If the real goal is to incentivize borrowing then we should start treating borrowers like they deserve to be treated, that is, in an equal way to depositers. There is so much focus on giving depositers a stable and predictable APY but when it comes to borrowers, which are by the way the very people who keep this protocol alive, we force them to pay a high APR with the “promise” that they will be payed with ANC and magically cover their borrowing expenses.
But let me tell you it doesnt work that way. Nobody wants to pay 15% for borrowing in exchange for a volatile token. Even if I’m payed in full if the token drops by 50% before i dump it to cover those fees I have to pay a really high price for borrowing. And lets not forget its borrowers the ones that are also resigning their staking rewards which could EASILY cover half of the current borrow APRs.
This is not only insulting to borrowers but also an unequal treatment compared to depositers. Depositers take ZERO risk and have all the privileges while borrowers have to risk liquidations, pay high borrow APRs and resign to their right of recieving their staking rewards, all in exchange for what a volatile token they only care to DUMP?!
With the upcoming of MARS and the likelyhood that it will accept LUNAx as a deposit token ANCHOR will not be able to afloat. Borrowers will just leave to where there is a better opportunity.
I suggest that borrow APRs should drastically drop to 4-6% (which is what protocols like aave and compound charge) and have the subsidies/incentives pay that part in full. That way borrowers will feel safer borrowing and therefore have a much higher incentive to borrow.
This would bring the sustainable APY for depositers from approximately 13.8% (current sustainable APY) down to 11%. But taking into account it would drastically incentivize borrowing we should probably see an increase in the sustainable APY as more and more people borrow.
I think this is something we could explore for cross-chain Anchor. Why not lower the rate by this much for most cross-chain deployments to incentivize the borrow over the earn to increase the cross-chain borrow impact?
@mariano247 lower borrowing APRs seem like an easy way to incentivize more borrowing.
With the current absence of Mars, it seems as if Anchor has a monopoly on lending and borrowing on Terra and is able to justify higher rates. Natural market supply-demand forces will push this rate down.
It is best to get ahead of this move. A 700 bps drop is big - but not catastrophic.
Is it fair to assume that different networks will have different “standards” for rates - i.e. ETH lower because of more options, etc.? If so, this drop would act as a great way to attract new users.
I resonate with your frustrations below:
Unfortunately, this is embedded in most crypto borrowing mechanisms. Is there a way (not reputation-based borrowing) besides dropping rates, for Anchor to provide a solution to this industry-wide problem?
I’d love to know how much of the ANC incentive immediately gets sold for UST. If that is the case why not have the system convert the ANC incentives to UST automatically and make it claimable as UST. Then there is no risk around that other than that the net APR varies quite a bit although realistically for the majority of Anchor history borrowing APR was a net pay out to borrowers.
I’ve suggested elsewhere that there are things we could do to give ANC a lot of utility and hence increase / stabilize it’s price. One would be to use ANC staking to buy into discounted borrow rates, higher LTV, some kind of liquidation protection (eg. staked ANC gets used to reduce LTV before collateral liquidation), or combinations of these.
While everyone realizes that the ANC subsidies of borrowing are not sustainable and will come to an end in just over 3 years if we can dramatically increase value of ANC those subsidies distributions could be stretched out and preserved instead of squandered in maintaining an artificially high saving yield. For example subsidies get capped and excess goes to the yield reserve.
Yes, yes, yes! I’m happy to see that somebody understands what i’m talking about and doesn’t just say “but bro you have ANC rewards”
I’m not here to demand that anchor solves an industry-wide problem nor am I proposing a solution for such a thing. My proposal boils down to making anchor less of a monopoly and more of a competitive protocol in tandem with all chains.
By dropping rates to a more reasonable 4-6% borrowing could litteraly be additionally incentivized with like and extra 2% in ANC rewards and still have a very attractive and competitive borrowing rate. That’s my simple and immediate solution.
Another thing that could be done is use the yield reserve to liquidate borrowers. My understanding is that the LTV cannot be increased because there would not be enough liquidators to fill those liquidations. If that were the case the LTV could be increased to something like 80% LTV and Anchor could jump in to fill those liquidations solving illiquidity problems related to an increase of LTV.
In my eyes there is a lot of improvement to be made in terms of serving borrowers well. Lowering borrow APRs, using ANC rewards intelligently and efficiently, using the yield reserve intelligently and efficiently, while also providing various mechanisms for borrower protection would be the way to go.
We shouldn’t forget that in the stock market we can take a margin loan and in a margin call scenario you are given a full week to fullfil your debt obligations before being liquidated… So, that should be the path for the years to come.
That would be a very complex solution to a very simple problem. Stop filling borrower pockets with a token most don’t even care to hold. This doesnt mean to not distribute the tokens, but there is a huge difference between being payed a small amount of a token that could help you slightly cut down your already competitive borrowing APR, and filling borrowers pockets with a token they dont even care to own and charge them high APRs to finance a service that doesn’t really benefit their borrowing positions.
I 100% agree with everything you said here and again 100% agree that it would be an extremely interesting path to consider. With your propositions I would picture anchor becoming a leading protocol in the future
High borrowing costs is a discouragement for borrowing. When borrowers are charged too much they are exposed to liquidation risks, which leads to much more conservative borrowing.
Token incentives don’t make a difference when it comes to this. High borrowing costs over time increase LTV which in turn increases the risk for liquidations. Token incentives do not decrease your LTV. A borrower has constantly monitor his position while accumulating ANC and then hoping it doesnt decrease in value only to then dump them in the market to pay these absurdly and insulting high borrowing costs…
This is a day/night difference and it clearly goes on to show how a succesful protocol increases revenue while anchor bleeds money with its unsustainable model…
ANC incentives should be like a cherry on a cake, a little detail one would find nice to have but not fundamentally necessary to one experience of the taste
Lowering the borrow APR increases anchor capital efficiency and incentivizes borrowing, both of which lead to an increase in revenue to depositors and much more sustainable APYs.