So,
I know this is something most of us don’t want to read, but please hear me on this. There’s reserves for about 10 days as of now and so, we need to take immediate actions with immediate results. Some of the proposals that have been floating might work, but we know decreasing the deposit APY will work. So, my point is, we can decrease the APY just for a month, to buy time to implement the other proposals and see if they actually work.
In terms of annualized returns, this would mean your ROI would go from 20% to ~19.2% which isn’t a big price to pay to give more time for other proposals to make this protocol sustainable.
What is our best guess of what happens when reserves run out? My understanding income on EARN would move to a floating rate in the area of 10%. Is that the communities best guess?
If thats true, why not just let the reserves run out and have the rate go to 10% anyway? I’m just wondering what the down side is on that…
Another thought is to reduce the UST rate to 10% (from the current 19.5%), and make up the difference in ANC rewards, for a short period of time.
The floating rate would keep decreasing as the gap between deposit and borrow widens, though. Also, if the rate decrease is planned, it can be better communicated, as to not generate more fear than what’s necessary
I will agree to a temporary solution, as long as I know it buys enough time for a longer term solution. We still don’t have a timeline for bETH or know for sure whether it will work or not. Hopefully a month is enough to implement bETH as I keep hearing “next week” for the past few weeks…
I think there is a major psychological difference between a shock rate decrease down to 0 vs a more gradual/announced/planned rate decrease to 10 or 15 percent. My understanding is that the whole premise of Anchor is it is supposed to provide more reliable/predictable yields (more fixed vs variable).
Great to have an open discussion about this. I am not in favor of this proposal. Let me quickly outline my two major thoughts:
As outlined by another fellow contributor before, the system would balance itself once the reserve runs out. I think this might be a great chance for the protocol. It could proof its resilience to difficult time and show, that it is not boosted by a third party that tries to shadow the current state. That’s why I see no issue in hitting the 0.
The 20% is a marketing tool. Reducing the number would probably lead into a brand damage. You might argue that this would be the same for a reserve at 0, but for that I would like to reference my first point.
Looking forward to further foster this discussion! Thanks for bringing this up
Borrow rate is at about 124% at the time of this post. Which is high enough in my opinion. People are not borrowing at that rate…why do you think increasing ANC rewards would increase borrowing?
The initial assumption is that high borrow incentive would be enough to keep the system in balance. Clearly it’s not. Now we want to double down on a method where it has been proven false.
Plus it’s temporary…if it does in fact work. Once rewards drop off, then we are stuck in the same spot again? I mean who knows how long bETH or other solutions are going to come. These extra ANC token rewards, the borrowers are going to get are going to depreciate even faster. The higher initial yield after this implementation will just tank faster and will be back at the same rate of return in no time.
Do we have a backup plan when increasing ANC emissions and borrowing doesn’t increase?
We should let the yield reserve run out. At the peak of the crash Do said that the anchor yield would be about 11% without the reserve. That is still better than blockfi, celsius, coinbase, compund, etc. There literally isn’t enough circulating Luna to bond into anchor to increase the borrow enough to get us back to 20% naturally without a big luna price increase. We need other collateral options.
Do says he will have a solution soon, let’s see what he comes up with.
If anything, a proposal to incentivize borrowing is needed
This has been proven to not work. Borrow incentives used to be 300% and borrow rates where still fluctuating. Also, increasing ANC emissions would further devalue the token, which would further damage the allure of rewards and the trust on the protocol itself. It’s like putting a band aid on a bullet wound.
If putting a fixed, short-term lower deposit rate (I would also have liked 15%, but it might also be too late for that) would damage the brand, I think a floating rate that could keep decreasing might be even worse. The thing is, if some people withdraw their deposits after a rate drop, that would actually be good for the system, as it is operating way over capacity as it is.
At the peak of the crash Do said that the anchor yield would be about 11% without the reserve
Since the peak, borrow has increased by ~100M (and collateral by ~230M) and deposit by ~180M , so the actual rate is probably still around 11%. Would a floating rate be better than a fixed rate? At least if people withdraw their deposits because of the scare of a floating rate, that would bump the rate up until a new equilibrium is formed
A fixed rate is the purpose of Anchor so in the long run it is important but if we have a floating rate that is still higher than a lot of competitors for a short period of time it’s not the end of the world.
Also, as POS yields come down a 20% interest rate won’t be possible even in the best market conditions so we should keep that in mind as well.
You only earn the net borrow rate on the proportion of UST you actually borrow.
If the avg borrower borrows at 30% LTV, you are only earning 30% of that net borrow rate. At 140% distribution rate, it’s actually only about 40% return on Luna (assuming you’re earning at least the borrow rate on your UST proceeds). Note that contributing to the Luna-bLuna pool on terraswap is currently earning about 30% risk free.
But even compared to plain staking, it just isn’t that clear. Luna staking yield currently is 12-15% with occasional spikes to >100% during genesis token airdrops. Nebula, Spar, Ozone, Orion airdrops are signaled to be coming in the next couple of months (as well as pylon which just occurred).
If you’re doing the math (or not and just using intuition) it isn’t that clear borrowing is a better use of Luna than staking.
As the genesis snapshots pass, the opportunity cost for converting Luna to bLuna falls naturally making borrowing more attractive.
Not in favour of this proposal, we should let the protocol do what it is suppose to do.
The effort has to be focus on increasing the bonding and borrow to increase reserve.
One way is to have some low tx cost of automated borrow and repayment algorithm to maintain some user-defined LTV.
Also earlier suggestions on increase the types of assets to be bonded and adding the bETH should help.
