My proposal is based on discussions between other comunity threads. I believe that the best solution towards bonder’s collateral insurance against liquidations, ANC’s value as a token, and increasing the rate of collateralization on ANC to increase borrowing is by introducing bANC as bonded anchor, recieved for staking/bonding for governance this can be deposited in the “Borrow” section as collateral just like bETH and bLUNA. bANC however does not increase the amount of lendable UST however, it is used purely as an insurance against liquidation. That is as additional collateral it reduces the LTV ratio of the loans. This anchor staking rewards for governance can then be deposited towards the yield reserves just like with bETH and bLUNA staking rewards. I also think that the liquidation LTV should be raised for depositors of a minimum amount of bANC. i.e. if 10% of collaterals is bANC Liquidation LTV is 70% instead of 60% etc.
This will finally answer the question of “What does ANC do?” apart from pure governance. This will also give borrowers an incentive towards holding their ANC rewards instead of dumping on market thereby reducing buyback needs. This also allows buyback ANC to be bonded etc. I think there can be a tremendous amount of value from having anc directed as an insurance. Obviously loads of calculations can be done, if there are any actuaries in the community they’re more than welcome for feedback etc.
Ofcourse the powers that be could have completely different ideas so who knows.
Thank you for putting forward this idea. I have a few initial questions and concerns to discuss.
One of the main reason why bANC is a tricky asset to add is that it introduces circular dependencies in case of large liquidations or run on the ANC token.
It seems like you’ve taken those into account hence why you suggest for bANC to only serve as a liquidation tranche that cannot be borrowed against.
That being said, wouldn’t users just go for higher LTVs proportionally to their increased liquidation buffer? You mention increasing the max TVL on other assets for bANC depositors too. In both cases, doesn’t that end up being the same as listing ANC with a low max LTV?
Another concern is that ANC’s yield is quite low compared to other yield bearing assets. On its own, and especially if it provides elevated LTVs for other assets, wouldn’t it hinder Anchor’s ability to generate the yield it needs to pay off Earn depositors?
Good point, I think that long term the rewards borrowers received will be dropped in favour of more competitive rates when compared to AAVE, that’s for both borrowers and depositors since anchor has the staked collateral earnings.
Higher LTV is actually healthy since it allows more yield due to more capital bearing interest (that is deposits in use). It can actually provide higher utilization rates and a better utilization curve. If we rose it to say 85% it would still allow liquidators to capture a 15% discount which if you look on orca seems to be where the median is. Using Anc as a means to achieve this gives it utility, the additional collateral acts almost as an insurance buffer for volatility. The additional yield isn’t so much being captured from the banc as the increased utilization from the higher LTV and increased collateral amount. We can also have a bonding period of say 1 year preventing a run on Anchor and incentivizing people to maintain their loans.
Basically the anchor token becomes an insurance you can buy for your loan. This incentives borrowing. LTV doesn’t necessarily need to increase that can be something left for later but it would help solidify banc insurance acting role since it reduces liquidation risk. If people want to increase their risk that is their liberty but if it doesn’t play in their favour the banc can be liquidated in a way that doesn’t dilute price.
There can also be a cap for the percentage banc can be of the collaterals for a user, say 10% preventing banc from being used with a small amount of actual collateral which is what I assume your alluding to. Or even a fixed banc amount that provides a fixed liquidity amount for the collaterals.
I’m intrigued by this proposal as it does give a reason/purpose to hold ANC. With ANC-UST lp expected to be reduced or eliminated at some point, there needs to be another value proposition for holding ANC. What’s more, this added functionality can contribute to the overall stability of the ANC protocol, as long as its tailored to prevent irresponsible leveraging.
I was thinking about this idea as well. If the ANC-UST pool were dramatically reduced or removed. Instead of selling ANC to lower their borrow amount, people could stake in order to lower their LTV (with ANC compounding) and this could possibly keep people more invested in the platform and prevent liquidations since ANC holds up pretty well. Dumping maybe to 2.5-2.8 but always claiming 3-4 again and with more of it staked, perhaps a stable price in the 2-4 range over the bear market. And more people in governence aka more decentralization.
One could imagine someone really stocking up on ANC as a chunk of their portfolio along with bETH, bLUNA and soon to come other anchor assets q1 2022. People can treat Anchor like a portfolio of so many great assets and using terra defi with their UST.