The Anchor reserve wallet as I write this has about 5.7m UST.
Based on my math, if Luna price was to drop 50% tomorrow, this would last less than 6 months. If Anchor deposits were to increase 5x, reserves last less than half a month.
I understand that long term the reserves are expected to beef up, borrowing will increase etc. But what if short- to mid-term they do not, and the market crashes?
It was shocking for many to discover that Anchor is already not performing as advertised given current <18% APY. Almost noone was told about this upfront, even Aayush, Terra’s Telegram chat admin wasn’t initially aware.
Given that the APY has already decreased and the scenarios above indicate that the system is economically fragile, I’m not sure why serious banks and fintech businesses would find Anchor’s value proposition convincing and take the risk of integrating and promoting it as a long term stable savings account to their customers. In my 5x scenario, the APY would have to go as low as 6% to break even.
I think we should recognize that the high stable interest rate is the main value proposition, and failing to deliver on that - even if long term the economic incentives are supposed to restore balance - means that Anchor has little business value.
The solution I would like to propose is to authorize the use of community funds in case of such emergencies. That wallet has $430m worth of ANC that is just sitting there. I understand the importance of incentives for community initiatives, but assuring solvency is more important.
As you can see in the bottom row of my spreadsheet, if the community fund was allowed to sell ANC to subsidize interest payments after reserves run out, this would mean several extra years of full solvency vs less than a month in some scenarios. The ANC value would probably go down a bit due to that sell pressure but not enough for this not to be a game-changer for anyone considering integrating Anchor (imagine extra peace of mind with $400m worth of reserves vs $5m from a dev POV).
Disclaimer: the scenarios are of course simplified, I recognize that the value of Luna and ANC would probably go up with more deposits and vice versa, but I don’t think it wouldn’t be enough to dismiss my points.
From a dev & ANC holder perspective, I think it’s important to have this contingency plan thought about before we are forced to do so by a very possible bear market. Please point out anything I may have missed.