Anchor Gov Proposal
Tiered borrow incentives, tiered earning rates
Over the last 6-months, deposits in Anchor have increased from around $600m to over $1.75bn. During this time, there have been several market shocks that led to mass liquidation of Luna as well as borrower collateral. While measures have been taken to improve reserves and prevent UST de-pegging, we think the utilization ratio will need to improve to support the next phase of Anchor growth.
As such, we propose a two-pronged approach to fortifying the market:
1: Improving the borrow incentives
Since up to 20% yield is attractive to just about anyone, there are fewer incentives needed to improve the deposit side of the equation besides bridges and more partnerships to diversify the source of the capital.
However, the borrowing side of the market is where all yield is generated. To incentivize even more borrowing and improve the utilization ratio, we suggest introducing tiered APR and ANC rewards to improve staking balances among new bonded assets. This change is intended to have the desired effect of limiting Anchor’s reliance on LUNA alone, improving utilization, and reducing ANC’s downward pressure. We suggest a time-lock bonus should borrowers decide they want to improve their rewards and lock up their collateral for an extended period of time.
Further, we believe new collateral assets should be prioritized by liquidity and rewards incentives to maximize reserve accumulating to Anchor.
2: Tiered earning based on UST timelock
As the market grows, we feel it would be best to implement a predictable time-lock model such that depositors can choose to lock up UST in the earning pool and earn enhanced rewards. An optional time-lock with the following incentives should result in more predictable deposit collateral while still allowing flexibility for those with less risk appetite.
Some starting suggestions:
More detailed model for review:
We feel these changes would provide the protocol with more stability in its next phase of growth and provide substantial improvements in confidence for new borrowers and depositors who are looking at working with a much larger size than Anchor has experienced to date. We would like to foster discussion around this proposal concept and get additional input, especially as it pertains to the upward pressures on ANC (re-buying), which is not covered in the model.