Dynamic Anchor Earn Rate

Update:: delta param removed due to coding complexity and added a maximum and minimum gov param for the rate, meaning a floor and ceiling in which the rate can’t move past.

As xAnchor cross-chain efforts move the protocol towards sustainability with increased potential for ramped-up borrowing demand, it’s time for the community to consider setting a semi-dynamic earn rate that reflects the success of these new efforts. The key point to consider here is staying true to Anchor’s mission to create the highest stable earn interest rate in de-fi.

One possibility for creating a semi-dynamic rate while honoring the key points above would be to tie the earn rate to a measurement of change in the yield reserve over a period of time. If the yield reserve is growing, the earn rate could increase; if the yield reserve is falling, the rate could decrease.

For example, we can create new governance parameters for the period of time for which to measure the delta change of the yield reserve.

Assigning the above, if we define a 1 month period in which to measure the change of yield reserve, we can get the following formula that runs every month:

(% Earn Rate Change) = ( (Yield Reserve % Change) )

Further, to ensure maximum stability in the earn rate, we could limit the amount the earn rate can increase or decrease per period to 1.5%. From this we can get the following formula:

(% Earn Rate Change) = min( abs(1.5%, ((YR % Change) ) )

So for example, if the yield reserve increased by 5% in the period of one month:

X = min( abs(1.5%, (5% - 3%))) = min(1.5%, 2%) = 1.5%

The earn rate would increase by 1.5%, conversely, if it dropped by 5% the earn rate would drop by 1.5%.

Setting parameters such as these would create an algorithmic rate that can move in a very stable and sustainable direction. As Anchor protocol matures, it’s important that the mechanisms which guide the sustainability mature alongside it.

Looking forward to hearing back from the community on this protocol suggestion.

43 Likes

I like the proposal, the earn rate will inevitably go down at some point, and this looks like a reasonable attempt at making it somewhat graceful.

A few questions

  1. Is the 1.5% ceiling on the periodic rate change expressed in terms of percent or percentage points? I.e. 1.5% of 20% is 0.3 percentage points. Depending on what you meant the resulting rate is either 18.5% or 19.7%.

  2. What happens when the yield reserve goes to 0 faster than the rate can adjust and prevent the drain?

21 Likes

this seems like a move in the right direction, albeit somewhat difficult to implement… have you thought about the complexity or consulted devs with the technical expertise to implement?

1 Like

Since yield reserve delta is the main driver of this formula, can we get a description of every input that makes the reserve go up?

Reserve going down is byproduct of Earn payouts.

It going up isn’t as clear to most other than when a top-up is performed like the one we just had.

Thanks

3 Likes

Sounds like a plan. This is essential for the longer term sustainability so Anchor no longer requires TFL/LFG subsidy.

On the topic of sustainability, we should also tackle the self inflicted issue of deposits being looped in by external recursive leverage. This none organic inflow is going to guarantee yields head lower.

We’ve already seen the devastating impact of the Degenbox, but with other platforms such as Edge Protocol, Kinetic Money and potentially off chain lending platforms this problem is going ramp up again.

We can no longer put our heads in the sand and ignore it. The solution requires locking down aUST into Anchor/Mirror.

10 Likes

My first post in the Anchor Forum!

I am a huge user/fan of Anchor and have also been concerned regarding the sustainability of the Anchor Earn rate. I believe some sort of dynamic system is the only viable long term solution - even if that means interest rates lower than today’s rates.

I would love to see the Anchor protocol team start to slowly blend in new and innovative strategies (including, but not limited to, a wider selection of bonded digital assets) to try and maintain the highest sustainable interest rate possible while lowering the subsidy. And sooner rather than later is better.

Yes, that would mean savings rates may start gradually dropping as the subsidies decline. But if the whole mechanism was made very transparent regarding what components were contributing how much to the interest rate over time, it would instill confidence that this was a still work in progress that was constantly innovating and improving.

Thank you for the post. It is great to see serious attention going to this issue. Best of luck!

22 Likes

Locking down aUST will kill the composibility of protocol, which will lead to less users using them. It is powerful to deposit in Anchor and use the aUST in some other meaningful way.

We need to figure out some way to boost up demand for lending. Or figure out some other clever way to get rid of recursive loop without locking up aUST.

Is there any plan regarding to increase the lending need?

7 Likes

Is there a floor to how low the Anchor Earn rate could drop? Like if it hits a rate that is equal to floating rate , drops would stop.

sounds reasonable. it could be effective to pair this with a boosted rate for staking ANC

3 Likes

Interesting, it’s a potential solution for how things look now.

I think it’s good to be proactive so we can have solutions to fall back on but I think our efforts should be aimed just as equally at a critical part of Anchor’s road map which is to introduce new staking derivatives that are said to be in the pipeline to increase borrowing demand. This is part of Anchor’s plan to have the 20% benchmark be sustainable so that we don’t have to fall back on a backup solution like the one being proposed.

3 Likes

It looks like a very weird formula with abs taking 2 parameters. Does that mean

X=min(1.5%,abs((YR % Change) - 3%))

but that would mean X=1.5% when YR% change is in between 0-1.5% which, then gets smaller as it approaches 3 which doesn’t make sense

3 Likes

Adjusting the rate based on the reserve sounds reasonable. But the specifics would probably need refining.

Depleting reserve between adjustments
Wouldn’t it be possible to deplete the reserve between the times when the earn rate gets adjusted?
How to mitigate against that risk?

  • More frequent adjustments? --but that takes us closer to variable rate. Anchor definitely benefits from a fixed rate.
  • Steeper rate adjustments the closer the yield reserve approaches 0?

Should only consider borrows & deposits
A bunch of money was just injected into the reserve. This formula would then think things are all good and rather increase the earn rate. I think this should specify net yield reserve change only from deposits and borrows.

2 Likes

Excellent, and that’s exactly what’s needed to preserve long term sustainability.

I mentioned aUST being perhaps useful in Mirror as it is a symbiotic platform that needs the liquidity. All the others can GTFO to be honest.

Can anyone actually name one single benefit to Anchor by allowing aUST to escape? It’s a full scale net negative and it needs to stop.

If it doesn’t stop, everyone will be forced to eat sub 10% APY apart from a small selection of degens. Is that really what we want?

7 Likes

I see the point of this proposal, and it would allow the environmental factors to be taken into account, but ultimately this means the rate is going down vs dynamic.

As others have implied, what would be more suitable is addressing the issue(s) driving the need for this proposal. In my humble opinion, there has to be more input liquidity or loaning users.

The stable apy is a huge selling point for Terra as a whole. Significant social capital will evaporate if this cornerstone rate is impacted so early into the Terra growth phase.

3 Likes

I would like to add that any reduction in the Earn rate should be implemented very gradually to avoid shock outflows from Anchor Earn, which again could lead to a rapid drawdown in Luna if the UST immediately flows out of the Terra ecosystem.

Bitn8, I would like to add to your proposal: maximum change in Earn rate should be 0.1% per 24h.

5 Likes

Interesting proposal. I would support this as it would be sustainable on the long run. One tiny request would be to elaborate on how the % would get affected in the recent reserve depletion. What would it have dropped to?

1 Like

Both types , agree with you.

dynamic rate and stable rate , in separate workflows , for obvious security reasons.

This proposal is dangerous and against the whole ethos of Anchor.

From Anchor’s whitepaper: “We believe that the provision of a stable interest rate to depositors is a necessary feature of a savings product with broad appeal. Anchor thus overcomes one of the key limitations of Compound and Maker as savings products: the highly cyclical nature of deposit interest rates. Beyond offering low-volatility yield, Anchor is an attempt to give the main street investor a single, reliable rate of return across all blockchains. The plethora of staking products, each with varying terms and yields, makes DeFi inaccessible and unappealing to average investors. By aggregating block rewards from all major PoS blockchains, Anchor aspires to set the blockchain economy’s benchmark interest rate.”

6 Likes

@bitn8 thanks for outlining a more sustainable future for Anchor.

Tons of really good perspectives in the comments, I’d like to highlight a few.

This seems to best summarize sentiment shared by myself and many others.

Keeping users informed, and slowly transitioning to a more dynamic rate is the best attempt to do so. I am appreciative of your framing in the proposals - reminds the community that this is an early stage suggestion and welcomes participation.

Maturing Anchor is imperative. This seems like a reasonable goal:

Eliminating the need for intervention further legitimizes Anchor as a cross-chain protocol, and no longer a Terra sub-product.

Quick question - the % earn rate change, is that applied to the 20% base rate? Or will another number be created as the baseline?

3 Likes

The entire premise of what you’re suggesting is not only unworkable given the permissionless and composable nature of DeFi…it literally goes against the ethos of crypto in general.

This is all besides the fact that this isn’t the subject of this proposal at all. Not only that, a proposal was already effectively voted down.

The idea that you think it is ok to create walled gardens and whitelists in decentralized finance is extremely troubling. Your focus should not be directed towards the small subset of users who choose to use leverage, it should be on expanding and growing the protocol through additional collaterals, expanded tokenomics or mechanisms as suggested in this proposal.

Many of us have a vested interest in something much further beyond a 20% APR - we want to see the success of the entire Luna and Terra ecosystem as reflected in the Luna token.

Perhaps you should start thinking bigger. In a world where UST is serving many more users on many different platforms, leveraged users will always be there, and they will always be a small part of the ecosystem.

Think Bigger dude.

4 Likes