Thank you, and I think that’s a good point as well… none of us know how fast this is going to grow and what parameters will be sufficient, but we need to start somewhere. It can always be adjusted.
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I think we should bring it up on the TG again and see if we can get one of the admin’s to comment… would be great if Do gave some input too
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I like where this is going and glad to see the community coming together.
I would also like to add that part of the yield reserve should go to the treasury to fund a bounty contract bug fund that scales linearly with TLV and also an insurance fund that many in the community, including myself would like to see.
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Thanks for your input… I’m not sure I agree with this, here’s why: Shouldn’t the bug fund and insurance come from the community fund as well? After all, it is well funded, and the point of filling the yield reserve wallet as quickly as possible is to increase the staking rewards and ANC buying pressure. So to me it makes more sense for the funding for the things you suggest to come out of the community fund rather than us having to dilute our staking rewards for them. Tell me if I’m missing something here?
Also, I believe there are already other community members developing insurance models as we speak…
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I think I agree with you and stand corrected here on this.
Do you know what others, besides the protocol I have put forward on here are working on it?
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TerraLabs seems to be doing Ozone, albeit details are scarce
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will leave this up for a few more days in forum before actually starting a poll to give more community members a chance to weigh in…
Thanks for putting this together! I broadly agree but I wonder if we could come up with a more sophisticated algorithm for balancing the buyback rate?
A very simple way of doing this would be to say that the ratio of the current reserve to the target reserve determines the propotion of the excess yield diverted to the reserve, eg:
- If the yield reserve contains $1M and the target is $5M then 80% of excess yield is diverted to the reserve.
- If the yield reserve contains $2.5M and the target is $5M then 50% of excess yield is diverted to the reserve.
- If the yield reserve contains $5M or greater and the target is $5M then 0% of excess yield is diverted to the reserve.
A sliding scale like this would avoid sharp discontinuities in the APR rate for the governance pool.
I think that 30 days interest for current deposits is too small a target for the reserve pool, 90 days might be more prudent as Anchor is young and growth might be rapid.
It’s also not a bad idea to set aside some of the community fund for emergency interest payments, but this should be used as a last resort in case the yield reserve runs dry, as dumping ANC on the market could be counterproductive — it may drive down the price of ANC and thus reduce the borrowing incentives. I don’t think we should consider such an emergency fund to be part of the reserve.
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Great Feedback @milo, I do like your idea of a sliding scale, and I do agree that 30 days is not enough reserve. How about we incorporate these ideas into the proposal like this:
- Yield Reserve limit is 100 days yield payout.
- Inflow distribution is based on a 0-100% sliding scale based on days yield currently in reserve wallet
- After the Reserve wallet reaches 100 days payout, all surplus inflows are paid to stakers, if the reserve drops below 100 days due to increasing deposits, the sliding scale resumes.
- In the proposal we include an emergency clause which authorizes TFL to use ANC from the community fund in the event the Yield Reserve wallet is emptied, which will be paid back once the protocol re-establishes equilibrium. (I am in agreement this should be a last resort.)
So for example, at this writing, there is $737,161 in the reserve wallet. Total deposits are 215 mil, daily payout is currently $151,000. So there is just 4.88 days payout in the Yield Reserve wallet. So, if our proposal was in effect right now, 95.12% would go to the yield reserve and 4.88% would go to stakers. As the Reserve wallet fills our staking rewards will increase, when the wallet reaches 100 days stakers will receive all surplus inflows.
Thoughts?
I like these rules, but on reflection I suggest a couple of additional constraints:
- The minimum rate of rewards for stakers should be the current 10% — there must be some baseline incentive for staking in governance.
- The maximum rate of rewards for stakers should be 90% — although we think 100 days is an adequate reserve, it might not be, so it can’t hurt to build up additional reserves during times when conditions are good. This will also create a buffer so that the reward rate doesn’t immediately dip if conditions change and we have to start using the reserve.
So, in your example where deposits are $215M and the reserve is $737,161, these rules would put the reward rate at the lower limit of 10%, meaning no change from the status quo. When the reserve fund rises beyond $1.51M, the reward rate would start to rise.
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I’m in agreement on the lower limit of 10% to stakers… I’m not sure if I’m on board with the upper limit. Once the Reserve wallet has 100 days payout in it, I think all surplus inflow should go to stakers. The point is to build a safe reserve level and then maximize staking incentives and rewards. To me 100 days is a safe number and if it drops below that algo with kick in again. We can always try it out and make adjustments as needed.
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@Sebastian I don’t feel strongly either way. I’m just slightly nervous that in a bear market it might be hard to sustain demand for borrowing.
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Good point, I’ve thought this as well. In a bear market we need to make some adjustments to the inflows and incentive borrowing more. Meanwhile, I think I’m inclined to move forward with what we have. I’ll give a little more time for other to comment, the I’m gonna write the poll.
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@bitn8 @kingfisher0x
Doing some more napkin math, I’m seeing that with this sliding scale system it will take quite some time to fill the reserve wallet… so I’m still contemplating an injection from the community fund. Thinking we would keep it in ANC tokens so as not to dump on the market, but they could get us to our reserve limit in a hurry so we would see staking rewards skyrocket. currently 100 days yield payout is about $12.8 m, so 2 mil anc tokens would take most of that. At today’s price levels that would mean $10.4 mil in anc tokens so we would just need $2.4 mil in ust to fill the reserve to 100 days payout… Then as anc tokens rise in value some could be sold off to keep a balanced ratio of anc/ust in the reserve wallet, while also increasing in value as deposits increase. We could say 75/25 anc/ust in the reserve wallet or something. just thinking out loud.
I think this is good method in the long run. A few things that might be worth considering:
- Target yield reserve balance might be better set as a percentage value of Anchor’s deposit AUM and not a fixed value. This will allow the yield reserve to accumulate according to the amount required for depositor subsidies.
- (As mentioned by @milo) A min/max rate set for rewards diverted to the yield reserve.
Also limiting the yield reserve to a balance that can support yield payouts for just 100 days might not be enough. Remember that the last cryptocurrency bear market lasted for almost a period of 3 years. Maybe we can first start by increasing the 10% ANC purchase factor to 30%, let the yield reserve accumulate for some while, make further observations, and then consider more calibration mechanisms such as the equation-based one above.
Increasing the ANC purchase factor to 30% will instantly triple ANC governance staking rewards, while only decreasing the yield reserve accumulation speed by around 22%.
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Yes, it might be that in the short term the best approach is to vote through changes to the reward rate on an ad hoc basis, and then implement an algorithmic approach once we have a better understanding of the outlook.
This will also avoid using development time which at this point is probably better spent on other things.
I’d be in favour of moving the rate from 10 to 30%.
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Hey Everyone… great discussion. I think 100 days of reserve is way too much. The adjustment to the borrowing reward is the mechanism the protocol uses to ensure there is enough collateral deposited to pay the interest. It adjusts massively after 3-7 days if he earn/borrow demand is out of equilibrium. The increase in reward will be enough to incentivize collateral to be deposited to meet the demand for APY. So 100 days is way too much. We haven’t been through it so it’s hard to visualize but based on the docs i’d say it’s hard to imagine the earn/borrow ratio being that far off for more than 2 weeks. I think 30 days reserve with a backing from the community pool is more than enough.
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Great feedback. Thanks. 30 days would be great as we can get there quickly and start seeing increased staking rewards much sooner
I don’t think 100 days, let alone 30, would be enough at all. Market downturns in crypto and especially DeFi are known to be very harsh, so I would rather stick to a more conservative approach until more data points can be collected.
Alternatively what could be better is to increase the 10% ANC buyback factor to e.g. 30% which will increase governance staking rewards 3x, while only slowing down yield reserve accumulation by around 22%.
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