Anchor v2 Borrow Model

It sounds too complex for my understanding but “simple” enough to implement. If only 1tx is required then it seems totally feasible!

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No, for that you will have Mars protocol in a few months.

With Anchor, you borrow UST with staking derivatives and yield bearing defi assets.

I think this point is the most important. Right now, bAsset yield tops off the reserve without borrowers needing to pay their loan. I think voluntary/periodic collateral liquidations can answer both questions. This will leverage the new liquidation queue’s low premiums.

Anchor can receive 10 mSOL which represents 10 SOL as collateral. As mSOL accrues value it will represent 11 SOL. Anchor can periodically liquidate, at a 1% premium, the accrued value of the collateral and use that to automatically pay back loan interest. In this case, sell 1 SOL worth of mSOL, use that to pay collateral, and top off the reserve. This will allow borrowers to pay their debt to Anchor while not having to use the UST they borrowed.

OR, instead of automatic periodical liquidations, Anchor can also allow borrowers to trigger self liquidations at the minimum premium to pay back loan+interest. Borrowers can liquidate the accrued value or more if they wish.

Using accrued value as a form of payment will net borrowers the same loan APR as they are paying now (base interest + yield interest - yield accrued).

EDIT: This will address the long onboarding process of new assets, but will not have the “fewer middlemen steps” benefits you mentioned.

I don’t see how this model is more complex?

In fact it simplifies everything tremendously.

Think of it in this way:

Collateral side: mSOL - bETH - bLUNA
Imagine bETH and bLUNA modified to work like mSOL and aUST

Borrow side: UST

Interest is charged as follows: (borrow rate as per utilization curve + add-on rate (that tracks the yield the collaterals generate)

Deposit side: UST (same model we currently have)

If you have the ANC borrow incentives automatically sell for UST to pay interest then there is no Problem. Even if you didn’t people will do this naturally thereby circumventing most problems that could arrive from outstanding interest.

Alternatively you can list a borrowing fee which would solve the same problems of yield reserve top up.

There isn’t any real reason for anchor to need to harvest our yields when they can just charge us them ontop and we will happily pay them. It is also more in line with traditional money markets.

Now if anchor could also provide the ability to borrow out those collateral (msol bluna Beth ) then we’re adding additional revenue streams since anchor doesn’t need to harvest their yeild anymore (they just charge us the yeild).

Overall this is an excellent proposal for a v2

I don’t understand why not just implement a borrowing fee. You collect a bit of the interest early and have the cash flow without a need of tinkering with collaterals or auto harvesting etc.

  1. I don’t see how Anchor V2 will be any different from Aave/Compound, except that it is limited to lending and borrowing UST markets only. Why not open up the deposit and borrow to multiple assets?

  2. Given the above, how would Anchor V2 attract users over the incoming Mars protocol?

  3. There doesn’t seem to be any ways to meaningfully retain a 20% APY in this proposed system as the sole source of revenue would be borrower interest. Currently borrowers do so in order to leverage. In a bear market, the rate of borrowing will drop significantly. How do we plan to offer a fixed APY in this scenario?


Why not tie these borrowing methods with specific time locks?

That way there is no risk of iliquidity as the borrower is forced to close that position and pay said interests. Depending on the method or time lock he could be asked to pay in advance, afterwards or maybe pay a part upfront and the remaining when it ends…? and maybe even this could be added in conjunction to a deposit locks on the earn side?

For example borrows with less of 6 months time lock can be payed afterwards and anything beyond 6 months has to be payed upfront?

Just brainstorming ideas…


So in this suggestion, UST is still demand deposits but Anchor is issuing term based loans in a sense?

I like this idea, it’s pretty much what Binance does for their crypto loans.

Borrowers can have an option to refinance their loans as well just like on Binance.

@dhanbaobao I think the 20% APY on deposits is a pipe dream and it’s time we call it for what it is, a marketing gimmick to attract deposits. If apy lowers the majority of UST is trapped in abracadabra and most likely won’t leave unless it liquidated or UST depegs. Both of which are unlikely tbf.

There is no real way to maintain 20% deposit APY at this time. Maybe in the far off future once fed raises key rates on USD 3+% but for now we have to accept in 1 month there will be no 20% deposit APY as a fact. TFL isn’t funding your interest rates this time as they have more than enough UST locked in Abra now, they don’t need you for anything but borrowing.

Besides the focus is on cross-chain at the moment not maintaining deposit rates and v2 does excellent work moving to cross chain as well as catering more so towards borrowers and working towards addressing our gross underutilization at the moment. It is also more fair to our collaterals as we get control over their yield not anchor but anchor still gets to capitalize the revenues they generate by demanding a higher rate. This will keep deposit rates at a healthy % and no it’s not easy to find 20% deposits anywhere else on defi with no loss risk like anchor, most products use anchor as a back end so once it changes their changing their rates too. The remaining ones come with runway or imperm loss risk and are not comparable. I’ve yet to see another money market offer 20% on deposits that doesn’t use anchor or subsidize in their own shitcoin.

Edit: with this model I think we can even forgo ANC rewards for borrowers, and implement bANC as a collateral option safely. With that and the cut in LP rewards we can finally see some real price appreciation on the token without needing to create much additional utility.

Yeah. Taking into account that loans would have time locks the “staking interest” generated by the token would be added directly to the total debt amount.

If I borrowed 100 for a month and the staking interest for that month is 1 ust I would pay back 100 + borrow interest + staking interest (1 ust).

If it is less than 6 months old the staking interests of the loan can be payed afterwards. If it’s longer it should be payed beforehand.

Taking into account that staking interests change, if a loan is longer than 6 months borrowers could be charged in full based on the current staking apy and once the period ends adjust the ltv to represent the final staking apy of said period.

For example, if the current staking apy is 8% borrowers longer than 6 months would be charged 8%. If by the end of the period the staking apy were to be lower they would be “reimbursed” by adjusting LTV. If the APY were to be higher they would be charged that extra percentage by adjusting LTV accordingly.

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@bitn8 what do you think?

Still analyzing the data. We need to know what cash flow is. Right the model works fine with users paying back the loan at the end. More than likely this is because depositors hold longer than borrows, similar to Aave and other lending protocols that don’t have cash flow problems. No need to complicate the code base and time to build if we don’t need to.

bANC will be able to be quickly added once the v2 borrow model goes into effect.

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Did I understand this correctly? You have:

  • modelled v2 behavior and impact of not collecting any interest throughout loan’s life (only at the repayment), and
  • it worked fine.

If so, could you share more details - time horizon, starting parameters, assumptions (about future trends), data sources, results (quantitatively) etc.?

Overall, I quite like the v2 model for its flexibility and ability to easily expand to new collateral types. The only thing I am not too fond of is potential impact to yield reserve - and that’s predominantly due to insufficient data.

I think they’re gathering from flipside still. Not entirely sure but if they are finished its probably too early to publish yet.

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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