Capitalising Anchor’s Reserve with $450m


Anchor is the heart of the Terra economy and will continue to be as Terra matures. Since Anchor’s launch in March 2021, TVL on the Terra blockchain grew from $540m to $12.6b – based on data from DefiLlama. A large part of it is attributed to Anchor’s dominance, either locked up as Deposits yielding interest or as Collateral being provided to take out UST loans.

Being a simple-to-use money markets protocol, Anchor has been instrumental in scaling UST adoption to the masses. A low-volatile stable 19-20% APY on deposits is an attractive marketing tool; as rightly shown with UST’s market cap growing exponentially from $1.2b at Anchor’s inception to $10.7b today. Moreover, many Dapps are built on top of Anchor – Astral, Kujira, Nexus, Pylon, Suberra, WhiteWhale, etc. – making it an essential building block of the Terra ecosystem.

In recent weeks, markets saw a downturn and an increasing number of users flocked towards stable yields (increasing deposits) and others borrowed less to avoid liquidations (reducing collateral staked and borrowing activity). This resulted in net negative cashflows and the yield reserve gradually depleting to maintain the deposit yield.

In Anchor’s current state, it may appear that its deposit yields are unsustainable. However, in the mid-long term, Anchor has future plans for vast improvement in its mechanics. This includes a new v2 borrow model to incentivise borrowing, onboarding of new POS assets as collateral, cross-chain deployment and changes in tokenomics. This refinement process takes time and we believe having a sufficient yield reserve to continue scaling UST’s growth to newcomers and inspire existing users’ confidence will benefit all stakeholders.

In this proposal, we projected the growth in Deposits, Collateral and Borrows over a 52-week period to arrive at a figure required for the yield reserve to maintain Anchor’s 19.3% APY. This serves as a buffer for the Anchor team to work on key protocol changes. The below segments detail the rationale behind the growth rates, which result in a proposal that recommends that the newly-created Luna Foundation Guard (“LFG”) contribute $450m to top-up the yield reserve.

More info may be found here, where the main discussion is taking place:

Summary here:


So is Do Kwo topping us off or not then?

That’s a good read. A couple of questions to the general method:

  1. What is the basis of assumption that new bAssets will have 8% staking yield? What would happen if average bAsset yield would be say 6% or 4%? Have such scenarios been assessed?
  2. Has the maximum 10% payout from yield reserve per epoch been used to determine the 20th February as yield depletion? I’ve run some numbers and I’m coming closer to 18th Feb when actual deposit apr will start to decrease rapidly to around 15% (and to around 10.5%). This has a potential to be a shock to more unaware depositors and may instigate outflow. The maximum yield reserve payout per epoch would also affect break even points in the simulation in weeks 41 and 42.
  3. Have a scenario been run with modified parameters where bAssets adoption will be smaller % in total collateral, say 40% or 30% at week 42?

Surely we need a top up here, but in my opinion the model parameters used are quite optimistic and we should be aiming at managing the apr on the earn side. I know there is no apatite for changes of apr but I’m in the opinion that long term, the protocol would benefit from such changes.
One thing to consider here is that the target APR has been set to 20% at genesis whilst now it’s at 20.5%, whilst threshold apr (i.e. minimum apr if yield reserve can be used to subside it) is set now to 19.5% whilst it was 18% at genesis. So what actually has happened is that we’ve increased the payouts on the earn side without a development to support it.

He is not. He’s trying to leech off TFG funds.


Would it not be better to also adjust the base rate yield down as well to say 15%?

The market conditions have clearly changed. This would seem to offer a more sustainable compromise alongside a yield reserve top up.

Once Anchor V2, cross chain borrowing has been rolled out it can always be reviewed later.

15% is still head and shoulders above Cefi and nobody is going to run for the exits, since there’s nowhere else to go.

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@n3mo thanks for cross-posting this here.

Above bring up good points, it may be best to aggregate the comments in one place so that there are not two separate discussions. I would advocate for this to continue to happen on the Terra forum.

More visibility, jump in here: Capitalising Anchor's Reserve with $450m - Governance - Terra Research Forum


I think the top-up is imminent as it buys us time to plan out the next steps.
I am rather surprised that I didn’t hear much from the community about supporting leveraged yield farming / LP (e.g Alpaca finance) or other similar ideas. The crux of the problem is low utilization rate, allowing users to borrow at leverage could help balancing out the effect leveraged deposit (e.g. degenbox) draining our reserve.

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For some reason I can’t comment in the other website. Since 9.5 million LUNA will be swapped to UST, would it not be logical to expect a sharp decline in the price of LUNA in the following few days?

Excited to say this has been voted on by the Luna Foundation Guard (LFG) and has passed!

You can see the announcment here: Do Kwon’s Luna Foundation Guard update

Next steps seem to be:

  • Withdraw 9.5M Luna on Feb 11th 12pm SGT (Singapore Time)
  • Swap 9.5M Luna to UST over the course of 5-10 days, resulting in ~450M UST being minted
  • Send the resultant UST to the Anchor yield reserve contract when the swaps have been completed

Does anyone know if this burn will actually increase fees to the network and increase Luna Stake rewards?
That would mean higher returns for ANC collateral.

yeah + you add suberra