[Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal

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.

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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.


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.


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…

A withdrawal fee has been suggested a few times but I think the main pushback to this is that it discourages smaller users and newbies. If we’re serious about reaching the next billion users, using the protocol should be as frictionless as possible.


Well it’s a fixed percentage fee so it doesn’t discriminate between whales or small fish. Everyone gets the same deal. It doesn’t even add a single click of extra effort for the user.

It’s far less friction than users having to fumble around buying, staking and locking up ANC tokens.

Also if the fee is directly accumulating ANC for the protocol then it can then prolong borrowing subsidy long after emissions end.

The goal isn’t to send the ANC token into the stratosphere, but to give it a nudge in the right direction.


I am a Anchor user from Sri lanka and greatly appreciate the proposal. But how are we going to prevent from users creating multiple wallets and depositing 100,000UST each and earn yield of 20%.


We appreciate the spirited feedback received regarding our proposal. I’ll take a moment to re-emphasize something we previously stated: this proposal is an important first step towards building a more perfect Anchor Protocol. It would immediately bring down the amount of pressure on the Yield Reserve, which has already burned through ~60mm UST since the TFL injection less than a month ago, and increase protocol sustainability. Its presence does not stifle other proposals working their way through governance (ie Retrograde’s proposal) nor does it stop other protocol developments (ie adding additional bAssets).

Many are commenting about the potential for users creating multiple wallets. We absolutely thought of this when creating our proposal as well as previously posted ones, in fact it was discussed in nearly every conversation we had and we addressed it in our penultimate proposal. The truth is that any proposal will be gamed in one way or another by motivated participants. Another truth is that with each wallet one creates, complexity and risk increases exponentially, eventually deterring gaming. The worst case scenario is that gaming occurs on a mass-scale and the Anchor ends up in the exact same scenario that it’s in today, but with higher user metrics. We are taking a calculated bet in assuming that this wallet gamesmanship will take place on the margins, but not at a magnitude that will render this proposal ineffective on the whole. I will caveat that if our proposal is passed and we do observe gaming to a level that substantially affects effectiveness, new governance can be passed that toggles thresholds, yield levels, or other variables.

Importantly, this proposal was not created in a vacuum - rather it was crafted after weeks of conversations with ANC token holders and a top fintech and crypto consultant that specializes in scaling. There are many distinct stakeholders in the Anchor Community, such as small depositors, small-to-medium sized business, high networth individuals, highly sophisticated institutions, fintechs and neobanks, and many others. Each persona has a distinct use case, motivation, and demand-set when they consider using Anchor or other money market protocols. The proposed tiers that we used sought to strike a balance of continuing to attract new users to the protocol while de-motivating Free Riding, all while catering to the vibrant, diverse set of Anchor stakeholders.

A beautiful thing about governance in crypto and in Anchor specifically is that it is a living, breathing process. Proposals may not be perfect and one proposal is unlikely to cure all of the ills of a protocol. What is important is that the arrow of progress continues to point forward. Our proposal represents a low risk, impactful way to push Anchor Protocol in the direction of sustainability. As time goes on, it can be tweaked to achieve more efficient outcomes, but this is a great first step that unequivocally nudges the arrow of progress forward.


I think this is what people are missing. This is just step 1 of a multitude of changes. The fix for Anchor will come iteratively. It will not be fixed in one governance proposal.

I agree with this proposal.

What is to stop someone from creating a new wallet, and depositing their ust in that wallet by 100,000 at a time. It seems a little odd as it can be so easily dodge.

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This is another key question. TerraForm Labs / LFG are fully subsiding the yield reserve to provide 19.5% APY for all without limitations.

Is anyone from the Anchor team or TFL able to confirm if this subsidy is an ongoing intention?

If this is the case then perhaps nothing actually needs to change… Just a thought.


I don’t understand how this can be a valid governance proposal:

  • requires dramatic revision to existing Anchor code base, and thus a new audit, etc.
  • the proposers have not provided this code nor such audits, nor are they proposing to do so
  • the proposers are not offering to fund someone else to write such code and conduct such audits
  • the proposers are not making a funding proposal that the ANC DAO will fund the necessary coders and auditors (and would need to come up with a budget, etc. to make such a proposal)
  • without a plausible plan, budget, timeline, development team, audit team lined up, the proposal is intrinsically meaningless & impossible to evaluate

I think the proposal should be voted down, and that even if it passes it is void.


This would be gamed in a minute, the incentives are there. People would split funds among multiple wallets.

The only thing this proposal does is make the UX worst for the biggest investors in the platform.

I can create 100 wallets and split funds in an hours work, earning me $1m per hour of work after a year in anchor at 100k deposit per wallet.

You cannot police something without the authority to do so. This system is permissionless and no KYC. There is no power. This would be gamed.

As for the comment that adding wallets adds risk : This is not remotely true. I can add as many wallets as I want on a single ledger.

People will either game this or put their capital to work somewhere else, 10% APY is not sexy in DEFI a the moment. There are plenty of places to earn more yield with possibly less risks. This proposal has 0 upside and 100% downside IMO.


People like Anchor because it’s simple, because pays high Yield.
Why don’t we just wait for the new collateral coins to be available, analyze the impacts and then take a decision?
We have time, that’s why the Yield reserve was topped up, I think we should wait for the TFL to confirm what is planned next to the protocol and then decide what to do.
We are in a phase of expanding the horizons, the markets, the partnerships.


This is overcomplicating the main advantage that Anchor has over other DeFi savings/lending protocols. Anchor needs to be as simple as possible for everyone to reach the masses and fair for everyone, both fish and whales must be treated equally. DeFi should not discriminate. (The rules on the proposal can easily be bypassed by the way, as others have mentioned)

I say no to this proposal, we should just let the yield reserve drain out and let it reach its organic yield. If the yield reserve gets topped off then good, if it doesn’t get topped off then good too. Also we should wait for new collaterals to be added and other improvements before we even try to lower the high yield, the competitive yield is the main reason that the Terra ecosystem has been growing as fast as it has. It helps us bootstrap UST.

We should definitely not be fundamentally changing Anchor in ways that change its code (this opens up risk vectors) and the mess that comes with auditing the new code.


Why don’t we introduce a variable K = XYZ specific to each wallet address that determines one’s Anchor yield? In this case, X would be the base yield of 12%, Y would be the percentage suggested by @josh_rosenthal based on total deposit amount, and Z would be amount of trades made in the ecosystem so far. The cap on K would be 19%. Along the way, we can introduce and remove variables as we see fit. This introduces a time-weighted deposit cap that incentivises users to keep their funds in Terra to garner higher Anchor yields. Furthermore, it would prevent whales from blitzing the sustainability of Anchor’s high payouts.

Regarding some comments here that we can rely on the new bAssets such as AVAX to prop up borrowing rate, I believe that is similarly unsustainable. As Anchor garners wider attention from borrowers on chains such as Avalanche, we must also expect that yield farmers from those chains will swarm to Anchor, worsening the free rider issue we see now.

Of course we have to focus on borrowing-side improvements, but I believe that’s not the only solution. By implementing the above, we can make Anchor deposits more flexible and harder to game.

Edit: To all that say we shouldn’t touch Anchor yield for now - Anchor might not fail now or anytime in the next 12 months, but it’s important to stay on our toes and keep prepared. Even if we do not deploy any changes now, we should at least have contingency plans for the future. Anyway, I’d love to hear opinions and feedback!

Edit 2: Instead of K being max APR, I think K should be the cap on the aUST you can buy/hold. This way, we avoid making dramatic revisions to Anchor, thus reducing the risk of smart contract failure and maintaining the composability of aUST. In addition, instead of Z = total trades conducted in Terra, it could instead be Z = total volume of trades conducted in Terra.

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I’m new here but wanting to learn.

How can I monitor the reserve to ensure I understand when we may see volatility.

“~60mm UST since the TFL injection less than a month ago, and increase protocol sustainability.” is a concerning quote from your post - albeit appreciated.

I don’t like the idea of messing with the code. I also think overcomplicating the system and user experience is a bad idea.

Therefore, my opinion is to either (1) drop the APY across the board to somewhere between 15% to 18%; or, (2) wait to see how the market and system responds once new bAssets are introduced. In the case of (1), those rates are still damn good. I wouldn’t expect you’d have a UST flight from this suggested APY drop.

Just my two cents. Thank you to everyone (including @josh_rosenthal) for putting time and effort into Anchor. I appreciate all of you.