Dynamic Anchor Earn Rate

Agreed. I haven’t looked into that. Could probably be done reasonably well with some on chain analysis but determining the leverage ratio vs. organic deposits would take some time.

Frankly, I think this is a case of growing too much, too quickly. Probably should have been some gating put in the place to the deposit side to ensure that deposit growth stayed closer to borrowing demand. Increasing the cap every time new collateral was available.

Right now the imbalance is so far out of whack because of the subsidies that I have a hard time seeing how this recovers without some unwinding, an epic macro crypto bull run or continual subsidies.

But at some point you gotta pay the piper…

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Hey @bitn8, after this passes, does anything else need to happen or is this going to production immediately?

Has the code been audited?

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The best bang for the buck will be releasing saUST (locked/staked aUST) and drop the native aUST yield to 10%.

This will immediately buy time for the Anchor team to rollout cross chain borrowing and cut the leveraged yield outflow significantly. It will also take a while for users to migrate over.

Right now we have no idea how much leverage is being looped into Earn (via aUST as collateral), or no way to investigate it. This proposal is the only viable solution.

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Degenbox is the only known large external supplier of leveraged UST (about $750m). We have no clue how much is coming from other sources, but we do know for certain it’s going to escalate rapidly as Earn goes cross chain.

We can assume that Mirror is the largest entity due to leveraged short farm/ delta neutral strategies. It’s probably time to put a nail into that one as well. If Mirror cannot survive with aUST at 10% then they have far greater problems to solve.

When deposit APY drops, leverage demand is going to go up until eventually the entire thing is packed full of leverage. This is where we’re heading.

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Agreed. We are now too deep in the hole. May need to do 5% for aUST and 3X - 15% - for saUST if Anchor is to be saved. Otherwise, even if this was implemented today (realistically will take months to code, test and audit before release), too little time to make a difference. Now it’s time for drastic measures, if by next year Anchor is still to be around.

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Hi @ekryski, I have made a dashboard with this exact purpose to model both linear scenario and an accelerating scenario.

From my calculations, the 21-day-avg depletion rate is around 3.4m and it’s increasing at about 2% a day. With this in mind, we have less than 2 months.

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Yep, and the most perverse part is that dropping the yield might actually have an adverse impact.

As yields drop, investors will be driven into the arms of lending platforms like Yeti Finance who will happily print their shitty CDP stablecoin in exchange for aUST as collateral.

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I absolutely agree with this - by my calculations the current sustainable apy is ~8%. The YR is going to be dried up long before it reaches that value as per this proposal.

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There is a mechanism for what @mariano247 proposed–we do it all the the time when providing bAssets as collateral. Collateralized bAssets cannot be traded/wrapped/transferred/etc (if they can please tell me how!).

The same thing could be done with aUST. Keep the token, but provide different yields in Earn: one (lower) yield for aUST as we know it now, and another (higher) yield for aUST that is in effect “collateralized” the same way that can be done with bAssets for Borrow (obviously that’s the wrong term…maybe “cemented” as it is locked/cemented in a smart contract like collateralized bAssets are).

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This has been my hunch based on years of research into academic papers and debates with world renowned economists. That the current global market rate for borrow/lending in a P2P system is ~10%. There will obviously be some variance based on risk and supply/demand but in an efficient system with good information symmetry it would not fluctuate a ton.

All traditional economists I’ve spoken with felt that cost of capital in DeFi would come down to the current bank rate. My answer was:

maybe over a longer time period but part of the low cost of capital today is because it is reasonably efficient for the people that can access it, and incredibly inefficient (impossible) for the ones that can’t. For the ones that can’t, they pay orders of magnitude more to borrow (if they can) than the wealthy. So if you made a system available to everyone it would probably net out closer to 10% instead of 2-3%.

Just hasn’t been possible to prove until crypto came along with fast rails, enough stablecoin liquidity, open access, and the ability to spend crypto directly without an expensive conversion to fiat step.

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This will go live next week. The code has been audited by SCV.

There is no way to know how bringing on the massive amount of new collateral from ETH, Matic, AVAX, etc over the next few months will have. This could buy us more time and help bring the sustainable rate up over 5-7% it has been hovering at. These are all gov params so that they can be adjusted if they aren’t working as needed until it is calibrated correctly.

Even if rates drop to under 10%, it’s still nearly 3x any other savings and lending protocol, and data shows that the rates changes on Aave and Compound have little to no effect on deposit withdrawals.

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Totally fair point. I guess we’ll see… I’m genuinely hoping to be proven wrong but given the friction in bridging and the ETH performance so far I’m skeptical.

Regardless, I’ve accepted this is happening against my own vote. Have already moved on to helping see if I can help make Anchor sustainable. Strapped for time but I left some comments on the github PR and will add thoughts to the other proposals.

If you guys do calls, let me know how I can best help/attend. Genuinely want Terra and Anchor to succeed. :slightly_smiling_face:

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how is this possible? wouldn’t we need a followup gov proposal to actually connect/migrate the updated smart contracts?

There’s not enough time. We only have two months until the YR runs out in May. This is only going to slightly slow the drain, at best.

Do we have commitment from TFL or LFG to top up the YR? When? And until when? And up to what amount?

Otherwise, even with this implemented, the YR will crash at zero, and the yield will go massively (2x+ down), leading to a panic and bank run. It’s less the two months away. We can’t bury our heads in the sand and pretend it’s not going to happen. It will, and there’s too little time to change the trajectory as we are at terminal velocity on the impeding YR depletion.

I think that this proposal might work if there’s an initial cut to the rate to about 15%, slowing things down enough that the 1.5%/month drop eventually stabilizes before YR hits zero. As things stand now, there’s absolutely no chance this can work imho.

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Why don’t we do this? This will solve looping problem instantly right?

From onchain data, it shows that the yield reserve suckers are a very small number of wallets.

I have no idea. Perhaps Anchor/TFL believe leveraged looping is positive organic growth.

It makes no sense that they are allowing this to perpetuate. Even the Yeti Finance developers are scratching their heads…

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It’s almost like TFL themselves are backing these parasitic abusers of Anchor…

Oh wait, Kwon did actually endorse it himself publicly (Do Kwon 🌕 (@stablekwon): "Decentralized money wins when $UST meets $MIM Every money decentralized on every blockchain, all magical You don't know what's coming 🐸🌕" | nitter), and has never apologized for that lapse of judgment. And he’s done so again and again (for example, see Do Kwon 🌕 (@stablekwon): "Don’t fade $MIM , magic is literally in the name Kind of like fading the moon tbh, be smart" | nitter).

If he and/or TFL still think such blatant abuse, not to mention association with known criminals and scam artists, is allowable - as seems to be the case - then there’s 90%+ chance that a year from now, even six months from now, Anchor will no longer exist, and a 50%+ chance that the entire Terra system will implode and collapse. That’s the inevitable fate, each and every time, of such abusive practices. After all, there’s only so much blood the vampires can suck, until their host drops dead and lifeless…

If Kwon thinks that he and his scammy criminal friends can change the proven course of history - where every single time such abusive practices end up in total disaster - then his ego is bigger than that of Ozymandias. And we all know what happened there. To borrow from Shelley,

(Kwon foolishly thinks)
Look on my Works, ye Mighty, and despair!
(future of Terra and Anchor if Kwon is not ousted soon)
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.

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Well I’m not saying Do is abusing it, maybe he has a different point of view. I have no problem with jumpstarting a protocol, but I feel like we have good traction already.

With that model we could have anchor giving aUST 10% yield and people who stake the aUST for let’s say saUST will get additional 10% or whatever the percentage is. So the looping is in anchor itself with a 10%+10% cap apy. (Of course the numbers can be changed).

This way, apps that are built on anchor earn side will be able to stake on their end and there will be less looping problems since they only have 10% to play with instead of 20%.

I like this proposal but I think there must be a better solution to this.

1 Like

The text poll allows for this to be updated.