[Proposal] Polychain Capital & Arca Anchor Tokenomics Governance Proposal

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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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.

4 Likes

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.

7 Likes

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.

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.

9 Likes

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.

6 Likes

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).

6 Likes

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

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.

3 Likes

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.

2 Likes

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.

Hi

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%.

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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.

4 Likes

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.