Anchor Earn vs Borrow. growing chasm

Hi folks, just an observation that I’m sure many have made. I’m curious what thoughts are on the continuously increasing gap between borrowed funds and Earn deposits. This topic has been brought up in the past, when the gap was much smaller, but might be worth evaluating with the more recent divergence. Thank you


Perhaps it’s worth discussing the $700M of leveraged UST being looped back into EARN via the Abracadabra degen box?

By all accounts this is going to grow exponentially larger over the coming weeks and months.

Also has anyone carried out any analysis on the impact of $700M of UST being liquidated in the event of a flash crash?

Perhaps TFL need to get together with Abracadabra and discuss these risks before giving the green light for apes to ape.


It’s an open protocol and network, everyone can (and should be welcomed) to integrate with, it’s up to Anchor to figure out how to keep borrowers interested and if Abracadabra did swap the UST to some other stable, or decided to mint the LUNA back, then let them, that’s how the system is supposed to work.

We can’t expect to control (or that TFL would) what everyone does on an open protocol, that’s why most love crypto, it’s a system where everyone’s supposed to get access to the same opportunities.


I am not saying we should try and control them to stop them providing this leveraged strategy.

I am saying we should absolutely monitor this and be aware of any potential systemic risks in the event of a wide scale liquidation event.

We definitely need to be mindful of the EARN/BORROW balance in that we don’t end up with a huge unexpected shortfall that results in a vastly lower deposit APY.


I had the similar thought last night - similar to the other conversations related anchor tokenomics, I feel like we need a way to align the interests Anchor governance with the broader ecosystem. While this Abracadabra degenbox strategy increases demand for UST (and therefore Luna/Terra), I fail to understand how Anchor stands to benefit. It seems like the protocol is just paying those who are outside of the Terra ecosystem (and specifically those who are following the MIM Replenish twitter to get leveraged, 100%+ stable returns) without any clear pathway of encouraging borrowing behavior


My personal opinion is the MIM degenbox strategy is a parasite on the system. It sucks yield out and offers nothing back on the borrow side to balance it out. It will simply usher in a lower APY for all for the sake of apes being apes.

We are going to be stuck with this problem. Those exponentially growing leveraged positions are only ever going to unwind in a freak liquidation event. We really do not want to wish for that.

My understanding is that TFL are encouraging it by providing incentives on the MIM-UST curve pool. Let’s hope they aren’t facilitating the creation of a monster.

This needs raising in the next AMA.


I generally wonder, as many others, about the sustainability of the deposit. I know its been repeated multiple times the current ~20% yield is expected to change over time, but it just seems to me that the EARN side of Anchor protocol is being heavily utilized (not only is it used for leveraged stablecoin farming like MIM, but also broad exposure like Orion, Glow, etc.), whereas you don’t see that growth on its BORROW.

In contrast to protocols/dapps being buit on the EARN side, the BORROW side of the business will come under increased pressure as other competitors enter the space. I’ve seen several comments about Mars, for example, and although solving a slightly different use-case (i.e. providing broader money-market exposure), it wouldn’t be a stretch to suggest more players in the space will also surely put some pressure on BORROW as well.

EARN fees seemed to have a mixed reation in a previous thread, but I don’t see how else Anchor can benefit from those who are outside our ecosystem (and who have no real intention to provide collateral/borrow); I generally feel pushing some of the Earn deposits back to either reserves and/or stakers will diversify the revenue streams wherein Anchor can sustain itself on that side of the equation at a negligible inconvenience to the average Saver.

While some are citing that deposits as a “safehaven” in bear markets as justification for tempered growth, as Terra and broader crypto adoption grows rapidly, I could also foresee deposits growing regardless as more people move their fiat savings either directly into EARN or through any of the myriad protocols/dapps being built on top of anchor.

Fully agree that the Anchor community should bring these conversations to the team as we all have a vested interested in success


New member on the forums but heavy borrow user.

Adding more bassets isn’t going to be the magic soup dev team is hoping for. I’m sorry but if you don’t decrease LTV liquidation risk it’s too risky to borrow more even with collateral value increased. And this is in a competitive market anchor one of many lending protocols to lend usd at -%.

If we’re talking money market, your charging a 40% LTV liquidation risk while your competitors are charging 17%. Same interest rate. (Binance Liquidation LTV is 83%. 0% USD rate for staked assets).

If the deposit APY is dependent on borrowing volume it’s not sustainable with Danny’s MIM toy. We actually HOPE that MIM apes all get liquidated to restore market balance otherwise your going to be offering 0.5% like the bank does soon.

Otherwise If you want people to borrow more then you have to increase the LTV liquidation ratio to something like 70-75% versus 60%, it’s just too low a rate. Increasing the rewards rate to negative interest rate for borrowing is an alternative option but leads to ANC inflation and puts the protocol in debt.

Offering liquidation insurance is another option or borrowers insurance however like devs mentioned before insurance is the slowest financial sector to move and MIMtoy is gonna reck your depositors yield long before that.

IMO I think the protocol is already in debt with its ANC buybacks and liquidity renting (liquidity rewards). The ANC token has no mechanisms to capture and accrue value. What does ANC do to generate yield that doesn’t put the protocol in debt (providing ANC as rewards)? Great windfall getting all that bonded Luna and borrowing started but it’s more than obvious how unsustainable it is. Reserves is like $70M usd and the defect between borrow and earn is $2.3BN that means every day there’s 2.3BN in open interest to cover for the 19% APY. Where is that open interest going to come from? ANC printing? Yield Reserves? I pay in my secured bonded asset yield for your in debt protocol that provides no real economic value aside from tricking me into thinking I’m borrowing at 0%.

Either that or you lower earn APY and drive depositors off platform.

Borrowing APR and ANC rewards dropped a couple percentages over the past couple days yet EARN is still 19.5%

To me I think it’s obvious Borrowers are getting leeched for their asset yield and assets. Why is my ANC rewards for borrowing only on what I have borrowed and not my total collateral when Anchor is collecting the total yield on my collateral? Why are they still paying to depositors 19.5% APY when my ANC rewards APR for borrowing is dropping and how when my interest rate for borrowing is dropping? Why are the devs renting liquidity. Why is yield reserve dropping daily? Why is protocol buying back ANC with yield reserves. How does any of this assist or incentivize in borrowing which is the main issue since MIM train went online?

Like I said before unless risk of borrowing is addressed bassets will be decolateralized and deposit APY will suffer eventually once their coffers run dry. At the moment the apy is sustained by protocol debt, dumping that debt onto borrowers, robbing bonders who collateralize. All of which is eventually funnelled back into EARN to keep the gravy train going.

Yet developers are focused on more bassets as if it’s their golden chalice, not like this hasn’t been done already.

Beth is like 400m compared to bluna 3bn+ yet they clamour like it was such a big growth driver for borrowing. And that’s the MOST ECONOMICALLY PRODUCTIVE CHAIN.

Anyways I’m out, that’s my rant. Personally I love the protocol and will still keep using it but something must be done about the EARN APY or BORROW LTV the two must be directly correlated to demand and right now I think there is trust and branding damage being done by letting Danny’s MIMtoy run rampant on a good protocol.

For example of my idea: if ltv was raised to 75% it would directly raise borrowing volume by the 15% increase as people could borrow more at the same risk.


Thank you for articulating this so well! I can’t see how you could be wrong. Concerning…

1 Like

It appears that when the yield reserve is growing the focus shifts to the Borrowing side. When the yield reserve is shrinking, the concern turns to the Earn side. I would say neither are a major concern right now. Its a balancing act between Earn and Borrow, one that is never perfect and always shifting.

Also, I often find it funny when folks complain about the staking rewards being used by Anchor and that being called stealing. In reality, if Anchor didn’t exist, you would take your LUNA to some place like Aave, stick it in there and take a loan against it. With Aave, you already forgo the staking rewards by using the LUNA as collateral, are they stealing the rewards? No, its opportunity cost. So what difference does it make if Anchor asks you for the yield bearing staking derivative of LUNA instead of LUNA itself, the cost difference of which is marginal for the user to create.

There’s less than one month left in the yield reserve if it continues to fall at this current rate.

Probably nothing.

Not to be too dramatic, but if true, … potentially catastrophic

I said its a balancing act, as recently as 20 days ago we were adding 0.5M UST a day into the yield reserve. As of right now, the yield reserve is decreasing by about 280k UST a day since December 10th. The yield reserve has 75.8M UST. It would take roughly 270 days for the yield reserve to deplete at the current rate, not 1 month, not sure where you got that figure from.
Terra.Engineer | terra1tmnqgvg567ypvsvk6rwsga3srp7e3lg6u0elp8 Terra.

Now, if that gap were to actually cause full depletion in a month, I would be concerned but its not so no, not a big deal at the moment.

1 Like

Of course i was being sarcastic on the less than one month claim, but your figures assume that we remain at the current balance point.

We’re already seeing the rapid impact of $700M of leveraged / looped UST. What happens when that becomes $2Billion, $10Billion or $100Billion?

I am merely asking the question now since it is impossible to unwind it without a significant liquidation event. If this gets out of hand it becomes a systemic risk, not just to the yield but the entire Terra ecosystem.

Who is monitoring this situation? More to the point, who is supplying the UST into the MIM-UST curve pool and what is the strategy behind it? I’ve not seen any comment from TFL anywhere.

1 Like


The leveraged UST will force borrowing cost to raise reducing collateralized assets in a vicous de-leveraging cycle that is not accompanied by liquidations but by rapidly reducing deposit interest rates with NO way of recovering the de-collateralized assets.

Most of the collateral growth is from Luna price appreciation while most of the deposit growth is from new leveraged deposits. So you have a high risk debt market (price rises are always met with retraces) and an overleveraged savings market which relies on that debt market otherwise it will de-leverage as well. (aUST value will drop if deposit yield drops into negative, which it can, thereby rapidly starting a de-leverage spiral). As leverage increases depositors will try to vote in governance proposals to extract as much value as possible from bonder’s and lenders to avoid an aUST de-leveraging.

20% interest is only possible with a sustainable growth model not some defi degen shitstorm thats brewing on the protocol before our very own eyes. otherwise anchor is very quickly going to be the federal reserve of crypto with a 0.1% overnight rate and capital fleeing it rapidly.

1 Like

Basically this…

We will also soon have Kinetic Money which may create a similar story with leverage looped deposit inflow, but at least that UST has freedom of movement within the ecosystem.

This Abracadabra degen box is a parasite that benefits nobody apart from a small percentage of apes and SPELL holders.

I have no idea why only a handful of people are concerned. It needs raising urgently in the next AMA.


Yep, especially when this was said at the last AMA:

23:00 Which metrics are most useful to assess the health of the protocol?

The main two metrics are the borrow yield (inflow) versus the earn yield (outflow), with the yield reserve serving as a nice buffer between the two. Everything else kind of makes up these two main metrics: so long as there is more inflow than outflow and we have a plan to keep things this way, then we have a good business model.

Yes, if all things stay the same right now and we as a community don’t come together around ideas to expand Achor’s footprint then we have problems. As @somethingelse stated, we’ve seen this back and forth before.

I think the important thing here is to expand the ideas to grow Anchor’s borrow side and not vilify other protocols using Anchor as it was intended. IMO we need to be working to push Anchor to other chains to facilitate more borrowing there. More to come on that soon!

1 Like

I agree we do need to work on the borrowing side. However, we must address this Abracadabra Degen box situation ASAP.

They have just printed another $500 Million MIM and it’s now sat at £1.1 Billion UST being looped back in.

Can somebody from TFL confirm what’s going on here?


What exactly do you want to know? TLF didn’t have any part in making this happen. Certain Luna community members encouraged the idea, including Do. However, Anchor is a decentralized protocol that allows any other protocol to plug into it. The real question I see here, as mentioned before, is how to drive Anchor’s footprint to other chains to encourage more borrowing. Also, should we address lowering the APY or changing it to an algorithmic one? Lots of plans need to be made soon to help drive things in a more sustainable direction, IMO.