Anchor longevity potential "solution"

This will be likely controversial. I put the word solution in quote marks, as while I think it is indeed a potential solution (and something that regardless has to be done, in one form or another), not everyone may agree. But, I think it’s a discussion well worth having.

Easy solution to the Anchor reserve depletion problem, and maintaining the 19.5% APY for longer than just the next few weeks:

  1. Adopt Terms of Service (ToS) for Anchor Protocol. (Community vote.)
  2. ToS clearly lays out prohibited uses, which is gaming, leveraging aUST to deposit more UST (no matter how it’s done and circumvented), and any schemes which are intended to provide an effective APY higher than the current APY.
  3. ToS clearly lays out that any parties suspected of prohibited use will have their funds frozen and not available for withdrawal, for a period of no longer than __ days. When and if prohibited use is confirmed, the funds deposited will be confiscated [in full / in part - __%, with the rest available for withdrawal (slashing of sorts)].
  4. The ToS breakers’ confiscated funds will always go to the APY reserve fund.
  5. A small portion (0._%) will go to the individual or entity who reported the abuse, to encourage a sort of “neighborhood watch” by the community. Conversely, if a report is found to be unsubstantiated, then the reporter will not get their “report abuse” deposit back (to report abuse, have to deposit ___UST).
  6. Probably have to be establish some sort of community-voted, or even better fully independent professional (paid), oversight board/panel, to review the abuse reports. (This is the Internet, nothing good lasts without moderation. That’s the reality, as much as it may be tempting to deny it.)

This would solve both the reserve APY issue, at least for the short term, and the existential threat (IMO) of abracadabra/degenbox, and any other such future schemes. The risks from those are two-fold: (a) eating the honest depositors’ lunch (APY), and (b) reputational. With such activity implicitly allowed as it is not expressly prohibited, Anchor can never gain widespread acceptance or be regarded as safe by the public. The way for Anchor (and by association Terra) to grow exponentially is for it to become another vehicle where savers, pensioners (and those saving for retirement, or anything else) put at least a part of their funds for a (relatively) safe (though not insured) APY, and ultimately even institutional - where pension funds, endowments, governments and other mega-whales may park a part of their funds, for a much higher return than Treasuries, bonds and other “safe” assets, and sure rated at a lower grade, but higher than stocks (and obviously crypto). If Anchor can capture the mid-risk market in-between treasuries, bonds, and other ultra-safe assets (low risk) and equities and crypto (high risk), that is the golden ticket. But, that can never happen if parasitic abusers like abracadbra are allowed on Anchor. For Anchor to be taken seriously, and for its depositors to be better protected, there have to be some basic conditions of use. Nothing fancy, just basics disallowing obvious and damaging abuse.

For long-term stability, reputation, and to be able to grow (10x…100x), and to hopefully soon add other stables like EUT, AUT, KRT, JPT, etc., where there is a sizable hungry market for higher yield, this is a practically a requisite. A basic ToS disallowing clear abuse (and other things like outright theft, as just because there is a bug and one can steal, doesn’t mean that it’s acceptable to do so) and giving a way to recoup losses (on and off-chain) in case of abuse/theft is an important foundation, that will instantly give Anchor more credibility. A basic ToS combined with friction-less USD (ACH) on/off ramp (third-party), for both deposits and borrowing, with built-in included protocol and depeg insurance (so naturally a lower APY than the “direct” one), could make Anchor soar. And isn’t real-world adoption and use the goal?

That’s my thinking on this. Would love to hear what are the community’s thoughts on this.

P.S. I know that for some the first instinct will be that “this is the blockchain, anything goes” and that “if it can be done, then anyone can do it.” That’s an unrealistically utopian view, and it also expects the impossible from code alone. Taking such a naive view ends up sacrificing the many - the real users - for the benefit of the few parasitic abusers, and ultimately dooming Anchor as a whole. Of course, if it can be addressed in code, it should be addressed in code.


What metric defines legitimate usage? Abacadabra is exposing an issue, but what exactly makes it parasitic? If any mega whale, corporation or fund (all of which you define as legitimate) comes in with their mega wallets (unlikely in the short term but OK) they’d be depositing as much as Abacadabra is, if not more, and the issue remains. Are we to ban/slash users that mint mAssets with aUST, and then sell the asset, only to deposit the resulting UST on Anchor? Who does the investigation? Who’s the jury?

There’s no illegitimate usage of Anchor, the design “as-is” is unable to sustain the deposits, and that needs to be addressed. You’re defining parasitic as something you don’t do because you don’t want, like or can’t, I don’t care which, if you had 1B$ to deposit, should we ban you?

The problem is obvious, what we need is to work out solutions and avoid the whole discrimination bit, want to stop deposits? Do it for everyone, under clear metrics, much like insurance protocols do.


That’s easy. As I said

The intended usage is to get the __% APY published on a deposit. Intended usage is not to get X * __% APY as gaming, leveraging aUST to deposit more UST, or in some other ways getting higher APY that the is intended.

Large depositors depositing big sums, and just overall growth, is a problem to address with growing lending. It has to be addressed, and it is good that it is being addressed.

Intentional abuse, using schemes to extract a multiple of the published APY, however, needs to be nipped in the bud. Otherwise, once the cancer spreads, Anchor is doomed. And it is already spreading… time is ticking.

A secondary item to address, up on the horizon - but that Anchor will never get to, not if the parasitic schemes are not soon stopped, with an unmistakable finality (which, if done right, can also materially contribute to the APY reserve fund, point #4) - will be to address money laundering and terrorism funding. Every politician’s favorite topic. Something that no CeFi or DeFi can avoid, not in the long run, not if it is to blossom, and especially not as Anchor is taking deposits in, nominally, US Dollars (and not the SDR or some other such fiat-tied, but not any one jurisdiction tied, value, as would have been a wiser move if the intent was to escape government regulation). Having a ToS and some independent arbitration/decision making body (as much as it may hurt your ears to hear this) in place already will make it so much easier, already having the vehicle in place. A slippery slope? Absolutely. But it’s unavoidable. It’s up to the community and governance to get the balance right, and do what needs to be done to retain reputation and ensure longevity, but no more. A de minimis approach. Without acknowledging the reality we are in, Anchor will be swept up in the tsunami of regulatory DeFi over-reach. The smart thing, IMO, is to do just enough to stay above reproach and to ensure long-term survival.

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This is a bit too restrictive. We don’t need governance to restrict access and usage and that’s as someone against the degen strat. Legal for terms of service and etc wouldn’t be free and would take too much time to be relevant.

Check out the v2 forum post I think it’s the best solution brought to table so far albeit a large revamp.

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I’m not sure that restriction is the right solution, I can be mistaken.
A proposition, is to give the ANC token a real use case, by correlating the 19.5 APY to a lock up of some ANC tokens.
By default, the ANCHOR will propose an APY at 10% (or maybe less depending on the market situation).
And propose the 19.5 APY if you lock up some ANC tokens (the number of ANC tokens to lock up TBD).
This should drive the price of ANC up, and then the ANC reserve can last longer.
It also can starts an ANC war, and make the price go parabolic.

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The issue with involving ANC here is that it may destroy, or at least make far less appealing, the various third-party applications built on top of Anchor.

Alice, Yotta, and other fiat-cash-direct-to-Anchor services under development, where the third-party takes care of the USD <-> UST bridge, and you get to use your funds on Anchor as essentially an interest bearing checking account (if you use the debit card) or otherwise as a non-insured savings account, wouldn’t really work with ANC brought in. Too much complexity for end user. The whole point is that end user doesn’t touch or have to do anything crypto. It also adds more risk for the app developers, if they have to take on the ANC holdings.

Any added complexity, like having to hold ANC, deposit terms, etc. will take the best parts of Anchor and rip it out, significantly reducing its deposits growth. (Then again, increasing borrowing, or failing that reducing deposits growth, is exactly the short-term goal of the time… but long-term still I would think the goal would be to grow.)

Right now Anchor stands out as it’s simple, easy to use, easy to understand, and very easy for third-party apps for a whole plethora of uses to plug into. All the other “comparable” DeFi services are devilishly complex for the non-crypto user to figure out or even just understand. Take the simplicity away, and Anchor is a lot less attractive both for end-users using it directly, and even more so for real-world application developers.

Adding such complexity would tear to shreds the credibility of Anchor as a protocol that real-world (non-crypto native) applications can be built on top of, if the whole model of how it works is subject to change at any time in such a massive and material way. It could literally break the whole model of how some of the things being built on top if it right now are designed to work…

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IMO a ToS, or rather AUP (Acceptable Use Policy), is a must. It’s basically putting in words what is down in code: what is and is not an allowable use. Nothing on the Internet - literally nothing - can function long-term without a ToS or AUP. The lack of that also is a real risk as in case of an exploit, there may be no legal recourse against the party that has stolen the funds in Anchor, as they could argue “well, there is no ToS or AUP, so nothing sets out what I can and can’t do, and I just took the money that was mine for the taking through the exploit - nowhere does it say that is not allowed.”

That’s just my thinking on this…

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I believe smart contracts can be legally binding. It is more efficient to use them over standard contracts and would circumvent the need of a tos (by simply preventing the behaviour in the first place). If they breach (hack) the smart contract it’s the same as breaking the law (black hat hacker).

Otherwise there is no point in smart contracts or any defi money markets. You lose it’s selling feature over trad fi with a tos.

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The issue is that Anchor protocol as designed is not a good fit for a free and open market because it offers a free lunch. People will surely come and take it. Closing off with regulations and capital controls is the wrong path. We need to make it a real rate determined by actual market forces, and then integrate it far and wide.

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Yes, and of course everything that can be done in code (smart contracts) should be so done. IMO still would be good to have it written out in plain English what the smart contract actually is, what it entitles you to, what you can and cannot do. If for nothing else, for peace of mind, as not everyone can read code.

The point of smart contracts is for it to be self-executing, no need for third-party or any action to make it do what it’s supposed to. But there is no reason against not simply describing what the smart contract actually is and what it does. How it is now, everyone makes their own assumptions on it, for lack of a simple (all it takes is a few sentences) clear description. Making everyone review and have to understand the code just to know what they are getting into is off-putting, IMHO.

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Variable rate is harder to sell, especially when integrated with third-parties. Rate lock - and the yield reserve - is a big plus going for Anchor, and one that makes it so much more appealing for integration. Any rate changes should be announced a month or more in advance, giving all the third-party integrations time to react and update.

As for free lunch, that is TFL’s decision and nothing wrong with it. If TFL chooses to keep funding the yield reserve to keep 19.5% APY, all the more power to them. But I think also nothing wrong with it being “ONE free lunch” vs. “all-you-can-gorge free lunch” (which is what the abracadabra abomination faciliates).


I understand your point here, and I’ve been trying to talk about this for a while. Ultimately, we have to make a compromise somewhere, we either sacrifice freedom/anonymity (your proposal), rate stability (variable yield proposal), or simplicity (gated yield with ANC required for higher yield).

The issue with your proposal is how would there be enforcement? The whole value to DeFi is that communities don’t need to deal with enforcement as long as the rules itself can be modified to prevent situations from occurring in the first place. We need to change the rules, not restrict financial activity. Also, I simply can’t see enforcing any form of code of conduct or policy without sacrificing anonymity and inviting room for abuse and misconduct in enforcement. There is no way to stop banned individuals from simply opening new wallets and continuing “parasitic” yield farming strategies again. Unless you start requiring identification requirements for whales (which sacrifices anonymity), there is no real solution.

I argue, and have been arguing for sometime now in these forums, that gated yield is the ideal option. Putting the responsibility on large institutions to deal with the complexities of ANC acquisition is the only way to both stop the drain of the yield reserve and bring a source of buying pressure into ANC. I believe large apps will be able to develop business models that anticipate the speculative nature of ANC, and their fiat yields will be adjusted to be lower than direct UST yield in Anchor as a result. Banks today have far more complicated lending and underwriting models than something needed for this.

Overall it’s easier to depend on these upcoming financial institutions (that will become the banks of the future) to make do than to rely on the market to create a stable rate, or some enforcement body to ensure inflows into Anchor.

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What you are saying makes sense. It’s not ideal, but can work. It does make Anchor less attractive though.

However, it still doesn’t address the parasitic abuse problem. If the legitimate app developers can deal with this, so can the likes of abracadabra (shifting even more risk to their users).

What I was thinking wouldn’t add KYC, and could be largely addressed in code (trace the origin of UST deposited on-chain and cross-chain, it’s all public record anyway), but yes a community reporting of abuse channel may be needed. Upside is, it would help to fund the APY reserve fund - so it’s a benefit for everyone.

Good idea but I would go with a higher 12-14% base rate to be competitive and higher rates for those holding ANC tokens. The lock-up might not be needed. Third parties protocols using Anchor could have the higher rates by holding ANC tokens but I would restrict their voting power as they would most likely hold a huge portion of the ANC supply.

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Totally support the idea of individuals and third parties needing ANC tokens staked to unlock the full 19.5%, it integrates ANC into the protocol and drives it’s value giving it a bigger purpose - much like the Nexo token.


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Not sure if this is the right thread for this but wanted to add a potential solution / idea around making Anchor more sustainable in the long term. The current core issue around Anchor is if the deposit side grows a lot faster than the collateral / borrow side eating into the yield reserve at an unsustainable pace (This is made worse in bear type markets obviously). Although proposals like Anchor v2 , which will enable more bAssets and a faster time to market for assets, will alleviate the problem a bit it probably still wont resolve the issue in the long term. The change to 80% LTV is also a positive move but again don’t really think this will dramatically resolve the issue long term.

In my view the way to really resolve this sustainability is to have a solution that scales together with the amount of deposits - i.e. As Anchor attracts more deposits the deposits themselves generate cashflow that can sustain the earn yield. A potential way to do this is by splitting the deposits into two “Types” :

  1. a fixed deposit type investment where you “lock” in the rate (and potentially the timeframe as well). Think of this as a “Preferential Share” type concept. You deposit $1000 and you are guaranteed to get a base rate of 19.5% APY which will be funded by the Anchor protocol income + Yield Reserve. Lets say instead of aUST you get sUST. If the yield reserve is depleted then any deposits that utilizes option 1 gets preferential rates from the income and once the yield reserve is build up again the 19.5% yield can be topped up again. The key difference here is that the actual funds that is deposited is now available to the Anchor protocol to be utilized to generate additional income to sustain the base 19.5% yield + sustain the yield reserve. Some options that come to mind here is :

a) Use concepts like “White Whale” to facilitate income from arbitrage
b) Using the funds on Kuji and swap immediately to UST for small % gains while protecting capital
c) Simple low risk income generating type investments

So basically as a preferential type deposit you gain the benefit of a fixed 19.5% apy but you sacrifice the ability to use aUST for further collateral or yield generating options. Anchor gains the ability to use this deposit to generate income to sustain it’s yield and build up the reserve. This solution then is also scalable in the sense that the more people that deposit the more funds become available to sustain the yield ( obviously still negative but a lot more sustainable than trying to depend only on the borrow side).

  1. When opting to not go the “Preferential Share” route and just normal Anchor earn - you get the variable rate of 19.5% and in return you get aUST as per normal. The difference here then is that if the yield reserve is depleted you will get what is generated from the protocol - yield paid to sUST holders. The upside here is that you can use aUST as collateral (In Mirror or Kuji for example).

This proposal focuses more on leveraging the deposit side and trying to find ways of making the protocol sustainable irrespective of the amount of deposits that flow into the system (even if the borrow side lags behind).

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I think simplified, yield reserve only applying for term deposits and not for flexible deposits, those are on variable rate, does sound intriguing. Fair, and simple. Term need not be long.

I think it may throw a wrench in many apps being built on top of Anchor though, like Alice, Yotta, etc. Then all of a sudden it’s less attractive.

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Time deposits are the best solution to make productive use of idle UST of which this is over $4 billion right now.

These funds can be deployed in lending platforms such as Mars and low IL loss pools, perhaps some even can go off chain in the highest rated platforms (like Curve, Convex, Compound, Aave). Yield strategy can be managed by monthly governance.

Anchor should move to an ‘Instant Access’ plus 30/60 day (locked or withdrawal penalties) to retain headline yields.

The yield on Instant Access should probably land somewhere around 10%, which is amazing for all the apps such as Kash or Alice. They can still have access to the higher rates if they choose to.

Once cross chain / Anchor borrow V2 has been rolled out, this should be the next focus area.

Also fully agree this time locked version of aUST should not be able to leave the platform.

Off chain going to other platforms for yield (and having to use other more popular stablecoins in the process) sounds a lot like OUSD. It’s not doing so well. 30 day avg Yield went down from 26% to under 12% in a matter of less than two weeks. And doing so would add a lot of counterparty, different chain and smart contract risk, not to mention exposure to USDC, USDT, etc. And it’s just not sustainable long term. Just look at OUSD, and that is with just 1/3 of deposits getting earn.

Anchor should remain passive, not be actively managed yield strategy investments. There are already vehicles for that like OUSD. Anchor can’t be multiple things at once.