In light of the quickly draining Anchor Yield Reserve, I’ve come up with a proposal with a different mechanism which can be further implemented into Anchor or used if the Yield Reserve were to go to 0. From my research into Bumper’s Price Protection Protocol and MahaDAO’s ARTH 2.0, I’ve understood that instead of a stable asset, an appreciating asset can be created which absorbs the bullish price action from a basket of volatile assets such as BTC and ETH and even LUNA (although it’s mostly bullish). Let’s call this new asset ASC (short for “ascendo” ~ latin for “to rise/ascend”)
UST keeps its peg to USD algorithmically through arbitrage incentives where users can swap $1 worth of LUNA to 1 UST and vice versa to achieve stability. ASC is similarly algorithmically-pegged but it is also peg-transitioning; it can be algorithmically-pegged to USD as well to a basket of volatile assets.
In bear markets (where the gradient of the basket’s ema < 0), ASC is 100% algorithmically stable (pegged to it’s current price). However, in bull markets (where the gradient of the basket’s ema > 0), 10% (an arbitrary percentage that seems safe but can be changed) of ASC’s value is algorithmically-pegged to the CHANGE in the basket price, where the remaining 90% of ASC is algorithmically stable.
Given that there is a sudden drop in the price and ASC is pegged to the basket, an insurance protocol can be implemented by having an Insurance Reserve which is actually a percentage of the increase in ASC during bull runs, lowering the rate of appreciation of ASC but allowing for a safer mechanism.
These are just my thoughts and many holes exist in my idea but I’d still like to share this with the community. What are your thoughts?