[Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal

I think people should be paying attention to this 0xSal guy. Seems like he’s hit a lot of the key points as far as I can tell.

These protocols are economically aligned communities first, and prioritizing the success of the community as a whole as facilitated by the protocol is what will lead to Anchor, and Terra’s success


Are moderators able to check if these first time posters are coming in via the same IP address?

On the original topic, what are the benefits (to the protocol) for requiring depositor ANC locks and artificially driving up the ANC price? What are the price projections?

There would seem to be a huge profit potential if you happen to hold or purchase ANC tokens ahead of such a change.

In terms of Nexo and Celsius, they are ‘for profit’ businesses and as such, it makes sense that they aim to drive the price of their tokens by requiring token holding for boosted yields.

For Anchor it makes sense to benefit all users of the protocol, including the heath of the protocol itself.


We are incredibly appreciative of the reception and feedback offered to our proposal both on this forum, Twitter, and other venues. Anchor Protocol certainly stands out as having a lively and engaged community, which is one of the many reasons we are incredibly optimistic about the future of the project.

We have carefully reviewed feedback and questions and have distilled them into key themes that we will describe and address below. Before we do that, we wanted to take a moment to re-underwrite the intent and spirit of our proposal. A stronger ANC results in a stronger Anchor Protocol. Our proposal is purpose-built to induce greater borrowing, make depositors owners in order to align incentives, and importantly, make the Anchor Protocol sustainable through enhanced ANC utility and value accrual. A strong, sustainable Anchor will bring new depositors into the ecosystem and spread UST far and wide. Our proposal greatly diminishes future need for hundreds of millions of UST injections from Terra to meet depositor interest payments, freeing up that capital to be reinvested and deployed into new projects on Terra while Anchor is able to self-perpetuate. A strong, sustainable Anchor means a strong, sustainable Terra ecosystem.

When it comes to community feedback, we have bucketed it in three main categories. Please find them, and our responses, below:

  1. Many users just want yield. This is absolutely true! For this reason, we want to emphasize a key component of our proposal: the UST component of deposit interest is freely claimable and liquid upon accrual. To be specific, if a user vote-escrows their ANC rewards, they can claim and use accrued UST interest while the ANC vests. In the proposal’s current state, a user could vote-escrow their ANC rewards for a year and get 17% APY paid out in liquid UST. This is only ~3% less than the current Anchor Rate and far outpaces other DeFi yields, CeFi yields, and, of course, TradFi yields.

  2. Some users don’t want to participate in governance. That is ok! It is of course our preference that all ANC holders participate in governance, but we understand the reality that for a variety of reasons, that isn’t the case. For those who do want to engage in governance, we think it’s important to give them the ability to maximize their vote if they’re willing to accept a tradeoff (illiquidity) in doing so, hence the creation of vote-escrowing. For those who won’t participate in governance yet receive ANC as part of their yield, you get to experience the economic outcomes of one of the largest protocols in DeFi, not just in the form of yield, but in the form of ownership. By paying a portion of yield in the form of ANC, ownership of the protocol is extremely broad and enables holders to behave in ways beneficial to their interests at an individual level and for the protocol in its entirety.

  3. This sounds complex. It is difficult to understate the importance of user experience. It can very easily be the tipping-point between project success and failure. We know that and it deeply informs our approach. In our proposal, a user will face one question upon depositing assets: how long do you want to escrow your ANC rewards? On the Anchor interface, we envision a simple slider where a user can explore escrow duration and the resulting expected APY. After selecting a duration, they click deposit and that’s it! Users are well on their way to earning industry-leading APY, 85% in UST and 15% in ANC. A frictionless, easy-to-understand process that allows users to determine what is right for them.

A beautiful part of the Anchor Protocol is the diversity of its participants. From minnows to whales to crypto funds to TradFi funds, users of all walks come to Anchor to earn large, consistent yields and borrow at highly competitive rates. We are confident that our proposal maximizes the experience of each and every single participant, regardless of means and motives. As stated at the top of this response, we place immense value on Anchor’s community, which is why we took time in formulating the proposal and this response. We understand that it may not answer every question, but it tackles the most consistent themes. We look forward to continuing engagement with the community asynchronously and hopefully, via AMA!

cc: @Matt_Hepler


Yield curve style earn interest while on the surface can make a lot of sense, it is more aligned with tradfi mechanics. This was never the goal of Anchor because of the complexity of the code and the complexity for the user. The biggest problem with this prop is the high level of complexity both from the build side and the user side. Therefore, a gov vote is going to be hard to get everyone on the same page to pass this.

Further, his would be a massive build and require way more dev resources than what Anchor has right now. The complexity from time-locked payments arises from a user side, which requires more clicking, and from a protocol integration side. The whole aUST mechanism would have to be re-written, separate vesting contracts would have to be created, with queries going out every block, which gets expensive. It would also hurt aUST fungibility among other things.

Fundamentally, figuring out some kind of simple time-lock on aUST makes sense. Ideally, a withdrawal tax on x% of withdrawals that buys ANC to burn it. This could replace the ANC token earn payments in a very simple and easy to code way.

Trying to find some common ground, I think that in the long-term, figuring out how to tie in the veToken model to the earn side makes sense exploring. Tying a boost earn percent to having x% of aUST in veANC that is queried every month and paid to the user could work. But again, even this simplified version of the above prop, would take a decent amount of building resources with separate contracts and cross-chain queries.

Build resources right now have been directed to build cross-chain anchor first and address the main issue: the borrowing side, because it fuels the earn side. Addressing earn first doesn’t address scaling borrowing. In tandem with this, ideally figuring out an algo based earn rate that slowly lowers/raises the earn rate 100-200 bps every quarter based on the YR growth or decline percentages.

The next focus ideally should be simplifying the UI/UX of the borrowing side, again another decent dev resource undertaking.

I think once these things are hammered about, we can then look at a more simplified version of the prop, i.e. x% of aUST in veANC or something along those lines.


Agreed, I think it’s important to understand the resource constraints at the moment and how challenging some of these initiatives can be to actually implement from a development standpoint. These are all great ideas, but it seems the team is currently focused on the most efficient use of resources and prioritizing accordingly.

While both a borrow and earn side problem exist, the borrow side issues can be more quickly addressed and have much more community alignment with regards to how they are solved - notably xAnchor, whitelisting additional collateral, and improved UI/UX. Improved tokenomics also aids by addressing the lack of utility for ANC and is likely necessary before addressing the earn side.

Again, everything is on the table, but with limited resources, the community needs to be a bit more narrowly focused on addressing the near term borrow issues in the most efficient way possible.


Reposting my reply from here

Anchor should be a dead simple stablecoin savings solution; this proposal is tricky to implement not only for the Anchor team, but also tens of apps and exchanges that already support Anchor as well as hundreds of apps and exchanges whose support is still to come - and it may not come if users are forced to take risks on a volatile token.

There are many ways to promote the value of ANC that don’t introduce obstacles/big trade-offs:

  • @bitn8’s idea above for a withdrawal tax
  • bANC as collat (borrow based on ANC, perhaps with preferential rates) and/or the v2 borrow model
  • veANC
  • A lot of other things are proposed in my thread from a few months back
  • Last but not least, keep in mind that start of y2 (so in a couple of weeks) ANC inflation is slashed over 4x. It’s a double halving. ANC will pump even if we do nothing about it.

Apart from directly changing the tokenomics, worth remembering that a part of protocol profits is already used to buy back ANC. If we find ways to improve profitability (encourage more borrowing), more ANC will be bought from the market. Ideas include:

  • Add a lot more collat options (see again the v2 borrow model)
  • Going cross-chain and promoting borrowing better
  • Integrate borrowing into consumer friendly apps with good UI
  • Someone should build flexible leverage tokens using bAssets (like Levana but with Anchor)

Thank you for the response to our proposal. We disagree with the notion that this proposal is too complex to implement - the complexity is of similar magnitude to the Retrograde proposal. That proposal hasn’t received this level of implementation-related pushback, even though, notably, it has scored prompt attention and amplification. We went to significant lengths to receive feedback on our proposal from many notable players in the investment community and none voiced concerns around implementation.

We are aligned with you in believing that developer resources are scarce and should be allocated carefully. Initiatives such as adding new collateral assets are critical and adding utility to ANC is no different. Importantly, passage of our proposal does not mean ceasing other important projects, rather they can be worked on concurrently. Since the UST reserve was topped off by TFL two weeks ago, Anchor has already burned through ~26mm UST. Action must be decisive and focused solely on the best interest of Anchor Protocol, its token holders, and its community. Resources will be needed to implement our proposal, that is indisputable, but the ROI potential is substantial and certainly more effective than perpetuating a model that rapidly burns capital injections or pushing through a proposal whose goals aren’t solely dedicated towards benefiting Anchor.

Several comments have been made about having to solve the borrow-side of the Anchor equation. What is ignored is the fact that a sustainable tokenomic structure encourages symbiotic behavior from both borrowers and depositors. Attempts to shore up one side of the equation without factoring in the other will eventually result in a Tragedy of the Commons. Band-aids such as a buy-and-burn fee mechanism for withdrawals does not properly align incentives, it will just continue the Free Rider Problem that exists today - broad ownership is needed. For those exact reasons, we were careful to make sure that our proposal addressed both borrowers and depositors in a way that results in a true flywheel: increased depositing results in increased borrowing, increasing protocol value which in turn encourages more depositing.

Efficiency isn’t a synonym for ease. Efficiency means striking the maximal balance between effort and outcome. While yes, our proposal requires resourcing, it affords the Anchor Protocol the potential to reap the benefits of tokenomics that encourage sustainability and immense value capture without the pain of having to regularly replenish reserves with external capital or constantly debate shifts to the protocol’s business model. We are confident in that and have garnered significant support from many token holders that agree. At the end of the day, we are economically incentivized to see the best outcome possible for Anchor Protocol, and from a tokenomic perspective, we think our proposal achieves that.

You do realize your proposal has far wider impacting implications than the Retrograde model which is primarily targeting large wallet borrowers? Every single depositor is going to be affected by your proposal.

I have still yet to see anything to explain the benefits to the protocol by artificially driving up the price of the ANC token. The original tokenomics were designed to maintain a relative balance, but of course we know the lackluster price performance has recently been an issue.

What happens if the price of ANC is forced up 5x, 10x or 100x? Have you modelled any scenarios? What does this mean for the protocol or the end user? What is the optimal borrow subsidy rate?


as mentioned by @bitn8, the anc-timelock-length-linked yield aspect is the main complication/breaks the current aUST. feel free to review the anchor contracts; i would love to be proven wrong on this.

the retrograde proposal, while rightfully complicated, is mostly updating the gov contract (for emission voting), and borrower rewards functionality (unique emission-rate per collateral type).

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Over the course of the past two weeks, we have taken considerable amounts of time sifting through feedback offered by the Anchor community, ANC holders, and participants in the broader crypto ecosystem. What is clear is that there is significant consensus that Anchor Protocol is critical infrastructure for Terra and the future of decentralized, censorship-resistant stable money. What has also been understood deeply is that much of Anchor’s success has been driven by an ethos of elegant simplicity: lenders deposit assets and in exchange, earn a market-leading, predictable yield paid out in UST. This ethos was core to what has proven to be one of the most successful bootstrapping tools in history: in just about a year and a half, UST market cap has erupted to close to 13.5bn. While successful, Anchor’s bootstrapping method is not immune from the force of gravity that affects all bootstrapping mechanisms: it is unsustainable. This is evidenced by Terraform Lab’s centi-million UST injections into Anchor. Accordingly, given the escape velocity achieved by UST, we believe it is mission critical to address the sustainability of Anchor Protocol.

Our initial proposals centered around making depositors owners through ANC distribution in an effort to economically align incentives with the health and success of Anchor Protocol. While we believe this proposal was a thorough way to address many current issues with Anchor, we have opted to significantly restructure our proposal in a way that retains this core ethos of simplicity, continues to pay industry-leading, stable yields, and dramatically increases the sustainability of Anchor Protocol. This restructuring could not be made possible without the thoughtful feedback provided by the community - for that, we are eternally grateful and excited about the role of governance in Anchor Protocol.

This revised proposal has two core features:

  1. Deposit amounts up to 10,000 UST will continue to earn the Anchor rate of ~20%. As described above, Anchor has done an incredible job in terms of spurring the adoption of UST. As Terra enters its next phase of growth, more focus should be placed on users added to the ecosystem rather than dollars added. More users result in broader demand, which results in more effective distribution of UST. By offering ~20% yields on deposit balances up to 10,000 UST, we believe that small- and medium-sized users will continue to flock to Anchor for unprecedented yields, thus increasing the number of users earning and using UST.

  2. The rate earned on deposits in-excess of 10,000 UST will decrease linearly over the next 1.5 years from ~20% to 10%. By currently offering ~20% on all deposits, regardless of size, an environment with large depositors dominating the depositor base has emerged, resulting in a massive Free Riding problem that manifests itself in rapid bleeding of the yield reserve without the benefit of incremental users. To counter this, we lean on the Anchor’s whitepaper itself in proposing a reduction to the yield paid to depositors, though focusing it solely on deposits in excess of 10,000 UST. For example, for a depositor of 100,000 UST, the first 10,000 earns 20%, while the remaining 90,000 earns the new, reduced rate referred to as the terminal rate. We assume the terminal rate is 10%, which is comparable to existing staking rates of layer-1 assets that either are, or may be, eligible collateral on Anchor. This rate can be adjusted through governance, though we believe in principle that they should be close to the staking rate of the protocol’s collateral assets. This is a new reality for depositors, so we believe an incremental shift to the terminal rate over 1.5 years, with the new effective rate being struck every 30 days, is warranted. A sample yield schedule on this rate can be found at the bottom of our proposal.

The net of our proposal is the encouragement of new UST earners through paying 20% on deposits up to 10,000 UST and increased sustainability by steadily reducing the total yield earned by large depositors all while retaining Anchor’s flagship characteristics of simplicity, predictability, and sector-leading yields. We acknowledge that some users may create multiple wallets to avoid the 10,000 UST threshold, but we believe that the complexity of managing multiple wallets will deter this from becoming problematic and we are realistic in understanding that any proposed structure can be gamed. Even while factoring that behavior, our proposal will dramatically increase the likelihood of a self-sustaining protocol that spreads UST far-and-wide, free from drastic capital infusions. This is a step-function improvement when compared to the current state of affairs.

The attention and activity that is currently being paid towards Anchor governance is at an all-time high, which affords us all a unique opportunity to implement groundbreaking, critical adjustments to protocol operations. Through deep diligence, significant collaboration, and consensus-building, we have conviction that this proposal represents such an adjustment and believe a broad base of ANC holders agree. Notably, this proposal only addresses the depositor side of the Anchor equation, the borrowing-centric Retrograde proposal debate can continue unimpeded. We again want to take a moment to thank all that gave feedback and helped move our proposal to its current state. We believe that the future of Anchor Protocol is indeed very bright.

cc: @Matt_Hepler

Illustrative Terminal Yield Table:
(note these yields are projections, and not guaranteed)


I agree with Arrington about not complicating deposit side but I think paying some of the rewards in ANC is the biggest complicating issue with the Polychain proposal. It gives savers a token they didn’t have already, have to dispose of, and have to think about the value of. Plus it immediately creates a sell pressure which probably balances out all the buy pressure to acquire ANC to pay out rewards. Paying higher interest if you take it in CEL doesn’t seem to help the CEL token value for Celsius and they have an option to pay ALL interest in CEL. Celsius have openly said they need to create more utility for CEL.

Unlike Arrington I personally don’t think allowing lock up of ANC to get an increased rate is that complicated for savers.

I would propose a system similar to “paying points” on an US mortgage (not sure what other countries call it) to get a discounted borrowing rate. As a borrower there’s up-front cost to that, paying points only makes sense if you will have the loan for at least a certain amount of time, but the longer you hold after that the more the advantage.

So a similar thing could apply for savers if one could pre-buy increased rate with “points” paid in ANC. When paying points they get some % of their deposit not in aUST but in higher rate version like aplusUST. The more points they pay the more of the aplusUST they get. People could still immediately withdraw by cashing out their aUST or aplusUST but due to the amount spent for point pre-pay their effective APR would be lower (even negative) for some period of time. The longer they hold the more they benefit from the points pre-pay.

And those who don’t want to mess with ANC powered discount borrowing rates or premium lending rate don’t do it. This is a common concept for savers. Basic (low) rates are and should be easy. Enhanced rates require a bit of extra work. I have access to better deposit rates at a bank if I do a CD (Certificate of Deposit) but I’ve never done it - simply isn’t worth the hassle.

This points system for pre-buying an enhanced rate:

a) creates a demand for ANC which are then held by the system - they could be burned, or recycled by the protocol as borrower rewards to discount the borrow rate (and replace the current source that will dry up in 3 years).
b) creates an incentive to be a saver longer since points have an implied minimum deposit time before they reap a net positive benefit
c) can be made transparent to the user in various platforms like Kash or Alice as points can be paid for out of the initial deposit or via additional UST.
d) works simply by creating another super-prime aplusUST asset that works just like aUST but with higher yield. The points fee in ANC brings value to the system to help fund the enhanced interest.

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It’s interesting the price of ANC is now at an all time high (over $5.50) but overall borrowing hasn’t really scaled with it . Right now borrowers are being paid 7% to borrow, but borrowing today is down 3%. Go figure.

Forcing users to hold ANC tokens for 19.5% might help drive out depositors, but you can achieve the same goal by lowering rates, introducing time deposit lock up requirements or deposit / withdrawal fees.

Driving up the price of the ANC token by requiring users hold it or lock it up is clearly not a panacea to this problem. With all the hurdles and hoops involved, why even bother with it at all?

I’m surprised your original proposal, combined with the 2/28 revision, hasn’t received more support. I guess a lot of forum participation here is real degens?

I think a crawling target rate based on recent inflows/outflows (as @bitn8 proposed) makes more sense than a static rate target, tho.

But I’m curious: why not allow veANC to be (very conservatively) used as borrow collateral? I know it’s very volatile, so set a very conservative cap, like 30% … but anything > 0 would be of value to veANC holders

I think the idea of paying a % if the yield in ANC is a good approach. I would lean towards having a sliding scale UST vs. ANC yield composition not necessarily a fixed 15% . Would that not further incentivise long term commitment to the Anchor community?

Yeah I don’t think ANC price and borrowing are very correlated. A few percent APR either way on the borrow rate isn’t going to create much incentive IMO. In any case borrowing is pretty much maxed out with current market conditions and the availability and volatility of collateral. Remember that you have to have money to borrow money.

My idea to have ANC used as a fee to buy higher savings rate would supply ANC to Anchor protocol which can be used to discount borrowing rates and to keep the value of that ANC high.

So long as ANC plays a crucial role in making Anchor borrowing attractive (currently supplying a 15% discount) we need to figure out ways to address that in the future when the ANC subsidy dries up in 3 years.

I like Nate’s suggestion of a simple small withdrawal fee (paid by Earn depositors) used to buy back ANC tokens off the market.

Rather than burning the ANC, they should be redirected back to a sustainability fund and can be used to perpetuate borrowing support.

This way users are not burdened with any hassle of dealing with ANC tokens at all.

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After several weeks of feedback and consensus building, we are ready to push forward with our proposal. We have made a few final tweaks, but the spirit remains the same: reduce the overall yield paid by Anchor Earn to take pressure off of the yield reserve while continuing to pay stable, best-in-class yields to depositors. While no proposal is perfect, this represents a critical first step in shoring up Anchor Protocol in a way that increases the likelihood of self-sufficiency all while maintaining its central role of expanding UST market cap and bringing new users into the Terra ecosystem.

The adjustments made to our proposal center around deposit threshold tiers. We have increased the threshold for deposits earning the ~20% Anchor Rate from 10,000 UST to 100,000 UST. This was done to increase the number of depositors earning the full Anchor Rate. The 10,000 threshold was suitable for only small users, which while critical, excludes a significant number of individuals with larger, though not institutional-sized, cash balances who stand to benefit from the outsized yields from Anchor and the limitless potential of the entire Terra ecosystem. We have also established a new tier of 100,001-500,000 UST, in which deposits will earn 17.5%. This 17.5% will be implemented over time, starting at ~20% and decreasing linearly over 1.5 years, with new rates being struck every 30 days. This new tier was created specifically to cater towards small-to-medium-sized institutions as well as individual power users. Enterprise level interaction with Anchor will be critical to scaling UST’s adoption given the numerous end-users enterprises face. Similarly, power users, who can be characterized as influential individuals with large cash balances, are important to Anchor given their propensity to evangelize the products they use thus broadening the awareness of the protocol. Preserving high, though not maximum yields given deposit sizes, is critical to retaining these two cohorts. Consistent with our recent amendment, yields on deposits in excess of 500,001 UST will sunset towards 10% over the next 1.5 years. An indicative deposit rate chart is at the bottom of this post.

We are incredibly excited to move forward with this proposal and put it up for a vote. After countless hours of conversations with the community and ANC token holders, we are confident that it represents a critical step in improving Anchor Protocol and cementing its foothold as critical infrastructure within Terra and crypto, broadly. Thank you to all whose contributions made this proposal possible.

Screen Shot 2022-03-09 at 3.02.15 PM

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I think your prior proposal (tapering off deposit rates >$10k) was much more robust than your current one.

If you make the effective cutoff $100k or more, people will still manually game the system. At a $10k cap, the effort to manually game is quite high, and would kick back so many transaction fees to the network that the ecosystem arguably wouldn’t be any worse for it. But at $100k+ cutoff, you are not creating enough of a “tax” on superdepositor activity to change the underlying incentives.


If you are changing the 20% interest on deposits, why not just have 15% for all?
I’m under 100k, so It’s not that will benefit me, but changing and touching the aUST code and Anchor, opens Anchor and Terra to possible bugs and or hacks.

It’s important we don’t change code too much that opens the door to hacks and breaking other protocols interoperability.

Anyone, that is outside the Defi world if they open a Alice account and see’s 15% on deposit or even 10% they would be thrilled!

But then again, the community is very short sighted, which means we will be revisiting this topic before end year to find solutions for the Reserves and Interest rates.


I think Do Kwon wants to keep rates somewhat above market / somewhat above “sustainable” to keep driving UST adoption.
He would like to keep onboarding more small users and stop the predatory activity by whale/institutional depositors.