Make ANC more valuable by giving premium yield only to ANC holders

If a burn mechanism is implemented, do we need an inflation mechanism? A burn mechanism without inflation, means eventually all tokens will be burned? Correct me if I’m wrong.

So good idea, but I am leaning towards keeping hard cap on ANC.

Max Supply: 1,000,000,000 ANC

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ANC is useless at the moment ! Few people are interested in governance. Because people just want to earn good interest. I am for your system but may be different from what currently exists.

But the whole point of requiring ANC tokens is so there exists a valuable use case for ANC tokens. If we can create a use case for ANC, the value of ANC will go up, which will make borrowing go up, which will fix the current issues.

Orion Money or EthAnchor don’t have to require their consumers to purchase ANC tokens, they can just offer lower yields to consumers with no ANC in their portfolio. If “normies” don’t want to buy ANC, then the protocol just gives them lower yields for failing to contribute to the ANC price. If you buy ANC tokens, increasing the value of ANC (and thus increasing the value of borrowing), you can be compensated with higher yields. Considering Celsius, Nexo, BlockFi, etc. have had huge success in attracting “normie” audiences with gated yields, I think the proof of concept is there.

The problem without gated yields is the opportunity cost of guaranteed 20% on a stablecoin is just too good to give up for riskier investment strategies like borrowing. Loan management can be difficult, and the volatility in LUNA/ANC price makes it much riskier. If I had $10,000 to put into a volatile crypto like LUNA (then depend on the majority of borrower interest be in the even riskier ANC), I would probably have a lot more capital for low-risk plays (ex. in TradFi things like index funds, or bonds). To manage the risk I would probably put >$100-200k in Earn so even if borrowing didn’t work out, I was making 20% fixed yield on the majority of my money. I think this is what causes the discrepancy between borrowers and depositors. Not to mention the lost opportunity costs of staking the LUNA traditionally. Fixing these opportunity costs and creating a gated yield (giving a use case to ANC) should solve these problems.

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If we can create a use case for ANC, the value of ANC will go up, which will make borrowing go up, which will fix the current issues.

ANC already has a use case. It accrues 10% of committed bLUNA staking rewards, 10% of excess yield, and 1% of bLUNA liquidation value.

The most obvious thing to do isn’t to add a complicated feature that could impair the long-term prospects of the protocol. The clear path is to 1. Increase the amount of committed collateral, 2. Stabilize the system excess yield, 3. Increase the percentage of excess yield paid to the ANC token.

Considering Celsius, Nexo, BlockFi, etc. have had huge success in attracting “normie” audiences with gated yields, I think the proof of concept is there.

The primary difference is between Anchor and these other businesses is that the yield generated from those centralized companies aren’t built to be used as a base layer for other DeFi protocols. What makes sense for Celsius isn’t necessarily what works for Anchor.

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This is very true. Most people going to choose Earn because 20% is good considering you can sleep easy at night instead of having that hanging thought on Borrow.

As it has proven by the price of ANC, those use cases aren’t enough.

Can we define “complicated”? I am assuming you mean by end user perception and not actual implementation? If so, gated yield is far simpler than borrowing mechanism. It does not make sense to me when you are pushing borrowing (a more complicated mechanism), but don’t want to add gated yield mechanism (which is simpler).

Maybe I’m wrong, but as many others have voiced by their own investment actions. They will always choose to put more in Earn than Borrow. Even myself, I haven’t borrowed and probably will never borrow…just based on the risk reward analysis.

This is true that those other platforms aren’t used as a Base layer. The secondary protocols just have to purchase ANC which isn’t a bad thing in my opinion. It creates a symbiotic relationship rather than the current parasitic one.

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An idea ive been thinking about, to generate more Value to Anc, but would require a few changes,
Firstly, no more daily buy backs, change it to weekly, and put the buy back amount into a yeild bearing pool, (simular to whats already been suggested for yeild reserve/ust sitting there) but also incorperate it to anc token buy back, though i do belive it should be done once more bAssets are added due to the increase in Collateral/Borrowed amount to make it worth it.

I appreciate the goal OP’s goal: make ANC more valuable. It is great to see everyone engaged in this conversation!

I am of the view that this motion will not achieve the goal of making ANC more valuable. While making ANC a necessary condition of higher depositor rates may increase the short-term demand for ANC; it does not create long-term value.

ANC value drivers

ANC’s value is a function of the cash flows of the Anchor system and ANC’s share of those cash flows. To maximize ANC’s value, you need to maximize the cash flow per share that flows to ANC. It would therefore be appropriate to think of ANC as the equity tranche of a co-op bank. To increase ANC’s value, the existing levers of improvement, in order of impact to cash flows/long term value are:

  1. The volume/share of collateral staking rewards going to ANC
  2. The volume/share of excess yield in the system going to ANC
  3. The volume/share of liquidation value going to ANC

From this lens, it is clear that moving the Anchor system from a deficit (cash-burning dumpster fire) to surplus (generating excess yield) will have the most enduring impact on ANC’s value.

The Anchor system

Think of the system as a distributor of capital. Capital is a commodity, so the returns of a distributor are inversely correlated with the availability of the commodity. When supply is tight, returns are high, and vice versa.

The price in this system is the interest rate. Depositors supply the capital, and borrowers are the demand. Currently, supply far outweighs demand. The utilization ratio (borrow/demand) has been stuck in the low 30s since the crashening versus the target at 66.7%. Excess supply leads to suboptimal (or negative) returns.

Addressing the excess supply of capital

To move to a surplus, the system needs either less capital or more demand for the capital. The TFL team have announced various measures aimed to ameliorate the imbalance:

  • Reduce the excess supply of capital:
    – implement a new, dynamic interest rate model
    – invest excess deposits in yield farms
  • Increase demand for capital:
    – more collateral types
    – new liquidation queue mechanism
    – increase max LTV
    – yield farm bAsset vaults

I imagine a new interest rate model will be the most effective lever to move the system to a surplus of the mentioned initiatives. Price is a powerful lever to achieve equilibrium!

I am less sanguine about the impact of these measures on borrower demand. The borrower’s value proposition is not attractive IMO. The ROIC of farming ANC is not competitive. I hope I am wrong in this regard. Either way, I think it could be valuable to brainstorm other ideas for improving borrower demand.

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If I am interpreting this correctly, when you say dynamic interest rate. Meaning, higher amount of depositors (high supply) the interest rate will lower. And interest rate will increase when depositors are low (supply low).

Interest rate referring to Anchor Earn UST.

Yes. Price (interest rates) should adjust based on supply and demand to ensure system equilibrium. I have no idea how the TFL / Anchor team is planning on doing this. I imagine the new rate model will adjust both the target Earn and Borrow rates to optimize for an optimal level of reserves. It would not surprise me to see them implement a rate curve similar to Compound.

Not sure if you believe this or not, but I have the belief that Anchor Earn will always have more supply than is needed. Based on this dynamic yield solution, Anchor Earn will always have a lower interest rate.

How wide will this dynamic interest rate range be? Secondary protocols would have even lower yields.

So the dynamic yield would have to be wide enough that people would want to pull money out of Earn, but then again this goes against the whole marketing of stable yield on Earn…so earn yield will actually be quite volatile if real time yield changes.

Or dynamic in the sense, yield change every 6 months and not real time?

If deposits go down, then borrowing would be more attractive? Only when many are borrowing there would be excess yield? So this method of adding value to ANC is mostly banking on borrowing then. We increase borrowing by decreasing yield on earn?

Yeah…still leaning on gated yield at this point

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Thanks for that, I seemed to have forgotten all of those other measures that were announced a couple weeks back. While those seem great, and should help create a surplus for the Anchor system, how long will it take for those measures to be instituted? They seem pretty comprehensive, and I’m unsure how much time Anchor has.

Considering ANC is already at $1.9 and dropping, I feel like we need somewhat quick action on this. In addition to the yield volatility concerns from @Arcadia24 with the dynamic interest rate, I feel as if gated yields are better. They have been tried and tested, they are simpler and quickly applicable, and they are versatile in their function. We can also have gated interest yields on borrowing, or yield boosts on borrowing per amount of ANC staked. It would add a whole new value driver to the ANC token, agreed, but based on past performance I’m still unconvinced in the value potential of ANC’s current drivers.

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ANC already has a use case. It accrues 10% of committed bLUNA staking rewards, 10% of excess yield, and 1% of bLUNA liquidation value.

Since none of this seems to be working to stabilize the price of ANC as evidenced by the fact that it is still falling right now (while every other cryptocurrency is rallying after the B word conference and Musk’s announcement that SpaceX owns BTC and Tesla will probably resume accepting orders in BTC soon), maybe we need to increase the value accrued to ANC? Can we double those amounts so that ANC gets 20% of bLUNA staking rewards, 20% excess yield and 2% of bLUNA liquidation value?

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Yes, this is the clear way forward for the token.

  1. Adjust max LTV (Done)
  2. Add bEth
  3. Assess borrowing demand
  4. Introduce 6-month deposit rate reset mechanism
  5. Increase percentage of excess yield paid to the ANC token

The token value accrual system that it seems everybody claims is not working hasn’t been given a chance yet because it hasn’t really been turned on yet. The initial 10% excess yield for ANC buyback was an arbitrary setting at the beginning on the protocol that was set with the goal of building up the yield reserve.

Now that the yield reserve does not require build up, the real value accrual for the token can be activated.

A discussion on what numbers to choose for the three current sources of ANC buyback (bluna staking rewards, excess yield, liquidation fee) is much more interesting in my opinion because this was always the plan (in fact it’s even referred to in the Docs).

In my personal opinion, we can increase excess yield paid to ANC from it’s current 10% to over 50%. This would obviously be a noticeable material boost to ANC buybacks.

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I am assuming you put this in implementation order?
At the rate ANC is dropping shouldn’t " Increase percentage of excess yield paid to the ANC token" be our next step?

I am also going to assume it would be faster to implement this rather than gated yield. Although still a fan of it.

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It doesn’t matter when you increase the excess yield paid to the token because excess yield won’t exist until the rate is reset.

I propose three things:

  1. We scrap governance rewards. 6% Apr isn’t worth getting out of bed for (especially in crypto land). It certainly doesn’t incentivize me. There are around 13 million anchor locked up in it returning 6% at $1.8 per ANC. That yields around 1.3million per year. We burn those ANC.

  2. We allow voting with ANC-UST LP tokens and burn these tokens. That equates to around 37 million burned in the first year. If the incentive to govern isn’t enough to provide liquidity, then we reduce it to something like the existing gov rewards ie 6%.

  3. We add ALL assets that we can to encourage more value accrual in staking rewards. What is taking so long I don’t know?

Unfortunately looks like we are going to have to hold off on increasing percentage of excess yield paid to ANC token as the 6-month rate reset mechanism isn’t implemented yet. But would we even have to?

Could be possible we could actually maintain the Anchor Earn yields with gated mechanism. What is the range of this 6-month rate?

ANC has a max supply of 1,000,000,000.

If you introduce burn mechanics now, we gotta introduce inflation mechanics or all tokens will eventually be burned? Or did you mean reduce the overall max supply of ANC?

Couldn’t ANC get more value by implementing a % discount on fees? Not sure how any of it could work technically so it could be a dumb idea but if you, for example, stake a certain amount of ANC, you can get your TX fees for withdrawing down to like 10 cents or something instead of 25, sure that’s not much but it adds up if you’re using anchor as a bank account and make frequent deposits and withdrawals. This would give incentive for people to hold and stake ANC if it gave discounts.

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I mean to reduce the max supply.

I’m not sure if this accomplishes the task on its own, but I sure like this in addition to some of the other ideas. Just one more reason to hold and stake ANC!