While using community funds to fill up the yield reserve is a valid option, I do not think it should be taken lightly.
Governance deciding to sell off a sizeable portion of community funds would be permanently detrimental to the ANC token valuation. Aside from the direct selling pressure, the act of this signals to holders that the community is willing to introduce further unpredictability to ANC’s distribution schedules - something that may not end with a single occurrence.
Remember that ANC tokens are used as the catalyst for bootstrapping borrow demand, at least for a period of months, maybe years. Causing harm to its long-term token value could also hurt protocol bootstrapping.
Personally I’d recommend to make further observations before we proceed with any actions, and reassess when e.g. the yield reserve hits below $3m. Three reasons for this:
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Although the decline in loans was sharp, it has been only about a week since it happened. It is too early to determine that things will remain as-is.
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Utilization ratio is showing signs of recovery, increasing from 14% to ~28% in less than 3 days.
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Addition of bETH as a new collateral is in the final stages. It is estimated to go live within June.
Having said that, I do agree on making mid-long-term improvements to the protocol for better sustainability. Here are some ideas:
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Convert the deposit APY from the current stable range model to a fixed APY model alongside some minor equation fixes for enhanced yield predictability.
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Have the fixed deposit APY automatically update every epoch (e.g. 3 months), with adjustments made based on yield sustainability (yield reserve size, total deposit AUM, cashflows from staking rewards, etc. all taken into account). This is more similar to what real-world central banks do and automating this process will save headaches for the community - saving us from having to set up these discussions whenever a market crash occurs.
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Last but not least, finding mechanisms to ensure constant borrow demand regardless of neither price shocks ANC token incentives. Making liquidations less fearful (set incentives to have liquidation penalties of like, 2% instead of the current 30%) and coming up with novel usecases such as leveraging on staking rewards (instead of earning 10% on Luna staking, leverage on the staking position and earn 15%) could fit here.
But discussions for these improvements (Anchor v2?) would deserve their own separate post. Let us compile some additional thoughts and have something kickstarted.