Call for ideas: how to increase the value of ANC?

Right now, the protocol is more-or-less breaking even, but a bear market could decimate everyone’s yields. ANC is what largely encourages people to borrow, so it’s critical that it remains an extremely compelling borrower incentive.

There have already been a few threads with ideas, including this and this. @ryanology045 also wrote this post in August, summarizing ideas that are being considered by Anchor’s core team. Since then, bETH has gone live and two months have passed, and it’s now time to reassess what should be done next.

Let’s share our best ideas for how to sustainably grow the value of ANC below, and we’ll be discussing them in the upcoming community AMA.

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One topic which can be discussed is to implement certain tiers for borrower interest depending on the amount of ANC they have staked (e.g. <1000 ANC staked represents -30% from standard borrow interest). This way they would be incentivized to keep ANC and restrain from selling borrower rewards.

IMO limiting the amount of ANC rewards would not affect borrowing given the following reasons:

  • the scope of the borrowing process is to obtain UST which you can use in different means not ANC tokens as this comes as a bonus
  • following the borrowing demand curve in the recent months we can see that volume increased although ANC rewards decreased. This sustains the argument above

Another topic which can be discussed is implementing a minimum borrowing period (e.g. 15 days). If a user repays the loan in less than the minimum period he will have to give back the ANC tokens received as rewards which will be burned.

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I like the idea of sort of bonding period in which accumulated ANC rewards are burned upon early pay back, similar to how certain loans have early payment penalties. I would state that we do have to explore how this might restrict borrowing at the same time though.

Another thought is the possible idea of requiring protocols that want to plug into ANC, to lock up a certain number of ANC tokens in governance to get the full 20%. The cons of this might be that it could turn some business away however if this is thoughtfully structured perhaps it might not.

I also want to resummerise the idea that has arisen from several ideas coming together which is a money market like structure where full 20% is not paid out unless held for certain tiered duration unless you hold a x percent ANC tokens in relation to deposit, say 1-5 percent.

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Why not start with the basics, not only market Anchor but focus on ANC too?

In defi the best visibility and marketing tool comes from price appreciation of the underlying token as we all know, so why not list it across every reputable exchange and give the market greater access and awareness? Combine this with various new bAssets (bSOL, bATOM, bANC, bAAVE (Lido), bONE, bSCRT, bOSMO, etc. etc.) bolstering the borrowing and driving sustainability, and I believe it could help the value prop of ANC, and in turn allow the buyback mechanism to be cranked up to really cause some pressure.

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Solving some of borrowers pains/needs:

Wider option for collateral - Borrower needs to put down the collateral. Currently there are only PoS options (bLUNA, bETH, bSol, bAtom), but how about to have bBTC or some other TOP50 PoW coin? Of course the there could be some specific related to these coins, but with wider options…ANC borrowing would have bigger market. So the logic would be - I have some coins that I do not want to sell. ANC can provide liquidity. I pay extra yield for borrowing (since there is no PoS yield that could be collected). Also check about other asset classes - for instance tokenized securities. Can these tokens be taken as collateral? Also NFT assets - these are long term plays. Also good for collateral.

Easy changing of collateral - lets say some collateral value spiked. How easy and fast is it to change the collateral without touching the borrowed money?

extra bonuses for borrowers - if you are borrowing and trading => you generate extra Tx and fees in the Luna ecosystem. Some of that value can be kicked back.

make new product derivates for non traders - for instance - you put 100 bLuna into collateral and you get upfront 1year of staking rewards. directly on credit card. (so not for trading purpose but for ordinary expense)

marketing regarding tax benefits of borrowing - target especially to countries with high crypto taxes" - if you need cash, and do not want to sell Luna bc of tax issues…you can borrow. Need to make a sale pitch to such holders.

connection with neo banks should be two way - not just deposit but also borrowing. they have users.

explore opportunity with online gambling industry - who normally wants to take extra risk? additional bet?

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Thoughts on a few of these:

Proposals like early repayment penalties or tiered interest levels based on owned ANC are awkward. The issue is that anchor protocol is designed to be a back end to other protocols. Think about how this would affect people depositing into anchor via angel or Nexus or something like that. Nexus could be required to hold and on the back end I guess?

We could accept btc as collateral, but in order for it to generate a similar yield we would need to charge a high interest rate. Like over 20% . You would be better off putting your BTC in a money market.

Getting anc on some exchanges I think would help a lot. More demand for the token would raise its price, thus allowing for reduced emissions, in a virtuous cycle.

I’ve been participating in the ANC-UST LP for about a month. I have also been lurking in the forums since that time as well, simply reading and hoping to understand the current state of affairs a little better. I have a couple of personal observations that may be helpful.

In general…

It is difficult to assess protocol risk and difficult to manage bAsset liquidation risk.

I am a believer in the future of Terra/Luna. The risk of liquidation is simply not worth it to me. As a result, I personally do not bond any bLUNA. There are surely many others that feel this way as well.

  • An easy “fix” for this risk is to add a calculator to the app so that users can model different scenarios if their bAssets drop in value. Sure, they could read the docs, but most won’t.
  • A better “fix” is to provide a grace period for over-leveraged accounts to return to proper LTV ratios without facing liquidation.
  • Finally, the ideal “fix” leads to my second observation…

ANC is trying to serve two very different customers. Is Anchor protocol B2C or B2B?

The resolution of “liquidation risk” (as I see it), depends on whether ANC is for consumers or as a base layer for businesses to build upon.

  • If it is B2C, then Anchor must layer in additional complexity to allow consumers more control over their position sizing under different market conditions, without forcing users to take on the added risk of 3rd party contracts.
  • If it is B2B, then Anchor must remain as simple as possible to minimize the potential attack surface of the protocol. It should also add key metrics and incentives that allow 3rd party contracts to build sophisticated products while helping Anchor to achieve its goals.

Anchor seems to want to provide a strong semantic layer upon which 3rd party smart contracts can use leverage to generate real returns. Providing that liquidity is inherently risky. Therefore, Anchor should strive to build the highest quality liquidity pool backed by a portfolio of minimally correlated, productive loans.

TLDR

Under the most strenuous of market conditions, ANC should always aim for the least possible liquidation result. Ideally, yield should always derive from on-chain productivity and never bAsset/liquidity destruction, excluding loan defaults.

If a 20% yield is economically viable in the long term, then it must emerge naturally from value-add on-chain activity. ANC will rise in value when it entitles the holder to yield above and beyond the 20% that goes to “earners”. If that additional yield is <20%, the value of ANC will likely remain sideways absent rampant speculation or supply squeeze. I’m not partial to arbitrary interventions (such as lock up periods), unless they allow for productive use of the locked-up liquidity (such as converting UST to staked LUNA, ETH, loans, etc…).

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Great contributions everyone, let me share my thoughts on some of them top to bottom:

I’m not a fan, IMO incentivizing more borrowing is the #1 priority, whereas the requirement to also stake ANC adds friction and risk to borrowing. More friction to borrowing → the protocol has less revenue → less excess yield is used to buy ANC → ANC value goes down.

However I do quite like the bonding period idea. But how would it work given that over time users can borrow more, or repay only part of the loan? How would you then calculate what rewards are ultimately due?

Regarding this:

@ryanology045 actually already mentioned this here:

It’d be great to get an update from the Anchor team on the progress here, sounds potentially interesting.

I’m not a fan of this, IMO the depositor side should be super simple and not require people to take any ANC risk.

That would be awesome, it would be great to get an update from the team. My worry is that the exchanges don’t really want to dabble with ANC because of its terrible tokenomics in y1 in particular (200%+ inflation). But I could be wrong.

Not sure if this will work, the point with- and the main trick of Anchor is that bAssets are subsidizing high depositor yields from PoS staking rewards. bBTC would dilute these yields. But I think everyone’s in favor of allowing more PoS bAssets ASAP.

I like it, a nice UX quality of life improvement. Could be facilitated with direct bAsset pools in Terraswap, or at least making sure that every bAsset can be traded to any other via UST (right now bLUNA to bETH goes via Luna, then UST - many steps).

This might also make it easier for external consumer apps to implement borrowing on top of common cryptos. Maybe even it would be an interesting feature for Stablegains (my Anchor based app) :thinking:

Would this be discounts to transaction fees? Or some other format?

This might be an opportunity for external dev teams. It would be actually really cool to have one official page that gathers “requests for products/dapps/tools”. Y Combinator has requests for startups, it would be awesome if Anchor had a list of potential ideas that could be built that would benefit the ecosystem. Ideally many of them would be the types that are eligible for an ANC grant as potential incentive. ANC governance in turn should be generous in granting funding to projects going after these opportunities.

100% agreed, marketing is really missing here, especially for the borrowing side.

Generally agreed, but IMO the first one is less awkward and worth at least exploring a bit more.

We have all these protocols that utilize anchor lend, but fewer that use anchor borrow. What we really need:

Mirror protocol to allow leveraged trading. Anchor can be used under the hood for borrowing. I’m not positive if mirror team is already looking at this.

I was disappointed when I found out levana would be using Mars instead of anchor. This makes sense, since they want to handle Any Asset. But…maybe they could be convinced to use anchor instead under the hood for certain assets?

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Well, I tend to think this can be done without complications to the borrower. For those that just want a simple yield, it stays simple and they just stake UST. For those that want more yield that is where it gets complicated and tend to agree that from a coding perspective it creates complexities costs to build and test that might not have the cost-benefit intended to drive ANC up. Something we probably have to discuss more. But agree this isn’t at the top of my list either.

It would be great to see if this is viable but tend to agree it would take a lot of manpower in terms of talks and convincing. This is why we need community ANC rewards for those that take the time or have the connections to make something like this happen.

I agree on this, it does belong in the lending thread. But since this is where

I’ll share this: My biggest focus is striving to find ways that borrow will be used for non-trading means because this helps buffer the bull/bear borrow demand cycle. I think it would be great, as mentioned above to talk with Alice and other cards to integrate a paid to spend credit card - what consumer would say no to that?

Again a lending idea, but I agree with this. Too bad Terra Fortuna never made it out f the space camp as a winner.

Yes I think this needs to be talked about more. It seems the focus has been more B2B but maybe is now shifting back. Your points are very valid and setting a strategy and although, not needing to stick it 100% is good to have as we consider what can be built. Either way, tokenmoics come first, business strategy next in my mind. What one of these strategies, or mix of these strategies, drives the most value for ANC?

While more of drive lending topic. I think this should be addressed. It also has to be seen through the lens of B2B or B2C again. Nexus has built an amazing app that handles all this because ANC doesn’t have it. Do we build it? or do we farm people out to Nexus and require them to bond some ANC to get these great rewards?

Liquid Gov staking: voting is so low because tokens are locked when voting and terra doesn’t have liquid staking. There is an opportunity cost we are making gov stakers lose when they vote, i.e. what I will call the voting tax ratio (farming yield minus/ staking yield). This is typically is about over 10 in ANC. Think of it this way, us election voting is low but imagine if voters had to give up 10x their daily earnings to do it, well that would be the disaster we see in defi voting of less than 3 percent turnouts. Therefore, we really need liquid staking or gov is not going to get better which adds value to holding the token. There is a possibility to use prism to do this. Maybe forking prism code to build a native liquidANC from gov staking that can then be used in a separate liquidANC-UST pool to get the same rewards. I am not sure the limitations of how this would work but it would be great for some coders to chime in here. Acala has done this over on DOT for reference.

If you put BTC collateral, you need to pay obviously higher interest rate. So maybe this flow: if I deposit UST into Anchor, then this money is available to be borrowed. Currently only PoS is developed and the borrowing cost represents yield stake of collateral and interest rate for the borrowed assets. So in essence we have final cost. ANd that cost can be easly charged to BTC collateral. Of course you would need to split the UI…but that is the logic of different plane tickets. You are still using the same plane (borrowed UST is same whether your collateral is X or Y). So think of borrowing as analogy with plane tickets.

Heh, yea. I set out to write one type of post and ended up with a somewhat different one. To put it in context of this particular thread, I am trying to identify specific factors intrinsic to ANC from which it derives value, of which lending tokenomics is just one. I’ve got other ideas, but I want to carefully read the ideas shared by some of the others to see where there is overlap or divergence.

Of particular interest to me currently is the idea that the Earn product is (or should be) risk free. While perhaps altruistic, there are no truly risk free investments – especially since risk is always relative and occasionally subjective. As much as is possible, I would like to define a clear set of risks to stakeholders in the anchor protocol ecosystem. If we know the risks we should be able to also define the opportunities.

The matter of “value” really does distill down to a matter of pure tokenomics. "You park your UST in Earn because you don’t have a use for it, but the ANC protocol does. As an Earner, you effectively lend those UST to the protocol. The protocol puts those UST to work in the following ways: X, Y, and Z. This activity comes with the following risks: X, Y, and Z. The protocol will manage these risks in the following ways: X, Y, and Z. In the aggregate, over some period of time, the protocol should generate a reliable yield paid out to you in the form of additional UST.

Post prop-44, since there will be a tremendous boost in swap fees (and as Do states a potential 5x increase in LUNA staking returns), won’t this free up the protocol and allow a solid increase to the ANC purchase factor to potentially a 20-30% level ?

Hmm if I understand correctly this is a one time Luna → UST swap. So it will be a significant one time boost to the yield reserve and a buy impulse for ANC, based on the staker fees earned for that single transaction. However, this is not going to be a recurring thing that sustainably grows protocol profitability.

As staking yields rise for bLUNA though (potentially 4-5x), will this not generate much more revenue that will in turn top up reserves at a more efficient rate allowing a much higher % used to buyback ANC?

Yes, but it’s a single transaction. A one time jolt rather than long-term sustainable buying pressure. After it’s done, the same systemic challenges remain, it’s only postponing them by a little.

However because of the large amount being burned to mint UST in prop 44, the significant boost to swap fees post prop 45 will in fact have a much larger affect on bLUNA yield for up to 3 years (or am I way off)? Either way I am interested to hear the team discuss this as I believe that these changes and more bAssets may open the opportunity to jack up the buyback to +10%.

Ah I see, I wasn’t aware that the TIP45 change is also in there and that this will be more of a long term thing. Fair enough!