Anchor Earn vs Borrow. growing chasm

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!

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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.


This is why I mentioned the open protocol initially, the idea that we need to do something about the MIM degenbox strat feels so anti-crypto, it’s kinda hard to process tbh. We’re providing a product, they’re using said product, end of story.

What we really need is to discuss how to make borrowing more enticing, I’ve seen things around changing the liquidation threshold and I like that, I also believe it’s worth discussing stopping the LP rewards and moving some of it (not all) towards a better reward system for borrowers, I for one would love to see a system reward lower LTVs more, liquidations when handled are neutral for the protocol but can quickly turn dangerous (we’ve seen that before). I don’t understand why rewards would be negative while we’re still depleting the yield reserve.

We should also discuss integrations with other protocols, that would make borrowing transparent to the end user, right now Nexus is not enough because they borrow and earn at the same time.


As of 20 minutes ago, TIME/Wonderland has put another 48,036,592 through loops to get yield on Anchor at 110% APY, meaning $52,840,251 in a year. This represents 70% of our current reserve.

Obviously we have lots of inflow so it won’t drain the reserve 70% over the year, but it 's just to show that the looping is not stopping any time soon and we need to make changes to address or compensate for it.

That being said I think the looping does not seem very healthy especially when it’s scaled up to the 1.1B it is.


Sarcasm doesn’t translate well through text on a forum sadly. As for the assumption, it inherently includes the changes in deposits and borrowing and their effects on the yield reserve over the last ten days.

Check out the statistics page on Abracadabra. I see an LTV of 90.28% for the UST strategy. I see 794.44 MIM borrowed from 879.97 UST. It appears to me that users are not taking advantage of the leverage. Perhaps some are doing manual leveraging but I’m doubtful given how quickly it sells out. From this view, it seems the basic UST, non leveraged strategy for 16% APY is the preferred option for the current users. Basically, borrowing against aUST to mint MIM, not much different than Mirror. Unless I’m misunderstanding something here?


Thanks so much everyone for the intelligent and thoughtful discussion. I definitely learned a lot! It sounds like Matt Cantieri is going to speak on the topic tomorrow. Greatly looking forward to it

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Well it seems the health of the Anchor Protocol is actually not a consideration.

The UST being supplied to the Ethereum Curve pool is based on the demand for the Degen Box without any impact analysis on the Anchor side.

Can this subject be picked up in the AMA?


I think that’s at the core of what the community cares about and the Anchor team. We have some new ideas that were presented to us to gain more traction. Bringing an Anchor cross-chain with a wormhole can be huge for protocol stability. It’s one of those things that will be brought for discussion here soon! As well as exploring ways to tax short-term rent-seeking deposits etc.


Can someone please explain how Anchor is being exploited by MIM?
User dm_ss stated this is done through loops to generating 110% APY. What does this mean exactly?

I don’t think any protocol can survive something like that, if in fact this is what is happening.

It also doesn’t help that we have perfectly good borrow positions being liquidated due to (terra’s) faulty price oracle that strains the protocol yield generation and reserves. It is being discussed in the other thread (Anchor Oracle Price Discrepancy on December 9th).

Not to mention that Anchor’s poorly designed liquidation algorithm which liquidates at 30% discount will forever push Luna price down. This must be changed ASAP into something more competitive like the Maker DAO uses for example.

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We are working out a proposal to help the deposit side with lockups and I think maintaining a ratio of bLuna/aggregate bassets to earn deposits could be instituted to prevent rush into the deposit side. - protocol could pause deposits until ratio is corrected - something like that - even a top out on the max deposit per top tier earning account could help greatly.


Basically, MIM is engaging in massive fractional reserve banking as follows.

  1. You buy $1000 MIM vs $1000 UST
  2. You put that in a MIM-UST LP pool. You get 1000 MIM-UST LP tokens.
  3. Daniele Sestagalli (MIM founder) makes a deal with Curve, Yearn, other DeFi bigwigs where staked MIM-UST LP tokens (call them sMIM-UST LP) are good leverage collateral at an 80% loan to value (LTV) against his $2000 value of sMIM-UST LP. Since they’re both stablecoins.
  4. Sestagalli takes his 1000 sMIM-UST LP tokens, which he now owns, and puts them somewhere else as collateral for more borrowing.
  5. Sestagalli borrows UST$1600 against his 1000 sMIM-UST LP.
  6. Sestagalli converts half of that from UST into MIM.
  7. Sestagalli now stakes MIM-UST with another $1600 (getting 800 sMIM-UST). He is now a fractional reserve bank with around 64% reserve ($2000/$3600).
  8. Sestagalli rinses and repeats for several more “loops.”

This is called carry trading and it works great when you have a protocol giving out extremely fat yields for free as ANC does. The question is why ANC’s principals, who are smart, are letting themselves get played.

I think the answer ties back into a) maximizing liquidity staked into the Astroport launch; and b) the fact that Terra is in the late stages of negotiating a deal to bring several major outside investors into Terra, i.e. Terra / TFL is currently extremely incentivized to maximize UST/LUNA price and are pulling out all the stops to do so.

Sestagalli’s Degenbox is useless hot money that doesn’t actually underwrite any borrowing and will leave the moment ANC’s “free lunch” isn’t relatively attractive.

Again, ANC founders are smart. They know this is a short-term game. My guess is that they are heavily invested in the Terra/outside investor deal, and also very heavily invested in Astroport (which explains why 3 days after Astroport phase 2 launches, they want to rug all ANC-UST LPs who locked up into Astroport for a long time).

  1. Correct me if I’m wrong.

Suppose he loops 6 times with initial deposit of 2k… he effectively controls $6.3k worth of UST/MIM. But in none of the steps you mentioned, none of it is hitting anchor. So are you saying that by abra using fractional banking to collect LP token rewards for themselves? That’s their “benefit” of promoting the degenbox?

  1. who is lending out UST against MIM-UST LP token? (URL appreciated)

another side topic - (im trying to wrap my head around how abra is doing this w/o being parasitic to anchor)

In their article, they claim they are bridging aUST back to eth mainnet. How are they “converting” aUST back to UST w/o waiting for yield to happen? Is there a protocol that lends against aUST?

Their UI says they are “lending” MIM in this strategy… but i thought why would they be lending out their treasury at 2.5% when they can use it to get 20% directly for themselves? unless they had another reason (i.e. collect more governance token at CRV for example)

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Abracadabra is a protocol for a debt-based stablecoin $MIM, debt-base stables are minted by adding collateral, so essentially users are borrowing the $MIM from the platform using debt, why would anyone do this? To do leveraged plays without selling the assets they love so much.

How does the degenbox work? They accept UST, but $MIM is minted using $aUST, so they deposit $UST, send it to Terra, deposit on Anchor and then bridge the $aUST back and that’s what is collaterizing the $MIM debt.

When they loop, what’s going on? After minting the $MIM, they swap $MIM for $UST on the Curve pool, and repeat the process, they do this as many times as the user wants for a leveraged play, the user never receives any $MIM in this case. If the user wishes to close the play, they use flash loans to repay the debt and unwind the loop.

What does Abracadabra benefit? Fees. When you mint $MIM you have a borrow fee (each loop will pay this afaik) and then you also pay interest, in the case of the $UST pool it’s 1% borrow fee and 2.5% anual interest.

Hope this clears things up.


If they are minting and dumping billions of $MIM into Curve’s MIM-UST pool to convert to UST, how are they able to maintain a stable peg of 1:1 with UST? Shouldn’t that break given the mismatch between demand of MIM and UST. Or is there another MIM-UST pool with arb going on?

I am not 100% sure of every mechanic, @paletas seems to have a better handle on that than I do. I just wanted to explain the general concept.

The problem for ANC is when Sesta creates a UST deposit on the Anchor platform and gets his 19% deposit rate. His deposit isn’t doing anything productive since we can’t lend against it. He is just milking a free lunch.

So the question is why do the powers at be at ANC want to create a useless asset? Well, since it’s a lot of extra “demand” for UST, it does pump the price of UST. The smart question is, why do the founders/whales of ANC want to sacrifice the longevity of ANC for a hot-money UST pump, and what does this have to do with the launch of Astroport?

Guys, this is a TFL/Abra collaboration.

The Degen box has been put in motion to achieve a specific purpose of rapidly inflating UST supply. Anchor protocol’s sole existence is to increase the supply of UST. There’s nothing anyone can do to stop it.

There’s no long term sustainability for Anchor deposit yields.


Agree with you on Degenbox / UST demand (I think it’s a short term demand engine for UST which pumps LUNA) but disagree about yield sustainability.

In my understanding, UST deposits are converted back into LUNA and staked. That staking yield (8pc or something plus airdrops) is the foundation of the UST deposit yield. ANC probably plays the arb game with this too, converting back and forth in size between UST and LUNA as the peg gets volatile.

For bonded LUNA it’s the similar but the economics are very favorable for Anchor. We lock LUNA up for Anchor. Anchor stakes 100pc of our LUNA at Terra Station and gets 6-8% staking yield on 100% of bLUNA. They let us borrow against 25-50% of our LUNA (let’s say we deposit $1k of LUNA and borrow UST $250 against it). They charge us 20% UST borrow on it, but pay us 20% in the form of newly issued ANC tokens. We feel like we are borrowing money for free while still being long LUNA. ANC gets a net benefit as long as we are borrowing ~40% of our deposit or less bc we are letting them capture the 6-8pc LUNA staking benefits on 100pc of our LUNA while we are getting paid 19.5% on a fraction of our LUNA.

So there is some long term sustainability, it’s a function of LUNA staking yield ultimately.

What I don’t understand is how the Degenbox helps any of this in the long run

Sure. There is probably some degree of plate spinning that can be done to prop up the yield for longer.

Unfortunately it is becoming clearer by the day that it’s a losing battle. The recursive leveraged UST coming in from Degenbox isn’t going to stop and TFL are going to keep facilitating it.

I have resigned to the fact we probably have a few months left of 19.5% APY before it swiftly declines.

I am becoming far more concerned about loss of the peg since it’s clear White Whale are not going to rescue it in a flash crash.