Hey everyone! I’m Daniel Hong – I used to work with Terra and the Anchor team from mid 2020 to 2021.
Here is my take on Anchor’s yield and its long-term sustainability. Feel free to share 
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Good idea, but $ANC still seems to have no place to use it.
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Excellent work. My brain is slightly too smooth to confirm if this may potentially deliver long term scalable and sustainable yield.
I like this type of approach as opposed to ‘let’s just nerf the current yield with a dynamic rate’.
I would be interested to hear the Anchor team’s take on this.
to be fair, pretty much all governance tokens in defi are ponzi schemes
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a dynamic rate should be part of the solution. i’m just proposing a way to organically bootstrap borrow demand, which should be another part
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to be fair the community would appreciate how you could use your experience to constructively suggest how $anc could have better utility.
especially if it wasn’t just used for governance.
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I read through it. Very similar to some ideas i have had. I would be selling puts in Luna and collecting premium over buying calls for a hedge. With a crypto like Luna it’s probably going to have an inverse volatility smile which make upwards calls more expensive to buy and higher theta is working against you, instead of for you, puts could be a better option since the theta will work for you.
The trick here as you mentioned at the end is implied volatility. Obviously the cost to hedge is most expensive when it’s needed most. Gamma hedging gets more complicated here due to the total portfolio Vega convexity or vomma.
Thinking about a xanchor hackathon soon. This would probably be a great idea.
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can do a writeup on this as well if people wants me to – i also have thoughts on this.
Thanks for the feedback! Some thoughts from my side:
Agreed – however for vault products like this, trying to liquidate Luna during a downwards spiral with a put option may complicate things even further when you are withdrawing collateral from Anchor already; I would say this may put too much technical pressure on the liquidations queue, albeit advantages with theta.
Yeah, I didn’t give further thought on how exactly implied volatility could affect our proposed hedging mechanism. Was planning to do further research if we decide to move on with the vault part
I’ve actually applied these types of strategies to great success using anchor + other protocols.
There’s plenty of Olympus style daos that are not totally dead yet and are hungry for leverage. I think it makes more sense to arrange agreements with them to facilitate their use of anchor on the borrow side. 20% for these guys just doesn’t cut it.
Temple DAO ohm, lobis, etc, all would be interesting in gaining leverage from Anchor, an even easier option is to start listing revenue tokens like gohm as collateral and convince / buy up enough of the protocol to vote in, for them to issue (mint) their token under pol, deposit on anchor and utilize the leverage for additional gains (under pol mechanism).
A great opportunity on Terra itself is spectrum, nexus, apollo, anything that is yield farming we can look to see what’s the cheapest one to buy up controlling share, issue a community spend for anchor to acquire controlling stake, then on anchor side enable depositing of their yield bearing token to provide leverage/line of credit for the protocol.
This really takes out most of the work we would have to do for defi strategies.
On making the strategies accessible on anchor I feel like it’s a lot of extra work for what’s already floating out there. Nexus right now is looking very appealing since it’s vaults are directly tied to anchor borrow demand and are already doing all of the hedging your talking about.
TL;dr simplified:
Let’s just whitelist gohm it’ll do exactly what your looking for.
Edit: ACTUALLY can anchor do this?:
- Whitelist gohm as collateral
- When depositing gohm as collateral anchor gains the voting rights of gohm
- Once Anchor can risk free pass any proposal on OLympus it does so for them to deposit their ybt to acquire leverage from anchor to use in whatever yield strategy they do.
- Loop continues and degen borrow ponzi ensues to compete with all the loose cannons pointed at anchor earn. The more degen on earn the more degen on protocol owned liquidity.
strategic advantages aside, i don’t know whether a savings product with retail appeal would ever want to touch olympus
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I think truth is borrowers are anchors customers not depositors. While deposit demand is needed anchor is the customer to them as anchor pays the yield. With that framework in mind we should try to keep things simple yet impactful for borrowers and xanchor creates us an opportunity to cater to new customers, in particular PoL customers while also gaining the advantage of utilizing their voting rights.
We would have to analyze the risk, weather there is enough liquidity on avax for this to be feasible but it’s a much easier solution versus offering yield strategies directly on anchor. It’s a lot easier to refer someone to buy ohm and borrow with that than to convince them to engage in complex derivatives based strategies that carry multiple risks.
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Well… This just comes back to the more simple option I’ve put out many times here which is just getting flash loans with scripts that liquidate AUST or some other long collateral you have.
This is much simpler and it puts idle UST to work to generate yield.
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My maths is bad
What would the current anchor rate need to be to achieve equilibrium with borrowings and collateral
at current levels?
umm sorry no, i wouldn’t want any additional leverage on an asset type that is already highly leveraged, especially when people’s savings deposits are at stake.
I’ll have to agree with @bitn8 on this:
There’s a liquidation mechanism. Ohm is probably the most backed stable out there lmao, your savings are not at risk unless you can explain how? Also I’ve already talked with people in the ohm discord looks like your UST is already in the works to get into their hands so maybe that’s a thing depositors should worry about if they do believe its a risk to have UST do anything other than sit idle waiting for yield reserve top ups. along with the accelerating deposit rate since the white paper did not take into account the amount of aust leverage from it’s fungibility which is an inherent part of de-fi, along with the fact anchor would be competing with many dozens if not hundreds de-fi money markets for borrower collaterals.
market.xyz already allows you to deposit ohm to borrow ust, dai, frax, etc on Avax so this is more of the inevitable than a risk making decision on an endless supply of deposits. prop 22 rolls out tomorrow but I moved all my anchor onto edge so I can bootstrap the frax pool since all of the proposals I wanted to do are already in the works behind the scenes.
I’ve already come to the conclusion depositors own little to no Anchor if any other cryptos at all. Most of the ones that would own it are on other protocols like yeti or Abra abusing degenerate strategies on anchor earn anyways. It really is proof that the market will always find an equilibrium.
Liquidation mechanisms do NOT protect you at all cases, they are smart contracts and liquidations may fail at any time
Backed doesn’t mean it’s not leveraged
Yes, there is deposit leverage already, but that should be on Abra and Degenbox, not Anchor.
I guess you are more towards leverage while I am much more conservative in terms of suggesting solutions. I am sorry if I sounded offensive, but there isn’t much point arguing any further for both of us
Please somebody correct me if this is wrong but the last time I saw this analyzed, anchor APY would need to be at around 6% to reach equilibrium.
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yes, which is why both sides of the solution (adopting dynamic yield and bootstrapping borrow demand) would matter