Bolstering Anchor's Sustainability

General
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Mirroring the post made on Terra’s Agora forum

Anchor’s Yield Reserve


TFL will be capitalizing Anchor’s yield reserve with 50 million SDT (~70 million UST) from its Stability Reserve Fund.

As a lynchpin of the Terra ecosystem, capturing ~22% of UST’s outstanding supply, this enables sufficient time for the introduction of more collateral types and self-sustainable protocols improvements coming in the next couple of weeks and in V2. Extending support to Anchor and the Terra community is the prerogative of TFL and is in the long-term interest of the overall Terra ecosystem.

Assuming a 35% utilization (current) with a 35% average loan LTV, the reserve boost will enable Anchor to support a 20% APY of $500 million worth of deposits for an additional period of around 1.5 years.

The deployment is a one-off solution that will prevent the need for future intervention, allocating a significant runway for the protocol to introduce self-sustainable mechanics even during periods of low borrowing demand. Note that this replenishment is funded by TFL and causes no burden on the LUNA community fund. UST will be acquired via on-chain swaps, thus incurring no downward pressure on LUNA.

Replenishment of the yield reserve will occur in ~1 week.

Planned Upgrades to Anchor

1. Introduction of bETH as collateral

bETH is currently on the testnet, and is almost ready for deployment, unlocking a significant chunk of cross-chain borrowing demand on Anchor via ETH 2.0’s staking derivative from Lido Finance.

bETH will be deployed on the Anchor mainnet later this month.

2. Yield farming bAsset vaults

Smart contracts that pool bAssets and generate UST borrows (with auto-repay) will be created, augmenting borrower confidence and increasing borrowing demand.

3. New liquidation mechanism (liquidation queue)

A novel bid-queue-based liquidation mechanism that incentivizes liquidators to bid for liquidations at competitive premiums. This should drastically lower liquidation premiums, reducing the damage to borrowers in events of liquidations.

4. Increase bLUNA max LTV to 60%

Increasing the max LTV parameter to 60% will allow users to further decrease the likelihood of liquidations while stimulating additional borrowing demand.

5. Other new collaterals

Following bETH, other PoS staking derivatives including bATOM, bSOL, and bDOT will be added as collateral to Anchor. The combined market value of those chains sits at roughly $300B. Capturing ~5% of the value will allow Anchor to potentially support around $10B in deposits without relying on reserves.

Other yield-bearing assets as collateral are also being explored.

6. Algorithmic adjustment of long-term Anchor rates

The current Anchor rate is a governance-set parameter, unable to properly reflect current market/protocol conditions. An algorithmically set rate will improve this, where yield is determined via on-chain economic values (e.g. total deposits, yield reserve size, collected bAsset rewards, and borrow interest).

The Anchor rate will be a fixed APY, updating every long-term period (e.g., 6-months), similar to what existing commercial banks offer, ossifying the protocol’s sustainability without explicitly relying on governance proposals to change the Anchor rate amid dynamic market phases.

7. Diversification of yield sources

A large portion of UST in Anchor remains underutilized. At 35% utilization, 65% of capital remains idle and not used in yield generation.

Instead, Anchor will deploy underutilized capital to yield-generating capital markets such as money markets (Mars Protocol), derivative markets, low IL pools, delta-neutral strategies on Mirror, and various other avenues for additional yield collection.



Look out for the official launch of bETH later this month and more details about the upgrades to Anchor above to follow.

Onwards.

+ A more detailed overview on the new features will follow suit & posted to Anchor forum

6 Likes
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This is great to see all the coming together.

I really like where this is going here too. It’s a compromise that helps balance the straight bull bear market rate of compound, aave etc. to a more stable market discovery rate that’s sustainable and not knee jerk market reactionary.

I would like to once again add the thoughts of a money market type of metric built into this as well where higher rates are paid for locking funds up for longer periods of time. I think this is also a way to create stability.

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I think that if we create a locking mechanism, Anchor will just start becoming very similar to other platforms.
One of the key features of Anchor and all Terra systems is the ease-of-use. While a locking mechanism isn’t something that people won’t expect, not having it is a very nice surprise.
I see this question every single day (or almost) on Anchor’s Discord: “How long are the funds locked for?”. This is what people are expecting… and when we tell them their money “compounds” every 7 seconds and there’s no lockup period, their other reaction is like: “oh wow, that almost seems too good to be true”, which may seem like a negative reaction, but it’s amazing and helps “create” more “Lunatics”.

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The default option can still be unlocked. But if you want higher returns to support the sustainability of the platform it could offer differing levels of interest on 3-6-12 months periods all getting a higher rate of return. You wouldn’t have to lock your funds. Time-stamp logic would pay the additional gains over the standard lower apy based on the staking timestamp - no locking needed. This would lower the draw on yield reserve for short term holders not contributing to long term stability.

2 Likes
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I understand the point… but I’m afraid I don’t agree with it.
If it comes down to a vote I’ll be voting no.

Anchor can have long-term stability and good returns without having to resort to typical manoeuvres…
Or at least I hope so.

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Right on. Appreciate the thoughts and contribution - this is what makes defi - defi ! - cheers

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Why the rate will be fixed for such a long period? It should be a function of supply and demand parameters and react dynamically. To avoid short-term fluctuations 30-60 days lookback in calculating the parameter values could be just fine.

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I’m with @deepscreener here. Specially because 6 months in crypto space, is like 2 years in traditional finances space. In the last 6 months, Luna has gone from $1.7 to $22, to $3.4 to $11. Being able to adapt with a higher frequency, I think, would let the protocol adapt better to these wild waves of price movement. I’d say monthly or bi-monthly updates could be wiser

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What is the range of this new dynamic Anchor Rate?

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The rate is going to be based on the borrow demand generated from bETH and the other bAssets. It’s impossible to know how it’s going to shake out until they are implemented.

Folks have to trust the process a bit here.

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February 21 will be the start of the long-awaited Mars Lockdrop

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