[Proposal] Temporarily suspend deposits when there is a max of 80% earn deposit to collateral ratio

Temporarily suspend deposits when there is a max of 80% earn deposit to collateral ratio

Model below:

We have been discussing various longer-term solutions but in order to control the fall in YR, we are suggesting a temporary hold on deposits.

Establish a deposit limit based on percent of total deposits
This could be enhanced by ALSO adding a deposit max based on % of total deposits in the system.

Example: A protocol is funneling deposits into earn and exceeds 1-2% of the total deposits in the system, Anchor could limit earn above that threshold.


In the future, as Luna or collateral fluctuate impacting the ratio, a high watermark could be added at say 110% to start preferentially removing UST from earn, using a Kujira-like liquidation queue. The analogy would be giving a first-class ticket to those willing to get off the plane and wait for another flight.

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Approved. This should have been built into the protocol from day one.

Anchor also needs to change the way it promotes itself so that everyone understands. The platform requires a defined depositor/borrower balance and it is not an open season for infinite deposit inflow.

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In my mind Anchor is a long term search for an optimal market earn rate when supported by collateral staking yield. That rate is certainly lower than 20% but most likely meaningfully above what you get in banks.

Clinging to and artificially locking the yield at 20% is counterproductive and would kill Anchor’s long term growth. Let’s instead look for ways to make borrowing more attractive.

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I agree over the longer term, but we’re not even 1 year old and still bootstrapping UST and the Terra ecosystem (Anchor being built on the promise of a 20% fixed yield - sold as the defacto yield of crypto).

If Anchor yields suddenly start plunging now, how much UST is going for the exit doors and we’re left carrying the parasitic leverage from the degen box? You can get fixed 18%+ on stables elsewhere on the numerous EVM chains.

We need to protect this yield right now. It is clear that strategic errors have been made (by TFL and Anchor) that have left us in this position.

Let’s see how far we can take it on the cross chain borrowing side.

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Improving borrow is underway, and I agree with @Kamil re healthier earn rate. However, At nearly $1m YR burn per day, you have 64 days of runway, all things the same. The collateral would need to improve by several billion to balance us out so we may not have enough time to wait for that.

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Agreed - there needs to be better guardrails in place so that lending / borrowing does not get out of whack. There’s a reason tradfi banks have many ratios checks to make sure everything is in balance, so one side does not go faster than the other.

Is this solution something that can be implemented quickly by the Anchor devs? Should we put it up to an actual Anchor proposal?

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There are only 2 options that can be taken right now:

  1. A communication plan for an imminent drop in Earn yields.
  2. Top up of the yield reserve (by TFL).

The community doesn’t have any control over option 2, but it can be proposed internally if there’s a plan to support the request.

A sudden unexpected drop in yields without communication is likely to spook investors given the current bearish sentiment across the crypto markets. It will also raise a lot of questions and speculation. Expectations need managing.

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I totally agree with this. Rather than drop earn yields as a whole, why don’t we just stop receiving deposits?

Here’s an extreme scenario. Let’s say the crypto market dumps so hard Luna came back to $10 and ETH to $2000. Almost every lender will be liquidated leaving only deposits. In this case, Anchor has to pay all earn yields from reserves and it will definitely not be sustainable.

There has to be a mechanism to sustain Anchor in bear markets. I expect people to buy a lot of UST out of fear soon and if all of them deposits UST without providing collateral, we are in big trouble.

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I don’t think this proposal is going to have the support of some of the major stakeholders.

Right now the major focus is launching Anchor cross-chain as quickly as possible. Taking just 1% from some the major chains can easily more than double collateral. The team is building rapidly and should have it done by End of this month, early next month.

Aside from that, the focus needs to be on how more quickly add more new collateral types to Anchor. More on that coming soon.

If cross-chain anchor falls short we then start looking at these ideas.

Oof. Without a back stop to the yield reserve, that is bringing it pretty darn close to the wire. A yield reserve of $20-$35M down from $78M in just over two months is going to spook some people.

If you’re relying on Solana, as a Solana user, why would I incur the risk of bridges and come to Anchor to borrow/lend for worse rates when I can just borrow at Solend and have access to more assets at better rates instead?

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This just about sums it up. TFL wants UST adoption. Abracadabra is a collaboration with TFL to increase UST supply, which is the main reason for the sudden increase in deposits vs. borrow (which ideally should have grown simultaneously had this been organic growth). Can’t see why “major stakeholders” would want to limit deposits if they are the one propping it up in the first place.

Just to be clear, TFL is only one stakeholder in Anchor and not a major one, Hashed, Delphi etc are also big independent stakeholders just to name a few of many. So again, to be clear, no matter what TFL’s mandate, Anchor still has governance that is controlled by more than just one party.

Sadly, it’s hard to get anything passed and I have to try really hard to get people to vote. If TFL controlled everything it would make my job on here much easier…

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