If the idea is to let the market adapt to a dynamic rate… they shouldn’t announce anything to do with the YR until it’s self-sustaining. Top it up last-minute if needed, on a surprise day for a surprise amount - or don’t put anything more in at all - but allow depositors to live with the uncertainty. If nobody feared the YR would run out… they’ll keep piling in fresh cash over the next half-year it will take the rate to drop.
Nothing on Anchor is insured without additional cost (some of which are quite pricey). 15% is getting awfully close to a platform already with an insurance policy that offers 12% APY.
The problem is that there is no time to adapt to the dynamic rate. YR runs out in less than two months. There will be no meaningful change in the dynamic rate, given the max -1.5% change per month, to make a dent on the YR depletion. A drastic nearly 4x drop down to 5% is coming up in less than two months. It’ll destroy the apps built on top of Anchor, and the faith in it for the majority of depositors who believed the TFL promise of a stable earn rate in the whitepaper (as economically unsustainable as it is).
“Top it up last-minute if needed, on a surprise day for a surprise amount” is horrible policy. If that is what TFL and LFG really think and that’s how they operate, then that’s one very strong reason why regulators need to come down on them hard and regulate them like a bank, as it shows that they clearly cannot behave responsibility themselves (they can’t be the prime beneficiaries of the growth of UST marketcap, but then pretend that they are not in control when it comes to a crisis). Such lackadaisical approach, when 10s of billions of people’s life savings are at stake is unacceptable and no responsible government should allow that to be so. Such cavalier attitude and treating the customers (depositors and borrowers) like thrash, always on razor’s edge, is to play Russian roulette. There’s a real chance it may take down Anchor, the UST peg and may be even all of Terra down with it. All it takes is a panic withdrawal to start, as when that’s in motion there’s no stopping it (people are emotional and follow the crowd).
Don’t get me wrong, I get what you are saying, and I agree with it. IF it was so done some 6+ months ago and there was enough run-rate in the YR to have a meaningful adjustment to a dynamic rate, and it wouldn’t be about to fall off a cliff (19.5% to 5% is a cliff). As it stands now, Anchor is “too big to fail.” If it doesn’t get bailed out, there is a real risk of a systematic shock when the panic withdrawals start. IMO the right approach would be to commit to replenish the YR until the dynamic APR reaches a sustainable level and there is a reserve of X% of the TVL in place. That is, instead of having Anchor fall off a cliff, let it down a reasonably level slope to avoid a crash. In other words, teach the baby how to walk and not fall before letting it out in the big and dangerous world.
You cant really regulate Terra or Anchor, they’re open source. Someone else can just come along and start a new one up all over again. This is all technically the same digital data like Bitcoin and the only regulations that make sense in any countries are just open policy. Countries like China where they ban Bitcoin, while it does reduce to drastically reduced usage it still exists in the country but is delegated to black market operations making it even more dangerous than not regulating it in the first place.
Besides not a single person believed in the promise when luna was a cent, a dollar, ten dollars, but now that it’s 100 all of a sudden its the end of the world if the project fails. Just like how there is no real way to retain aust fungibility while stopping abracadabra level toys there is no real way kill it.
If anything regulation is mostly for all those trash ohm forks that stole a bunch of peoples money. Even there you can’t really regulate OHM either, the entire point of these currency projects is to prove their feasible admist a government sanctions backdrop and with ukraine vs russia it’s become provably so.
I wasn’t saying that I want I regulated. I don’t. But esp. given Do Kwon’s highly unprofessional behavior, and no functional Board of Directors at TFL to rein him in (or dump him), and the fact that Terra is de facto controlled by TFL and LFG (“community” votes and discussion have so far been a sham, the course is predetermined by TFL and the control they have in so many different ways) it’s certainly nothing at all like bitcoin in any shape or form.
Heck, there isn’t even a way to access the Terra chain without going through Terra controlled centralized web servers (sorry, cli doesn’t count). The fact that TFL refuses to release a full node wallet that connects directly to the blockchain and always works hard to keep itself in control speaks volumes. Those who control the purse strings (like the current up to $10B of btc purchases under way), all the user access to the chain through their centralized servers, through having controlling votes, and so on, are clearly in control and are prime subjects of s government looking to regulate. There’s also precedent for keeping primary beneficiaries accountable. That’s just a fact.
My thesis why LUNA could go to $1000 and beyond was that when USDT implodes and the regulatory hammer comes down on other dollar and euro backed stablecoins, that UST (and hopefully other Terra SCs) will become the defacto standard in SCs and the default trading and exchange of value pairs. But with uncertain future for Anchor - it literally having become too big to fail (without major collateral damage), and unrelenting stranglehold TFL and Kwon have on Terra and UST, there’s more and more holes in that thesis now vs a year or even six, three months ago.
A bright future of stablecoin domination by Terra SCs is still possible, but the risks have been mounting.
TFL will not inject again. The last injection was LFG which is separate from TFL. If LFG puts other injections in again is up to its board - independent from TFL.
Great point! And this is very true. These are all gov params that be changed by vote.
Also to clarify a few points:
- May 1st will be the first drop when the code is implemented. This will drop to 18% (19.5 - 1.5%)
- There will be a earn floor set at 15% and a max ceiling set at 20%
Thanks. That’s what I thought. I think the whole community would appreciate if LFG let it be known, one way or another, what they plan to do come May.
And just a thought: if the YR runs out and there is a panic mass exodus of deposits from Anchor, there’s a real chance that the UST stability BTC reserves will be used and possibly used up. So, in a way, replenishing the YR and buying more time for the current plethora of great initiatives would cost less than having the newly purchased BTC reserves all (or mostly) drained during an (irrational) panic ‘bank run.’
Unless a miracle happens, the yield reserve will run out in May. When there is no more YR, the floor of 15% becomes moot and it’ll go down to the sustainable YR-less 5%-something at an instant, will it not? How exactly is YR running out handled in the code? Does it keep draining it until the last second, and then - boom! - the rate drops to whatever is sustainable and becomes second-by-second variable?
The idea that UST will destablize on anchor collapse is complete fud. Even if all 10 billion left which is impossible since there is 2 billion borrowed it wouldn’t even use up the Luna burn. The bitcoin is there for if bitcoin itself starts a multi year bear.
Prove to me with sound quantitive math the exact price drop from all 10 billion dollars in UST being burned into Luna collapsing the market you can even use a time frame of 1 hour which is also impossible but for arguments sake let’s assume it can.
Terra survival doesn’t depend on Anchor it’s the other way around.
Usually those who dismiss critical thinking and anything contrary to what they want to believe as “fud” have their head buried in the sand. But I digress…
You are missing the whole point here. Fundamentally, there is no reason whatsoever for one to be fearful and withdraw from Anchor - out of fear, I mean (for getting better yields elsewhere, sure) - when and if the APY drops to the unsubsidized rate, or in anticipation of that. Anchor doesn’t engage in big fractional reserve banking (it cannot, with so little demand for loans). Most of the UST deposited is sitting there and doing nothing, ready to withdraw. So, there is very little risk of loss of principal. Certainly less than in a bank (before government insurance) that engaged in fractional reserve banking.
That’s not the point. You clearly haven’t studied history or economics and do not understand the nature of people. People are emotional. People are irrational. (That is why I earlier said that any panic ‘bank run’ would be irrational.) Fundamentally, there is no reason for a ‘collapse’ as you describe it. But, prices are not set by fundamentals. (Again, you seem to simply not comprehend that very critical element of how the markets work.) Prices are set by people for any stock of crypto like LUNA. The current price is where the demand and supply meet in an equilibrium. Fundamentals matter not one bit, at least in determining the current market price. It’s all emotions and what people think, be it “right” or “wrong” (or “fud”) doesn’t matter. People, especially in crypto, go along with the crowd. All it can take is one “influencer” (who has no clue of what he’s talking about) to claim the apocalypse and enough others to believe him and spread the message, and it’s a snowball effect that has too much momentum to stop, as even those who know better get out just because that’s where the trend is going and the risk has went past their tolerance threshold. Trends are powerful, my friend (I suggest that you study some economics and how the markets work to help you understand things).
In short, it’s about the sentiment. If the sentiment turns negative, while fundamentals are still solid there is true “fud”, that can turn the trend and can have outsized effects - before, over the long run, the market finds the equilibrium, but not before irreversible damage (liquidations and all that) is caused.
Sentiment has been turning negative, or less positive at the very least. Look at how UST to USD rates have declined recently. There used to be good business of buying 1 UST at 1 USD worth of LUNA and selling it for 1/3%, 1/2%, even up to 1% mark-up on exchanges, as there was a heavy influx of real money into UST. That is no longer quite so starkly so.
If sentiment turns wholly negative - yes, “fud” in your preferred terms - that by and of itself can exacerbate downward pressure on LUNA price, and amplify - potentially many fold - the mechanics-driven effect on the LUNA price, as UST are burned and LUNA are minted. The buyers of LUNA are not static. With negative sentiment and “fud” (be it irrational as I earlier described), you’ll have triple downward pressure on LUNA of more minting (increasing supply) by burning UST, less demand due to negative sentiment, and more sales of LUNA by holders selling at the worst possible time (though the 21-day staking lock-up helps and exists to minimize precisely this).
In short, there is no science and math that can show what will happen. No one knows what will happen. It’s emotionally driven and not rational human actions, with valuation that has historically always way overshot both on the highs and lows. The risk is that if the snowball gets big enough and gains enough trajectory, it becomes very hard to stop it.
The risk is there, that’s a fact. (And if you had listened to Do Kwon’s interviews, you’d know that he’s the first one to admit this very real and significant risk. Once negative sentiment and downward pressure gets past a certain point, there is a real danger zone.) I don’t know enough to be able to quantify it, only to know that it is real and grows than longer LFG dithers on will they or will they not bail out the YR when it runs out come May.
Edit: tl;dr summary - “the only thing Anchor has to fear is fear itself.” (So it sure would be smart to minimize the potential for fear.)
I very much understand liquidity, value, and risk and also understand how price is met in markets thank you. With that said nothing you said really proves any systemic risk other than capital flight can occur which can occur with literally anything with a bad enough sentiment.
With that being said people sentiment on the entire Terra ecosystem isn’t strong enough to depeg UST, which, for all intensive purposes is all that matters, luna’s price and market cap doesnt matter, neither the UST market cap.
The system is designed to rebalance UST back to $1, that means if your buying cheap UST that’s free money, like you said people will fear out of it, into arbitreurs hands. That is just how things work, when people see something that is cheaper than it’s fair value they will buy it, when they see something that is above its fair value, they will sell it.
We’ve already seen a cataclysmic event with last may’s sell off and seen the peg restore and strengthen, this was also at a time when achor was much smaller and more vulnerable. An Anchor runoff would do what really? cause people to swap into FRAX? and the LP’s will hold all that UST and not really care since it’s providing good swap yield and still always going to be worth a dollar. Luna pools, bluna pools, and ust pools had far smaller depth back then too and UST didnt die. Hell there was 100x MORE fear that luna and anchor were not going to make it back then than now or could be in the future given present stake.
The only real threat is a runoff from bitcoin, thats where bitcoin is worth 3k or less, not even 10k or 20k. So yeah if you want to say the term ‘fud’ isnt the right word sure but what your worried about is no different than being worried that bitcoin is going to hit 20k, or 10k, or 3k, the rest of the market doesnt care. Do you get what I’m saying?
Basing policy decisions on anchor around “oh what if everyone runs off and it destablizes the whole terra ecosystem” also seems to be in conjunction that “if ust cannot hold 20% interest rate its worthless”. It’s a completely silly and useless arguement and a sentiment shared by retail who gets it wrong and loses money all the time.
I generally agree with you. I just think that we need to keep the size of Anchor - well over $10B worth - in mind. A bigger size leads to deeper impact. (A year ago it was of inconsequential size. Now it is definitely consequential.) Just like in banking there’s “too big to fail,” so is the case in DeFi. All that I’ve been saying is that if the rate is going to drop to single digits (there’ll be no more bailouts), it should be managed and let down gently, not be let to simply fall off a cliff, which is like begging for fear-driven and (hopefully) false predictions of apocalypse and doom, as the majority of depositors will be shocked by the sudden drop, and the business models and messaging of the various apps built on anchor will be severely disrupted.
yeah, i do agree with you that the steep drop will lead to a heroine withdrawl and a bunch of depositors crying for government to impose restrictive laws on their freedoms. Seen it enough already to believe it.
With respect to that we should probably adjust the drop off rate. Maybe a bit steeper (2.5% / month vs 1.5% / month), announce the rate like the federal reserve (“Anchor protocol is preparing for a 1.5% drop next month”), I think we definitely have the potential to sustain 12-15% given de-fi yields (eth2 is expected 10-15% yields). And xAnchor will have cross-chain competetiveness it’s just about onboarding a bunch of new collaterals.
luckily the drop off is something we can adjust as needed. Prop just came out so lets see what the first drip causes and react accordingly.
Wrong. They are currently symbiotic. At this stage UST very much depends on Anchor until there are more diverse uses for UST. It won’t be that way forever but right now, it is.
I for one think that LFG has no option but to backstop again, because of this exact issue and, well, math…
This is like a “crack dealer model”. This is not new. Get people hooked on the free crack (high yield) and then start to charge them for it. This is done over and over again in VC land. It’s smart. But the timing and expectations need to be managed properly otherwise people go through withdrawal. Which, in this case, means moving from UST to something else rapidly, resulting in a big de-peg.
@bitn8 I missed it in the PR. Do you know if these min/max’s got implemented? That’s what I was hinting at with my comments on the PR. If so, that’s a good move.
From my understanding this is how it works. Once the yield reserve depletes it reverts to the un-subsidized yield rate. @bitn8 can you confirm? (otherwise I’ll go spelunk the code)
Also, everyone here needs to stop debating the value of this. I do agree with this sentiment:
This is both a blessing and a curse. If too decentralized from day one there is utter stagnation.
But this prop is over. It passed. If you don’t like it, stop using Terra or buy more ANC/LUNA to influence votes or bang the drum louder ahead of time.
We need to move on and look at how we support a more sustainable deposit & borrowing structure to slowly ween people off the unsustainable “free crack” rate. Terra is by far the best positioned to succeed on decentralized money. It’s worth fighting for. Let’s focus on other proposals now:
the aUST vs. xaUST token structure
It’s not too late to get this to a state that is sustainable and drives authentic demand.
That’s a great point, and is another big reason for LFG (or even TFL) to top off the YR. The one thing they don’t want - and frankly I think most users also don’t want (as long as things work) - is for Terra/Luna/UST to be regulated into oblivion. The best way to stay out of regulators cross-hairs is to keep your user base happy and don’t do a big surprise 3x+ rate drop overnight. (Realistically, become still 10x+ bigger. By then, Terra and UST will be too big to be regulated out of existence. Governments won’t regulate something in a way that’ll cause direct harm to too many constituents.)
Yes, but not in time to make a difference to the trajectory things are now, where we are entering terminal velocity.
15%-20% range makes sense from a marketing perspective, but it implies LFG backing, at least in the short to mid term.
I would have went for 10-25% range, with up to 2.5% once per month change allowed, and a commitment that LFG will back the YR until the APR reaches an equilibrium and has at least 2% of the TVL in the YR. When so, that’s the end of subsidies and the training wheels come off. Such more flexibility and the peace of mind that it’ll be subsidized until the many great initiatives under way are implemented and have time to make a difference would give depositors, borrowers, and app developers so much more confidence and peace of mind. It’d be also a certain path to self-sustainability by year end. IMO at least…
Exactly right! Especially the bolded part.
And you’re right. The fact that Terra and Anchor are still controlled by LFG is…a necessary ‘evil’. Nothing wrong with it. Without it, Terra and Anchor would not have a sense of direction (for one, who would employ the developers?). At this stage clear direction and focus is much needed. In another year or two and when Anchor is fully self sustainable, then it’s a different situation and by then it should become truly decentralized (and TFL probably wants it that way, if for no other reason than to stay out of the regulators cross-hairs).
…unless borrowing, even with all the new initiatives, just doesn’t pick it up. If so and a human-managed element to managing the idle UST is needed in order to get to a decent yield, well, then that would be a different path. May be even a fork of Anchor: one truly DeFi, other higher yield but with an actively managed component to preserve capital while earning yield on the otherwise idle funds.
Propose to have the liquidity pool of atom/batom/statom/UST
I am not the engineering, i am a fans of terra
Why make the pairs one2one but nit more complexity like my liquidity suggestions.
Also, i am the one suggested to increse the lending ratio of anckor . Please do not concern the cost to deliver more reward to lender. The most important is to have more collateral and higher the lending ratio to increase the UST liquidity and market .
Yes, understood…thank you for the reply. Hoping the best for Anchor protocol & Terra Luna platforms.
Shouldn’t earn have become 18% APY starting in may, so today?? it’s still at 19.5