Anchor v2 Borrow Model

maybe add a way to schedule payments from anchor earn to pay interest on m-asset debt? that way interest could be collected over time, but users wouldn’t necessarily have to manage their LTV manually each month as interest ticks up.

this would also make is easier to onboard depositors as borrowers, which would help bridge the growing chasm. if every depositor was also a borrower, maintaining the 20% earn apy is a lot more more sustainable over time. the reverse might also true, as borrowers on other networks would have a vested interest in keeping some ust on terra.

you could eventually improve this ui experience by letting users dip into their savings in periods of volatility to prevent unwanted liquidations. if m-asset XYZ drops below a threshold set by the user, send X amount of UST to pay back the loan from anchor earn. if the asset returns to safe levels the user can than increase his LTV accordingly and deposit back into anchor earn or wherever else.

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We were simply just looking at cashflow. It’s pretty basic:

aUST funds area already comingled, i.e. auto-compounded and lent back out to borrowers with a utilization ratio that is way above what is actually lent meaning there is plenty of cash-flow barring a major bank run. This is how Aave, compound, and many other lending platforms work.

This model is really not any different from the current model where loan holders don’t pay the interest until the end of the loan as well. The only difference is the staking return cash flow which will not be significant enough to dry up cash-flow.

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They do work like that but Anchor isn’t like them, Anchor has a somewhat fixed rate right now and a yield reserve, Aave doesn’t need to deal with the optics, and consequences, of a depleting yield reserve… How will we replenish the yield reserve if people aren’t paying? Should we go back into full bull market, why would anyone pay back their loan?

I feel like this is a big deal, and should be addressed properly, before we put up a vote.

Can we pin this thread as well as make some edits to the original post explaining how this aids yeild reserve and borrowing issues that are well known now.

Could we also link the v3 forum post to the OP on this thread.

I think these two threads are the primary ones the community should focus on regarding the current yield reserve and deposit utilization (borrowing demand) issues.

Edit: OP already explains how this aids the current issues so really this thread should just be pinned. It helps new users understand what’s going on at the present and how the community is working on addressing the issues.

@bitn8 What do you think about the possibility of adding a time locked deposits in conjunction with stable interest borrowing?

It could potentially add more borrowing alternatives and offer better apys for those willing to loan their money for longer periods.

I must point out that I am not proposing a similar method to aave where borrowers take a stable loan from a variable deposit pool. But rather stable borrowers borrow directly from stable/time locked depositors.

I would speculate that, eventually with enough competition for higher yields, time locks would become the most used option and the stable borrow aprs would be very attractive (attractive meaning low) as well.

That could make anchor the leading platform for both stable deposit AND borrow interest rates…

How does it sound to you?

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On a base level, it makes sense. However, on a coding level there are two ways to go about it: 1. time-locked aUST would have to go to a separate contract, which then limits the fungibility of aUST. 2. Reward the entire aUST mechanism, which would be a major overhaul.

The reason there hasn’t been consensus around one idea of the idea first laid out about being easy to plug into.

I am starting to lean towards a type of model which would pay a boost rate (boost rate APY would be what deposit_rate APY would be lowered by) to users who lock of x% of aUST in ANC governance. Ideally, a vote-locked escrow model that determines xANC boost amounts etc. However, this would have to come after v2/

Do note, this is my personal opinion, it takes getting all stakers on board to make something like this happen. We have no shortage of ideas, we have a shortage on majority of stakerhold cencenus around several idea

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Hey @bitn8 I see a couple of others and I have raised the issue of the reserve. What do you think of Anchor selling accrued staking rewards so that borrowers withdraw the same Luna value of LunaX as when they deposited. Anchor sells off the accrued Luna to continuously top off the reserve?
Example:

  • Collateral Deposit 10 Luna’s worth of LunaX
  • LunaX accrues to 11 Luna. Anchor sells that 1 Luna for the Reserve.
  • Borrowers pays back loan and gets 10 Luna back.
  • Repeat every 8 hours or so.

Human nature. This means Anchor can still charge lower APRs on loans. In reality, borrowers are paying the same, but since their collateral is paying part of the APR, they will see a smaller number. This will encourage borrowing compared to a big number.
Not everyone will do the math to compare collateral Eth on Aave vs bETH on Anchor, they will just go to the lower APR.

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Good idea and something that has been brought up. However, it seems like this complicates the model a bit more than it needs to and would cost the protocol swapping fees as well.

The idea is to wrap the staking tax into the distribution APR display to show you are getting part of those funds back as it is making your loan cost cheaper. It is also the additional cost of your loans on Aave, comp etc. where you don’t get distribution APR to help lower your cost of the loan because the protocol is not taking staking returns. It’s all about the presentation and messaging.

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If it is convincingly presented to a naive user that net APR on Anchor is actually less than on competing protocols (like Aave where staking is not used), I fully support Anchor V2. I agree that it is all about messaging novice borrowers.

Thank you for considering my worries.

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Mentioned this in the “cross chain anchor” thread, but maybe this is more relevant here, so reposting.

With sAVAX and cross chain anchor on avalanche launching soon, is it time to vote for more audits to be done on the borrow v2 model as well as cross-chain anchor?

@bitn8 would new audits be necessary or would any completed audits be shared with the public soon?

We can salute the econometrics efforts
So i m chilling out to see the model in prod
Thank @bitn8 and the rest of team .

It get better and better , great job let go

@bitn8 After we get Anchor v2 approved and online, shouldn’t we also consider increasing the target usage ratio? At the moment it tracks 60% if I’m not mistaken, increasing it to 75-80% should result in more incentives to attract even more borrowing.

The risk would be most wanting to withdrawal their deposits at the same time and Anchor only able to fulfill 20% of that, but that risk seems less and less likely each day.

It’s certainly something to look at, but it will also cause more borrow emissions as well. Lets see when we start running into this issue again lol

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Great point - totally agree that we need a single net APR number in the UI, the psychological aspect can actually have make-or-break impact in this case.

@bitn8 I’d be super happy to provide feedback - whenever you have any designs/wireframes for how the new UI will look, it’d be awesome if you can share them.

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@Kamil thanks , I m working on that.

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I’d like to bring this proposal back into the spotlight, with the addition of sAVAX that no longer complies by the rules of POS collateral with the yield being paid to the protocol, on top of the borrow APR, other collateral types are now at a severe disadvantage making them even less attractive. We should not take to long making all collaterals alike…

Dynamic Earn Rate is now going to be approved, the longer we take to fix the borrow side of the equation, the lower the rate will go.

@bitn8 Has any progress been made on this proposal, or has all focus shifted to others?

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One click borrowing is not on the immediate roadmap due to the long execution times (20mins) over wormhole for Polygon and ETH. Meaning, we really need one click to borrow to make this work. The idea would be to deposit a non LSD collateral, say ETH, and instantly get wrapped UST, while on the backend it stakes it for stETH and sends it over wormhole to Terra side.

We also need to clean up the UX/UI but that is still being backlogged due to all the chains we have to build front ends for now.

What is the current status of the v2 Borrow Model?

The discussion did not seem to conclude with a clear action statement (as in: some people started working on implementation).

Can anyone bring some clarity, please?

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@bitn8 when specific info will be revailed? this is before veANC?