[Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal

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.

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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.

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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.

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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.

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

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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.

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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.

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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

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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.

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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).

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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.

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The ANC price is the incentive for people to borrow in this protocol instead in, let’s say, Ledn. Also, a strong ANC price will generate a stronger governance.


Now, about @josh_rosenthal proposal. I know I just arrived, and not trying to sound like a troll, but I just specifically signed up here after seeing the proposal, I couldn’t restrain myself.

Really. Do you guys think the average Anchor user is retarded?

100K limit? As some others have pointed out, are you unable to think that anyone can game the system? If so, that’s scary. If au contraire you think that no one but you guys can figure it out… That is scary as well; a big blow to your reputation as a fund, and a direct red flag to Anchor governance as well.
There are lots more pressing concerns out there as others have pointed out: v2, collaterals, bridges and treasury management strategies. If you think the current APY is unsustainable, create a simple proposal with an 18% number, or a 16%. Put a small 0.5% 30 day rescue fee, and that’s it.
Stop laughing at the intelligence of the rest of the users, which happen to be also your fellows and stakeholders in governance.

No, I’m not being too respectful, exactly like your proposal.

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Duplicate wallets with <100k in them are going to happen with this proposal.

It is better to have a flat reduction in the anchor rate for all depositers regardless of deposit size.

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Technically over the past month, borrow amount went from 1.8b to to 2.7b. No doubt a big chunk of this was driven by the price action of Luna. However, to say that there is little evidence seems dismissive.

Don’t forget that we also have MARS finding their footing and if APR for Borrow drops too negative (due to a low ANC price) we might just see an exodus of Luna to MARS if they offer a better rate…