Yeah this is just wrong I’m afraid,
You’re assuming no UST outflows as the rate drops (essentially raising the rate for those remaining)
You’re also assuming no additional borrow demand inflow through a reduced borrow apr with additional forms of collateral
4 Likes
Unless the aUST looping issue is tackled then those numbers are highly realistic.
What do you think is going to happen when yields drop? There’s going to be more and more Degenbox/Yeti Finance clones popping up across all the chains to accommodate the surging demand for more looped leverage.
More leverage = lower yields. It’s going to be a virtuous cycle down towards 6% APY EOY, or more likely the whole pack of cards collapses in a spectacular depegging event.
2 Likes
if this proposal live, when will be the date of the dynamic interest live?
1 Like
thanks, I would like to know if the proposal pass, when will be the dynamic interest live?
1 Like
I like this, but I think aUSTx something similar sounds better than a2UST.
However, 20% APY is intentionally being given out for all purposes to encourage the uptake. Anything that goes against trying to get people to use more UST goes against why we are even giving 20% in the first place.
I feel that we shouldn’t focus on limiting what people can do UST. We should focus on finding ways to boost the ability to maintain the yield for all purposes (including degen boxes and all the rest of the crap out there). Because that’s what makes UST so useful, it’s a high yield stablecoin. Which has a growing number of uses, if we reduce the uses, we reduce the value.
Disclosure: I no longer own UST because even with all the degen boxing and other nonsense, I get better returns on stablecoins yield farming elsewhere. So I can fully appreciate the value of not limiting UST’s ability. When I did own UST, I kept it as is, in the bank as liquid stablecoin I could call upon.
2 Likes
Been tracking… a couple thoughts:
Context: at Bidali we enable people to spend UST on real world stuff. Starting with gift cards but trying to bring more direct UST usage via higher yield savings exposure and direct payments with merchants. We’ve already built out the tech and are in the process of being regulated in Bermuda and doing a test deployment this year. The unsustainable nature of Anchor and the potential depeg risk of UST is preventing us from enabling direct exposure to it for normies because there is outsized risk when people are using it to put literal food on the table. That being said, we really want this to work.
-
As I’ve said elsewhere for months on here and the Terra forum, I think a more sustainable yield is required. Speaking with Do and the TFL team it’s clear this is meant to subsidize UST growth (which is fine) but the more we kick the can down the road the more debt is built up that could pose a systemic risk if UST isn’t used outside of crypto imho.
-
Rates can either be dynamic or fixed (or both). Historically in TradFi and other DeFi applications, to have a sustainable fixed rate requires some lock up period and productive use of that locked up capital. Otherwise we likely need to move to a dynamic rate. Great options have been discussed elsewhere in the forums and the currently proposed solution could work but I think while there is urgency (we have 100 days left at current burn), we’re rushing this a bit.
-
After briefly reviewing the Github PR I don’t think this reduces complexity. Quite the opposite. Lots of code additions. Admittedly I haven’t reviewed thoroughly but this adds to my concern about rushing.
-
I think there is a real risk that with this proposal we see the deposits unwind until it reaches essentially a dynamic rate of ~6% APY. Just need to look at these charts to see that the break even point right now based on borrow demand is ~6%. So more thought needs to be put into preventing a full unwinding below 10-15% as I believe a sharp unwinding could cause a rapid sell off of UST and a big depeg. Groups like Alice, Seashell, and others are aiming to provide 10%+ APY to people via Anchor. With a sharp unwind these guys will be DOA. There just isn’t enough utility for UST outside of Anchor nor enough alternative collateral outside of LUNA (yet) so this needs to be managed well.
-
It’s also clear that we have a decent amount of leveraged UST deposits. This can further lead to a sharp contraction on a depeg event. I don’t think anyone really knows how much is levered so it’s very tough to tell how far out of balance the deposit and borrow ratios truly are.
With all that said I think if we step back there is an order to things here:
-
We should determine whether LFG is prepared to do another back stop. If so, then we shouldn’t panic as it may be better to continue to subsidize, go multi-chain and have multi-chain collateral.
-
If not, then we have < 100 days before the yield reserve depletes at current rate. We know a good portion of this rapid increase is from leveraged UST which is distorting the data on what is “true” deposit demand vs. levered demand. My vote would be to address by temporarily suspending smart contract deposits so we have clearer data on the natural deposit/borrow ratio.
-
Push hard to get multi-chain collateral so we can see what the uptake is like. My personal opinion is everyone is hoping it’s going to save Anchor but with the friction and risk of bridges I don’t think we’re going to see a mad rush of borrowing and alt-coin collateral. Very happy to be proven wrong here!
-
If it’s still unsustainable after those two changes, then look at either a more sustainable fixed rate and/or dynamic rate that is sustainable. I actually think if you can easily bridge UST to real world usage and are able to spend it directly on goods and services then a 10-15% APY borrow rate is sustainable as we could start to replace credit cards which are closer to 40% APR. But it’s going to take some time to get there…
Similar to @narco78, my vote is for “no” on this proposal. Not because I’m against this idea but because I think it’s out of order and rushed. I think we should come back to this after we’ve gone through steps 1-3 and are more informed.
5 Likes
I think this is an interesting solution and is probably the most elegant solution so far that maintains composability + Anchor’s main mission of the best most sustainable yield.
I think aUSTx or caUST (composable) might be better naming…
But this is a really promising idea. I agree with @narco78 that I think you probably want a 50% discount (or something like that). If the APY on aUSTx is too high it really won’t get you anything because you could still lever and loop to get to the same point we’re at right now.
@mariano247 do you maybe want to spin up a new proposal thread so that it can be debated/discussed instead of polluting this one?
2 Likes
The 19.5% is why funds are on Terra. Once this drops over 4 or 5 months I agree that depeg risk will increase. I think that this proposal only will provide a long term solution if it is be combined with income generating alternatives to make Anchor more sustainable. For instance, right now 11 Billion dollars is sitting in the Anchor treasury literally doing nothing. Sustainability could be achievable by changing to a lock model where funds placed in Anchor can optionally be locked for different time frames 3 months or longer. Only locked funds would qualify for19.5%. Without the lock a lower interest rate is paid, like 12% to 15%. The funds that are locked could be invested in other protocols and projects across crypto especially Terra as a treasury investment fund. The profit from the locked and invested funds could make the protocol sustainable. Otherwise the Dynamic earn rate will only be a temporary fix, until yield drops to a point where funds start leaving and depeg risk grows.
4 Likes
You will never be able to compete against Degenbox, which means regardless investments are made in other protocoles, there is no way you can match the 70% or so Abracadabra offers
2 Likes
I would like to see something incorporated that reduces return rate at higher deposit amounts… without reducing aggregate interest from various levels of investment. Someone putting in 1 billion should not get the full rate… it should reduce and do so dynamically. I’d hate to see the smaller investors lose this gem because it’s being sucked dry by the largest institutions. Balanced correctly, this could keep all tenants of ANC intact. I think that the current proposal starts this process of sustainability… I’ll vote yes but would push for further nuance to changing yield rates.
4 Likes
This is the only way going forward – You maintain current APY but isolate Degenbox parasites and expel them,
Even achieving this, Anchor still has the challenge to generate enough revenues to pay for the current APY but will provide more time to think about sustainable solutions.
One month ago, the burning rate was 2.5 mm USD a day, it is now 4.1 mm USD. At this growth rate, we are at 6.7 mm USD a day in one month and around 11 mm USD a day in mid-May, ie about 60 days, YIELD RESERVE WILL BE THEN AT ZERO.
This is why I will vote against the proposal as it will have no efficiency to prevent the doomed fate of the protocol (sadly).
4 Likes
This is the limitation of the Governance system. You are asking the richest (hence the ones who have the most voting power) to reduce the APY. No wonder why they voted no…
1 Like
Anything that can help prevent the yield reserve drying out is definitely going in the right direction …
1 Like
Depletion rate is around 5 million a day 
2 Likes
I don’t think that would work, as it’d go against the decentralized ethos of Anchor. Not to mention regulatory and legal burden if the deposits are actively (human) managed, then Anchor would become like an actively managed investment fund. (There are such options out there that bring close to 20% for other stables, btw.)
2 Likes
Impossible. Anyone can create any number of Terra wallets. So if you have a Billion you want to put in, you can spread it over a Million different wallets.
3 Likes
Sure, but not everyone will do that. Some will, sure. But not every account with over 100k is going to make numerous wallets and therefore, it will have some measurable effect on making anchor more sustainable while not negatively impacting the users with smaller investments.
2 Likes
That is going to shut down the various apps built on top of Anchor and practically destroy it’s real life integrations and use cases.
One wallet does not mean one consumer. One wallet may be a 100K users, and one user may be 100K wallets.
3 Likes
Your proposal is not useful, as it doesn’t take into account if Anchor is making a profit or not.
At the current rate for 19.5% APY, Anchor YR is losing 4M every day plus deposits are increasing almost linearly. This means that your idea will be useless to make Anchor stable, as the first month at 19.5% Anchor will loose around 120 M, and next month at 17% we will loose the same amount as deposits are also increasing. The decreasing factor of 1.5% is too less to drive Anchor to stability and it is also arbitrary, while an intelligent approach have to be used. Your formula is caring only about the YR while a nice balance about deposits && borrows needs to be found. YR is then a plus (if ANCHOR is making a profit) to give a plus to the APY for the deposits. Sorry but i have to vote no, we need a good reliable solution, we don’t need to get to the nice solution by doing bad steps.
4 Likes