Fixing the Anchor Rate

If its 6% and the current currently 19.5%, the Dynamic yield will not remedy anything in time unless depositors also withdraw sizable amounts… Essentially money is being squandered for no tangible benefit. The protocol doesn’t need to be offering such high interest rates when it is essentially over subscribed.

What is the lowest Anchor rate possible which is also market leading? while offering the same risk profile as having your money with Anchor protocol?

i.e what rate is our nearest competitor offering?

The yield will drop to 15% and then hold there until further notice.

The yield will drop to 15% after 3 months… and a month or so later to something much lower because the reserve will be empty.

I propose the the earn rate be dropped to 15% now and let the dynamic yield apply from there. and scrap the minimum aspect. It would be worth knowing at what rate we start to lose competitiveness…

I don’t see the need to overly incentivize the earn side when its obviously doing too well. Slow it down now, then we need to tackle the borrow side and finally look at how to bring value to the anc token. I think there is a proposal out there that has has 2 earn rates. the higher earn rate is tied to a 5% anc holding vs deposits. This last proposal would be fantastic in bring buying pressure to the anc token rather than the selling pressure from borrowers offloading there anc rewards.
However I see this last step as irrelevant if the underlying protocol is not sustainable. I don’t see it as sustainable in the long term let alone the here and now… Lets apply some real world economics. Too much supply not enough demand means the earn rate should be reduced alot quicker than 1.5% a month.

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CeFi for stablecoins (USDC, USDT, DAI, etc.) has rates like 9.7%, 10.3%, and thereabouts on flexible terms with no lock, 12.7% on 1 month locked, and up to 17% for longer term (1 year) lock. That is all for in-kind earnings and without any “token staking” to increase the gains (and the risk).

So, to use simple numbers, for reputable CeFi stablecoin earn comparable (in-kind, no “staking” of anything else required) the best rates are:

  • a bit over 10% for flexible term
  • nearly 13% for 1 month lock
  • close to 14% for 3 month lock
  • up to 17% for 1 year lock

As for DeFi, OUSD (see www.ousd.com) is the closest comparison to Anchor I know. No convolluted “LP” or what not nonsense, simply hold in your wallet and earn. OUSD used to have north of 20% APY just a few months ago. Now the trailing 30 days APY is a bit below 8%. See APR

For Anchor to be meaningfully competitive with both DeFi and CeFi, it has to stay above 10%. 15% is a good goal. Anything below something like 12.5% is likely to be problematic.

If we don’t look at CeFi as “the competition” and only look at DeFi, then anything at 10% or above, in the current environment, is fine. But, the rate would need to go up sharply when other DeFi protocols go up to 15%, 20% APY again, as other DeFi yields vary daily. (Anchor going to 1x monthly rate variance limited to 1.5% per month may end up doing double the harm. It’s no longer stable and predictable rate, yet when other DeFi stable yields are going up sharply every day, Anchor is going to be trailing them and getting left behind with only +1.5% once per month. The current implementation of what is in effect a semi-variable rate is likely to lead to large withdrawals during periods when DeFi stable APY is going up (while Anchor lags the rest and gets left behind), and large capital influx when the DeFi stable APY starts to go down, while Anchor only adjusts it down once per month and limited to 1.5%.