Increase ANC value by whitelisting it as borrowing collateral

Problem: ANC value is dropping → borrowing incentives are going down → fewer people borrow → it is getting harder for Anchor to be profitable.

Perhaps bETH will help with borrow demand, but given the decreasing value of ANC, not sure if enough people will want to borrow. The ANC borrower incentive distribution will get very diluted in UST terms while deposits and the need for more borrowing will keep increasing.

There are some proposed ways to address the decreasing ANC value like this thread, but as explained here I’m not a particular fan of that idea.

Proposed solution: add ANC to the borrow collateral list.

ANC is a yield bearing asset via Anchor’s gov staking, and should offer a similar staking APR to ETH or LUNA. If people are allowed to borrow with ANC, here are the benefits:

  1. Adds a new use case to the token, increasing its utility and value
  2. Promotes more borrowing and therefore adds new revenue to the protocol
  3. Some ANC hodlers choose to borrow instead of gov stake → there are fewer ANC stakers → gov staking APR goes up

Not saying this is solving all problems forever, but at least right now I can’t think of any serious disadvantages to this change - only benefits. Change my mind!

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Wow Very nice ideas forming to make anc better.
I think that would be the simplest and fastest action we can take. May not solve the problem but would be a nice touch. I support your idea.

It’s a very interesting idea, but since ANC has been dropping fairly consistently in value do you think enough people would actually borrow with ANC?

As someone who has been LP’ing ANC-UST and has lost money, I’d love to do anything to prop up the value of ANC… just not sure enough people would use it to make a difference?

Perhaps a combination of this and the tiered return system proposed would be a decent combination.

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I mean sure you can add it as a collateral choice, but nobody would use it. The best choices for collateral are either stable or increasing. ANC is none of those…I am not against adding it. But it won’t do anything to ANC’s price.

As you stated, you aren’t a fan of gated yield. But I believe gated yield and the combination of increasing ANC buyback percentage as someone else said in a different thread are the best.

Edit: Actually this would only work in addition with either of the two methods above. Because either of the two methods are implemented then ANC should become stable or appreciate. This whitelist does nothing on its own.

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I’m with @Arcadia24 on this. We seem to have a lot of different proposals for increasing the value of ANC. I think the community as a whole is in agreement that the ANC sliding value issue is a problem, so I won’t discuss that here.

So far the major choices I’ve seen are:

1) Gated yield on Anchor via ANC (big change to protocol)

  • would definitely increase value of ANC, massive use case and demand in ANC will surge
  • forces depositors to engage in a symbiotic relationship with Anchor rather than a parasitic one (holding ANC contributes to money market indirectly)
  • could harm long-term value prospects of protocol (new users)
  • could hurt secondary protocols like Orion Protocol
  • might be too complicated to integrate into existing aUST system

2) Allow ANC as collateral for money market (medium change to protocol)

  • give a medium use case to ANC
  • encourage buying and holding of ANC
  • may be useless on it’s own due to ANC volatility
  • may not be enough to stop sliding

3) Increasing ANC buyback percentage (small change to protocol)

  • increases value of ANC
  • not big enough on it’s own

4) wait for bETH (no additional change to protocol)

  • will definitely increase value of money market collateral
  • one of the most popular cryptos, opens up Anchor to much bigger consumer base
  • might take a while
  • unsure if enough ETH investors exist within LUNA community to make this a significant change

5) Do nothing, resign to the fact that ANC is going to drop. First two years are highly inflationary due to ANC emissions and wait for future capital to come (no additional change to protocol)

  • optimistic view on Anchor protocol succeeding
  • might be false optimism, ANC might never go back up

The answer is going to be a combination of the first four. If we do too much that could destroy ANC tokenomics. If we do just #5, we risk ANC sliding all the way to do 0.

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I mean sure you can add it as a collateral choice, but nobody would use it.

There currently is 13M ANC staked, wouldn’t the holders of these tokens use it? If they decided to hold anyway.

since ANC has been dropping fairly consistently in value do you think enough people would actually borrow with ANC

This measure is proposed precisely to prevent/slow down the consistent drop in value.

I wouldn’t think so, when just staking ANC there isn’t liquidation risk. When you use ANC as collateral for borrowing there is liquidation risk. The risk profiles are different. And as I said, as the other part of my response. the best collateral to use for borrowing is stable or growing.

Would you personally use your ANC or purchase some ANC to use as collateral in the state it is in? Constantly fearing liquidation because it is dropping in value? I wouldn’t be able to sleep at night.

Because ANC is a poor choice for collateral, nobody would use it thus, adding it as a collateral choice wouldn’t add value. I am trying to explain this the best I can.

This proposal works only if ANC has value already, but won’t add value to ANC in its current state. Meaning this should be implemented post the other methods (gated yield and/or increasing ANC buyback).

Edit: With this all being said, if a proposal for this shows up. I will support it as it doesn’t hurt anything. Maybe only the fact that it takes time away from Anchor Team to implement.

I like this idea. ANC seems to be a bit more stable during steep market dips, which has it’s own value as a type of collateral. I would use it.

One issue is that all collateral types are supposed to generate yield so that it can fund deposits, which ANC doesn’t do.

There are a few ways to compromise:
-perhaps cap the amount of ANC you are allowed to add as collateral to, say, 20% of your total collateral value.
-Or allow users to fund their own ‘liquidation safety-net’ using ANC, so that once a loan reaches max LTV, the ANC is instead added as collateral or converted to UST to pay off some of the loan (and charge a ‘liquidation avoidance fee’).

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Absolutely not, the governability of a business should not be leverageable within the business itself (borrowing against ANC) nor should it be a route for being a customer on the very business you are governing. A governance token should be two things: Profit from protocol + governing the protocol.

Want concrete example: It would allow for bad incentives. Take your 51% ANC ownership and make a proposal to increase ANC borrow LTV to 90%, then use that ANC to raid the money market.
Take your 51% to make a proposal to reduce the liquidation fee, then take really high LTV loans with little risk of liquidation penalty due to your new proposal.

@Kamil @vertigom34.

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Truth is making ANC profitable is a mute point right now if Anchor itself is not profitable. You are asking about how can stakeholders make more on dividends when the company is bleeding money.
Focus our energy making the yield reserve grow at least 50% of the time per year then let’s talk about making ANC pump.
Not saying stuff like (1) (3) would not be a good idea, but there is no point unless your main goal is making ANC pump not making Anchor sustainable.

(2) is a bad idea, see my previous post.

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A pump is not the point - see the first sentence in my first post. ANC being more valuable → more people want to borrow (to farm the now valuable ANC) → more revenue for Anchor and easier to achieve solvency.

Could you explain in more practical terms why borrowing against ANC is a bad idea? I don’t get how the 51% scenario is relevant to ANC specifically being allowed as collat. If you want 90% LTV and low fees you can already do that if you vote using enough ANC in gov and then swap for bLuna.

The issue is a general one on Terra Dapps that do not lock staked governance tokens long enough to require an alignment of interests between voters and the future of the protocol.
Look at the most successful dapps out there: Curve locks voted capital and distribute staking rewards based on the length of lock, AAVE has a cold down period for staked AAVe.

I do retract my previous worry about governance and borrowing from the money market. Perhaps my worries can be fixed by a simple lock on voting or a cooldown.
However, the premise of anchor is to accept stake assets from blockchains, not governance tokens. this would not align.

Near Term Priority should be:

  • reduce the liquidation premium so people are so scared of borrowing. (the team is working on queued liquidation bids)
  • more assets so that not only Lunatics borrow.

Medium Term Priority:

  • Figure out a more competitive borrowRate vs Utilization curve to promote borrowing (will require adjusting DepositRate) however this is not important right now as ANC distribution makes borrowing be free.

Long Term Priority:

  • Now Anchor is a self sustaining business, how do we redistribute some of that to ANC holders.

@Kamil I think increasing the price of ANC to promote more borrowing (from distributions) would work but minimally compared to the above. For example if liquidations meant a 5% haircut as opposed to a 30% haircut, people would borrow a lot more.

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Would you personally use your ANC or purchase some ANC to use as collateral in the state it is in?

Yes I would, I work on the PC most of the time and when i’m not i’m checking my phone, it depends on the individuals risk management, the type of person they are. High risk = high reward etc.
I would like to be able to utilise my ANC rather than just have it staked. Maybe create some aANC like they have with UST (aUST) which enables you to have it staked (earning 9%) while at the same time putting it in borrow as collateral.
Just a thought.

Finally, some active dialogue! It seems like there is some consensus that 1 & 3 are good ideas and 2 might have merit (but also may do nothing for ANC price stability if implemented on it’s own). Can we just put the three to a vote individually to see what the entire community thinks?

Are there any reasons we shouldn’t begin to vote on these options (separately) immediately?

Thanks,
bM

From what I’m seeing there seems to be some that just don’t want to deviate from the original plan. Aka just relying on increasing borrowing and keep all mechanics the same.

But I’m ready to vote.

This is a nice recap of the potential improvements.

As for whitelisting ANC as collateral, I think a better option would be to whitelist Bonded ANC, or bANC. Since now there’s somewhat of a better framework for creating bAssets, creating bANC shouldn’t be too difficult.

Also adding in what has been in discussed within the Anchor team to address ANC’s value (arranged from easiest to implement to the hardest).

Short-term

  • Whitelist bETH as collateral → in final steps, increases cashflow via more borrowing demand.
  • Whitelist bANC as collateral → recaptures borrower ANC incentives back to the protocol, decreasing selling pressure.
  • Increase buyback ratio from 10% to 30% → doable if bETH allows for a net-positive cashflow

Mid/long-term

  • A flat fee of e.g. 0.5% when repaying borrowed UST → capture additional cashflow from active use of the protocol.
  • Instead of having gated yield for ANC stakers, offer lower yield to smart contract-based depositors (perhaps whitelist a few contracts to give them the full Anchor yield) and use the yield difference to buyback ANC & distribute as ANC staking rewards. → applies a protocol fee to third-party DeFi applications building on top of Anchor without hurting the yield for savings applications
  • Require ANC stake to efficiently participate in liquidations (the more ANC you stake, the more bids you can submit to the liquidations queue) → increase utility for ANC

Would love to hear how the awesome community thinks about the ideas above

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Interesting ideas & good to hear that the Terra team is also looking at the problem!

  • bANC instead of ANC - sounds good. Let’s use whichever format makes it easiest for the protocol to capture and make use of staking rewards.
  • 0.5% repayment fee - my immediate impression was that this is not quite in the spirit of DeFi (lowers the flexibility, e.g. if someone wanted to borrow only for a few days for whatever reason). But tbh considering the borrower APRs are in double digits anyway, this might work as long as it’s clearly communicated in the UI.
  • Whitelisting a few smart contract-based depositors sounds like political trouble :thinking: . Are there any criteria you already have in mind for how to choose who gets whitelisted in a fair way?

All else sounds great!

I like these ideas. All have potential, generally as long as we acknowledge there’s a problem here and act QUICKLY to try to solve that problem - we’ll be fine. I think the flat repayment fee will not see support from borrowers… but do they even get to vote? Because if not, they’re not supporting the protocol anyways (and generally contributing to the downward pressure on ANC).

In the end you can’t make everyone happy, so the “spirit of DeFi” might have to take a backseat to the practicalities of the real world… like the law, like human nature to game incentives and take advantage of others, etc. 0.5% sounds quite high considering how often borrowers repay part of the loan (to avoid liquidation) so we might need to think up a more appropriate number but as a borrower, I do think the current fees are probably too low.

I like these ideas very much!

The only point I don’t quite agree is the flat fee of repaying borrowed UST. This fee would negatively affect users that control their LTV more actively, and lower total borrowed amounts in the protocol.

For example, I try to keep my LTV between 40%-45%, depending on market volatility. If I had to pay 0.5% fee to repay loans, I would keep my LTV at a lower level, as the marginal gain from keeping a higher LTV would be offset by the higher costs of repaying loans.

Another side effect of a flat fee is that they would discourage the development/usefulness of tools that help users to manage their LTV in anchor.

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