[Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal

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).

1 Like

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.

1 Like

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.

1 Like

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

1 Like

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.

Wait until Anchor V2 is live and more bAssets added. LFGs btc reserve gonna appreciate in value as well probably starting during the coming year, unless crypto’s dying then why are we here (how I hope they use it to supply Thorchain btc terra pools coming up, mebe they got better plans sure).
ANC was in a slump, its value thus community pool gonna go up, these recent rate and tokenomics proposals are feeding off market fear and worry.
I vote all my meager 2k staked ANC “No.”
In a month ir two willing to revisit, let’s be patient and go with original plan: Anchor mission statement steady APY, Anchor V2 release I wanna see how that goes.
V2 coming anyway why we making decisions affecting a non implemented version 2 right before it is released? Let V2 run a day week,month, season, first, jeez.


Tell me where you can get 15% STABLE interest paid in the same token (USDC, USDT, DAI)?
15% is pretty amazing.


Not saying 15% ain’t. Isnt what Anchor set out for, nor variable rates. We had a reserve issue recently. Acting out of panic? LFG gave Anchor time, I do think Anchor should become independent, for now time is bought use it dont rush it dont squander, aknowledge is limited. Major update/upgrade imminent why change core mission statement/purpose NOW? This is part of a complex dynamic system we tack this on last minute qe wont know the effcts. Probably whenever things go bad thise against blame this, and qhen things go well they’ll claim this. Could be V2 upgrades. Let the V2 overhaul happen first, seriously.
One of the first bAssets we could add in V2 might be bBTC. Nor to mention others probably Cosmos based fer sure. BTC about to be traded natively with LUNA and UST within a month, Terra gonna see BTC chain biz start and vice versa. We better make room for bBTC :stuck_out_tongue:
Edit: Same applies to the veANC proposal. Wait after V2. Looks to me this idea.and veANC idea are pushing during fear level max. Chill. Come at it level headed coordinated plan at a time.

1 Like

how does this work with users just splitting their deposits into multiple wallets? 2.5% of $500,000 is $12,000 a year. Definitely worth managing the extra wallets. Or just dumping the aUST into mirror as collateral to be tucked away.


Stop the 20% its not sustainable 17.5% for deposits not over 10k and linear decrease to as low as 10% for the highest deposits ust will survive it is still damn good for stablecoins others give you +20% but gives token reward in their native which can lose its value -80% in a market dump and these farm tokens rerely recover its ponzi we are not 17.5 or even 10% is solid

1 Like

We’re making this far more complex than is needed.

Problem: ANC token price was falling and was not able to provide adequate borrowing subsidy.

Solution: Earn depositors to be charged a 0.5% withdrawal fee. This fee is used to buy ANC off market, redirected back to the protocol and used to perpetuate borrowing subsidy.

We know driving up the price of ANC is likely not going to have a huge impact on borrowing. People tend to only borrow in bullish market conditions regardless of cost. Let’s not burden people with needless complexity or wallet restrictions.

The real big ticket items are more bAssets (in process) and making use of the billions of idle UST to return a productive yield.

In the meantime… Either cut the APY or let TFL subsidize the yield reserve again.


Hi All,

With due respect to everyone, I feel that this is a major deviation from what was first started as veANC.

This solution, while simple, in my view is basically an act to kick the can down the road and in all honesty, may backfire over time. Firstly, the loophole can be circumvented by multiple wallets as many have pointed out. Secondly, the cap on deposit amount would also limit participation from institutional investors over the longer run. In essence, this act smooth out the depletion of yield reserves by penalizing the large wallets, which in my view, is rather unfortunate.

In my humble opinion, i feel Anchor has to first solve the borrow side of the equation. bATOM and bSOL are nowhere to be seen yet since talks first came out of it many months ago. Secondly, why are we not utilizing ANC tokens more? Can’t we perhaps introduce some value accrual mechanism to ANC by tiering Anchor EARN APR by the amount of ANC tokens you stake? Beyond that, you can also give a Terra score to wallets based on their activities in various protocols etc, which closes the loophole on multiple wallet creation.

Increase in ANC price > higher net borrow APR > higher revenue for ANC from more borrows > better yield reserves
Tiering by ANC governance stakers, to a certain extent, also limit the drawdown of yield reserves by only rewarding the loyal ANC users (no differentiation between large or small wallets).


Yet since the price of ANC has done a 4x over the last month we’ve seen very little evidence for borrowing appetite to increase.

Forcing depositors to buy, hold, stake or lock up a volatile token does not achieve anything but create a pile of needless complexity.

The ANC tokens are also to a large degree useless while being held by reluctant holders.

We are not a ‘for profit’ business like Celsius or Nexo. There’s nothing to be gained by artificially driving up the price of the ANC token.

1 Like