I like this idea as I think it has the most direct transmission mechanism for getting borrowers to increase their % borrowed.
However, this messes up the other side of the equation where Anchor interest rate has been explained to be (1/max LTV) * (Luna staking yield) [I know this isn’t the actual way the interest rate is determined, but at least that’s how most people have explained how the 20% APR is achieved].
Moving the LTV to 60%, the rate would be (1/0.6) * (Luna staking yield).
For simplicity, assuming that Luna staking yield is 10%, this works out to an Anchor yield of 16.7%. This means it will still necessitate a reduction in the deposit APR for it to intuitively have a sense of sustainability.
An increase in the LTV will buy just a tiny bit more time. It really isn’t enough, but it seems the community isn’t able to come to any sort of consensus. The increasing of the LTV alone is better than doing nothing short-term, but by no means is it enough to solve the problem.
The Anchor deposit interest becomes a floating rate. Under current conditions, it might not be so terrible, but the problem comes when you start thinking about other protocols building on top of Anchor that may rely on a fixed or at least somewhat stable yield (Pylon for example). We have had crashes in crypto. We very likely will have more of them in the future. How extreme the interest rates may fluctuate under those conditions is hard to predict. In a worst case scenario of a major crash crazier than what we saw a couple weeks ago, Anchor deposit yields could plunge to near 0. Confidence in Anchor could be destroyed. Pylon, Orion, Mirror’s short farming demand and other projects that need Anchor can fall apart. Shoring up the yield reserve to sufficient levels to weather even a mega-storm is the best course of action in my eyes.
The intent of the yield reserve is to help smooth interest rates throughout the crypto economic cycle. The yield reserve has a secondary role as a buffer that gives the Anchor community time to make adjustments if something with Anchor’s model needs adjustment. Anchor is attempting to do something novel. Adjustments are very likely going to be required multiple times throughout its life.
Anchor as it sits today doesn’t make economic sense. With a couple tweaks, it could become the most important protocol in all of defi.
Would it be really that bad to make the deposit APR openly a step function of Luna price? Let’s say at Luna = USD5 the APR is 15%, at Luna = USD15, the APR is 20%, which would work for half-percent steps for every extra dollar value of luna, so Luna = USD 6, would be 15.5%, Luna = USD7, would be 16%, and so on.
A quick math check-in. Currently Lido say that bLuna gives 4.3% APR. As such Anchor’s annualized revenue consists of:
4.3% * $463m in bLuna collat = $20m
16% * $136m UST borrowed = $22m
The annual liability is 19.5% * $391m borrowed = $76m. So the revenues would need extra $34m for the protocol to become solvent. Different ways of getting there:
Another $790m in bLuna collat (bLuna price rises and/or more bLuna is deposited)
Increase bLuna APR to 11.5% (the Luna APY figures mentioned by Do were something like 10-13% IIRC, not too sure why APR now is only 4.3%.
$576 in bEth collat (Lido say the Eth APR is 5.9%)
Another $212m in borrowing
Increase borrower APR to 42%
I guess the strategy from Terra is to release bEth and hope for the best. Perhaps that would be sufficient; is there any reason not to increase LTV limits along with that?
Hey Everyone!
Just joined and thought I would jump right in with a quick hello and share some thoughts on the matter. I’ve been using Anchor for a little over a month now but have only now had some time to dig into the economics a bit. Would love to get your thoughts on the following observations (hopefully I’m not completely off my rocker):
Between total collateral and total loans, the former is likely the bigger driver of income for 2 reasons:
Obvious one - loans are capped by a max loan-to-value ratio and so as long as the APY earned on loans isn’t larger than the collateral staking APY by 1/max LTV, then increase in collateral value would be the stronger driver.
This one is pure speculation but an important one if right - I posit that the majority of borrowers are redepositing the borrowed UST back into Anchor to earn the 20%APY. If this is true, then an increase in borrow rate based on existing collateral (ie. increase LTV), may not necessarily contribute to income. If the borrowing cost component of the loan is less than the deposit APY, then an increase in the LTV ratio would actually reduce income.
Ex.
Let’s say I have existing collateral of 100 with 30 already borrowed (30% LTV).
I then borrow an extra 10 UST (increasing my LTV to 40%, assuming no change to collateral value)
Next, I deposit that 10 UST into Anchor.
Anchor’s Income Statement:
Income - 10 loan x loan rate of 15% = 1.5
Expense - 10 deposit x 20% = 2
Net Income / (Deficit) = (0.5)
This assumes 100% of borrowed UST is put back into Anchor, which is for illustration purposes. I’m not implying that I believe 100% is realistic at all.
So this was a long way of saying that I don’t think increasing the LTV is the answer. Again, I could be off my rocker here…
I have some further thoughts I would like to share, but need some time to digest. Great thread to read thru so far though folks! Talk soon.
One anchor is offering the best rate out there by far, a floating rate ive seen people say it will damage its reputation… etc how? Every other protocol has adjusted their apy% and everyone here seems to think its gonna damage the reputation of anchor? It seems more so its making people pockets a tad lighter, a floating rate isnt a bad thing, its healthy, trying to screw the borrowers by raising their interest rate to supplment the earnings should be a massive no. If anything should be spending more time how to lower it as its already one of the highest, a couple ideas, let the anc emisions do its job for now, keep collecting the airdrops, ( can use them later down the track when emisions run dry) imo as long as we have the best apy% and the best borrowing interest, people will come, all we are missing is the bridges to get them here, i belive the main focus should be on bridges for more types of collateral, then any sort of tempary fix to please the short term gainers in earn, this should be soley focused on the longitivity of anchor to keep the highest apy available, while making the borrowing side just as plesent. P.s, no i dont think 100% for borrowers is the way to do it. Just need to have the lowest rate available to attract them.
I believe we should explore ways to maintain the 20% first. As we can all agree this is why people come to use Anchor. So this is our leverage. Since this is the main value proposition, create caveats around it. Doing this first we will first, we have the option to maintain the high 20%. The caveats would reduce yield pressure. Plus, 20% sounds amazing and people are accustomed .
People are always going to gravitate towards the lowest risk first. Aka there is naturally going to be this unbalance. More people in Earn rather than borrow. The caveats for Anchor Earn accounts for this natural imbalance between Earn and Borrow.
Many people have voiced different caveat systems to Anchor Earn and I believe one of these should be the next Proposal.
Only ANC Token (Single Caveat) @clorophilla stated in different thread
<1000 ANC staked at governance max interest APY= 50% target (currently 9.7X%)
1001 <3000 ANC staked at governance max interest APY=75% target (currently 14.5X%)
3000 ANC staked at governance max interest APY=target APY (currently 19.45%)
ANC Token + Yield Payout Selection (Double Caveat, aka Orion.money, Celsius, Nexo, etc. functionality)
Either having amount of ANC Stake as requirement or amount of ANC in portfolio % and Selecting Payout (Get Yield Paid in UST vs ANC) - Obviously yield paid in ANC will have the highest return
- Pros:
Increases Value of ANC Token
Rewarding those who invest in Anchor
Significantly Reduces Yield Reserve Pressure
- Cons:
Increased Complexity?
Timed locked, forgot who stated this first
- Pros:
Reduces Yield Reserve Pressure somewhat
- Cons:
Mild Increase in Complexilty
Poorer user experience
Does not increase value of ANC Token
TLDR; Gatekeep the precious Anchor Earn.
Ancillary revenue streams - ANC-UST LP rev share
As a person that has been in ANC-UST LP Pool for a while, we have all been taking a substantial hit in yield. If I am not interpreting your post wrong, you want to take more away from ANC-UST LP providers?
Seems to me defending the 20% until the end will be the demise of Anchor. Other protocols have lowered their rates without problem, because is expectable in these times. Lowering it doesn’t mean doing it forever and to me it would make me trust more the protocol, because it would mean it will do what must be done to preserve the system instead of a magic deposit APY number that is obviously unsustainable today. Maybe tomorrow it won’t be unsustainable and then it can go up, but it makes no sense to keep it as is as of now.
Also, reducing the APY to 9.5% if you have less than USD2,200 staked in ANC governance would make me, at least, automatically leave the protocol. And I think I’m not alone
Yeah those were just example numbers for staking ANC to get that yield. Minimum APY should probably be like 9.5% if you have nothing staked to be competitive with other Defi Protocols. We gotta play around with the numbers. Anything higher than 10% for stablecoin yield on most protocols have a gotcha/caveat.
20% would have been much more sustainable at this time if any of the caveat measures were made at the start of the protocol. Unfortunately, they weren’t…as the current design was made with assumptions of ideal market conditions (short bear markets, long bull markets). Biggest mistake Anchor Protocol made along with assuming high Borrow APY would be a good enough incentive. I do agree with lowering the APY in this case just because we have no choice now. But with Anchor V2…and hopefully some caveats added. 20% should be maintainable even with long bear market.
I mean the goal of the caveats is to make Anchor more sustainable. Meaning the goal is the same as lowering Anchor Earn APY. But you will only trust Anchor more if they choose the route of lowering Earn APY? And not open to any other sustainability solution?
Not exactly, my issue is there’s little time for reserves to deplete (~15 days at this rate) and an experiment that may work gives me less confidence than a change that will work (at least would give more time for the reserves to deplete, buying time for experiments). I think the APY should have been lowered a couple of weeks ago, which would have bought tons of time for proposals like yours, which in turn, if they worked, would have allowed to restore the APY to the original value.
Anchor provides meaningful, tangible differences to the standard lending protocols in defi (Compound, Aave, etc). In some ways, Anchor’s design is superior or vastly superior to the more established lending protocols. There’s one area where Anchor clearly falls way behind Compound and Aave. The community of users is just vastly inferior to that of the major Ethereum lending protocols.
The Anchor community handed 22,000 ANC in a governance vote that took days to pass to a group of people who will add no long-term value to Anchor or Terra. However, we can’t come to any consensus on how to fix the most urgent issue that has ever faced Anchor and probably Terra as a whole. The yield reserve issue depleting has been abundantly obvious for at least 5 weeks now. It didn’t even take 5 days to light money on fire in the first governance proposal, but the community can’t make any progress in 5 weeks to find a way to shore up the yield reserve.
The advantage of having a superior design and a superior engineering team will be squandered by an Anchor community that appears to be incapable of acting on important issues. I hold 0 ANC and have continuously disposed of ANC I receive on bLUNA borrow daily and increase my LUNA holdings daily.
We have to do at least one of these in the very near term or else lose credibility forever:
Sell some ANC from the community pool of 99,978,000 ANC remaining and place that UST in the yield reserve.
Increase the ANC emissions on a temporary basis.
Increase the maximum LTV allowed on bLUNA borrowings.
Add bETH and other types of collateral.
Take funds from the LUNA community fund that should have been used to bootstrap the yield reserve initially.
Lower the fixed rate interest on deposits.
Allow the interest rate on deposits to float in a wider range than the current +/- 0.5% of 20%.
With the current predicament Anchor’s yield reserve is in, perhaps Pylon should consider a measure to boost the yield reserve in Anchor by a little bit. Pylon needs a healthy Anchor to survive and it is in the best interest of both Anchor and Pylon to prevent Anchor’s yield reserve from going to 0 in the short-term.
Anchor’s long-term viability and credibility will be destroyed if we can’t get some sort of action within the next few days.
Totally agree, the community needs to step up. I’ll never understand why the vote to tighten the floating band passed with an overwhelming majority, when reserves where already going down for a while. It would be quite sad if a project that has this much talent is killed by mere greed
I’ll start by saying I’m no mathematician or big brain. Yield reserve is depleting since people aren’t borrowing like they were before May 19th. Other bAssets are coming like bETH which will imo get more people to borrow. Will that be enough to bring the yield reserve to a surplus again? I’m not sure. Another problem everyone is talking about is the declining value of ANC. People have suggested selling ANC reserves to fill the yield reserve but that will just lower the price of ANC even more. Is it possible to add bANC as a bAsset so we can borrow against it? If so, why not bMIR as well? Both tokens seem to be declining in value because borrowers are dumping ANC as soon as they receive it. I’m assuming a lot of people are farming on Mirror as well and dumping MIR immediately. The price for both tokens has been in steady decline because they don’t have much utility other than governance. If we could use them as collateral I think more people will hodl. I’m not sure if anybody has brought this up before, or if it’s impossible for technical reasons, or its just plain dumb. I thought I’d just throw it out there in case nobody has yet.
Regardless, something needs to be done very soon. I think the best option I’ve read so far is using the LUNA community fund to fill the reserve up until more bAssets are added to the list in conjunction with raising the LTV limit. I think I remember seeing that there’s near 1 billion dollars in the community fund. If that’s true, taking 5% or X% and making Anchor whole for the foreseeable future is a small price to pay. If we let the rate dip below the target 18-20%, won’t the other projects depending on that yield break, or at least not be nearly as attractive?
The name Anchor is appropriate because it’s the anchor of the whole Terra eco-system right now. So many projects are building on top of it and it’s also what attracts the most users to the eco-system in the first place. I feel we should be doing everything we possibly can to save that yield reserve from depleting. We approved saving those funds instead of burning them so we could potentially bootstrap Ozone. Does Ozone need to have more dollars in it than the earn side of Anchor? A lot of users will leave if they’re getting similar or better interest somewhere like Liquity or something on Ethereum. Time is of the essence. Adding more bAssets is great but that is obviously taking more time than we have. Using the LUNA community funds and raising the LTV limit are 2 things that can be done almost instantly once a vote passes. I assume setting tiered rates and adding additional layers of complexity to the earn side is going to take too much time to even make a dent in boosting the yield reserve before it runs out.
That 20% earn is a great marketing point. It’s what drew me into the Terra ecosystem in the first place. Not gonna lie, my first reaction was, “pfft, scam.” But 20% is 20% so I began to read the docs and did my own research which in turn got me totally sucked in to the Terra eco-system. I think we should avoid being like the competition at all costs. That 20% is like a light house in a sea of blockchains that sets Terra apart from everybody else.
The StableKwon guy to the rescue seems to be the answer to everything. Anchor is only a few months old, but at some point, it would be great if Anchor didn’t need Do and the TFL guys to come up with the answer for everything. It’ll be interesting to see what is proposed.
I think someone should submit these proposals separately to governance and see what passes.
I would support increasing ANC emissions temporarily and lowering fixed interest rate on deposits to 15%. Obviously adding bETH would be huge but idk how fast that can happen.
I have a ton of respect and admiration for everything Do Kwon and Terra are doing but I’d love more transparency and agency given to the community; right now it’s hard to make constructive decisions as a developer using Anchor. Specifically, at the very least I’d love info about what ideas are being entertained and what the specific next steps are.
P.S. Inb4 comments that it’s up to community members to step up - I’ve been posting and trying to contribute ideas but got a full time job and other projects and can’t take on another gig as a crypto politician . I’m guessing other great contributors here are in a similar spot. The real power is still 100% on Terra’s end. Hope they come up with something good.
. I’m guessing other great contributors here are in a similar spot. The real power is still 100% on Terra’s end. Hope they come up with something good.