the borrower to put up the USDC half of the LP from their pockets, Larix will then donate the remaining 9X rewards to you, combine that with the rewards your staking, then deposit that and the USDC into the LP and lock it for 180 days.

If you choose not to lock up you do not receive the quoted Borrow APY listed for borrowing (distribution APR in Anchor’s case). You will instead receive 1/10th of the quoted rewards amount. This basically incentivised people to lock up their distribution into LP’s instead of selling off which in turn pushes back the sell pressure without having to actually offer any more rewards. Infact, even less is needed because they will get the kickback from the LP rewards as well.

Naturally this comes with impermanent loss risk however holding the tokens comes with holding risk, I bet if we look at how long people hold their tokens we would see the mode around 2-4 weeks. What larix does in this case is offer a lower lockup period with a lower return of 5x for 90 days. This would mean you would be receiving less distribution than the quoted amount however you will get your LP released earlier. I’m sure anchor can do 30 days, 60 days, 90 days instead of 90 days, 180 days and the effect on sell pressure would be the same since borrowers will continuously lock up their new rewards thus delaying that sell pressure as well.

Once the sell pressure from rewards is lessened people feel happier holding their tokens, the LP’s are LP’s so they don’t feel the price impact of the token as badly which is why I think they went with the 90 day and 180 day runways as opposed to 30,60,90.

You don’t get the point, it’s a smart contract, that’s not easy to implement, especially if we’re asking for a stop gap measure. Who is going to implement the new code? And extension of parameters is easy, new code and new smart contracts isn’t . We’d need to get audited again.