[Proposal] Terralytics - Increase Borrow Demand via ANC Value Capture from Deposit Growth

Hi Everyone,

About ~3 weeks back, the Terralytics team recorded a discussion session with the Anchor team focused on the sustainability and the future of Anchor. As stated in the Terralytics youtube video, we have been planning on releasing a Proposal that our team believes will address the main issue of … Increaseing Borrow Demand.

Please review the proposal in it’s entirety via this Google Drive link or check out the abstract below.

We will be recording a video as well and discussing the contents of the proposal in-depth in the coming week. Once the recording is finished, it will be added to this post.

A quick abstract …

Authors: Terralytics Team (@gnawkz, @kash_sam_, @kashron)

Reviewers: @IDKHurley

ANC Tokenomics - Increase Borrow Demand via ANC Value Capture from Deposit Growth

Primary Objective: Modify key utility aspects of the ANC token to drive up borrow demand via the following:

  1. Improve capital efficiency of borrowers by increasing and maintaining the value of the ANC token
  2. Enable a better ability to prevent liquidation of assets by increasing and maintaining the value of the ANC token

Secondary Objective: By addressing borrow demand, we believe Anchor Protocol can organically sustain the 19.5% earn rate for however long ANC distributions continue with minimal / no intervention from TFL / LFG. A stable ANC rate that users can trust is the fundamental foundation of Anchor and UST demand.

Our Proposal: We believe the best way to accomplish our objective is by implementing the following 2 items. Some of these concepts are similar to ideas shared by other users, and some of these are original ideas that were discussed in our Terralytics videos.

  1. “Earn Yield” paid out to Depositors will be split 75% UST / 25% ANC, until the ANC threshold per wallet is reached. Once the ANC threshold is reached, “Earn Yield” will revert back to 100% UST / 0% ANC.
  2. ANC threshold is set at 5% of the total deposited amount in each wallet

Driving True Economic/Utility Value to the ANC Token:
Currently, ANC tokens provide limited value to borrowers. Primarily, it operates as an incentive mechanism to drive borrow demand. Secondarily, it provides the ability to participate in governance. Given the limited utility of ANC tokens, a majority of borrowers redeem rewards and sell those rewards for UST, creating a lot of sell pressure. Theoretically, the price of the ANC token was meant to be supported via buybacks by the extra yield generated where BorrowRate% + StakingRewards% > EarnRate%.

Unfortunately, as has been proven time and time again, deposit demand has grown and continues to grow at a much more accelerated pace vs borrow demand. This is not difficult to see given all of the great benefits that depositors receive through Anchor.

A large part of the reason why there is such low economic value of ANC is because the token is only directly impacted by, and integrated in, the process that is only used by a portion of the users. The deposit is completely ignored.

Our hypothesis is that by introducing ANC Tokens into the left side of the equation, the token will now be tied to all users of the protocol and thus, increase in value to appropriately reflect the exponential growth in deposits. Specifically, we propose to introduce a 2-tier yield generation system that can be somewhat modeled after existing “Reward Tiers” found in other industries like Airlines, Hotels, Retailers, etc.
Tier 0: Earn rate is split 75% UST / 25% ANC
Tier 1: Earn rate is 100% UST

To qualify for Tier 1, depositors must hold 5% of their aUST value in ANC. Once this 5% threshold is achieved, depositors will automatically move into Tier 1. For more perspective, assuming ANC token pricing stays flat, it will take ~15 months for a depositor to acquire enough ANC tokens to meet the 5% threshold.

Expected Borrow Demand Response to this Proposal:
The demand for borrow is currently limited because the opportunity cost of using Anchor is just too great. Borrowers typically have to incur a 12% to 23% borrow rate and the loss of staking rewards from their respective collateral.

Recently, additional capital efficiency was added into the ecosystem through an increase in the liquidation LTV threshold for bLUNA, from 60% to 80%. But this is still not enough.

Our hypothesis: Improving ANC tokenomics will drive a new wave of borrow demand. Especially, as the acquisition of ANC tokens will become the primary reason for borrowing UST vs all other reasons of borrow demand.

Our proposal will connect depositors with ANC token value and drive new demand for ANC tokens. We expect the market to quickly realize that ANC token prices are supported by depositors. Thus, as deposit size grows, so does the value of the ANC tokens. This will set an ever increasing price floor on the ANC tokens (given the max supply of ANC), making it an attractive investment for a wider range of users.

We believe that this change in tokenonomics will help users realize that the borrow interest rate % and the lost opportunity cost from staking will be minimal compared to the acquisition of the ANC token.

Given that ANC tokens are distributed to borrowers based on a quantity capped emission rate %, not a price capped emission rate %, users will recognize that this is the cheapest and most capital efficient method of acquiring ANC tokens. Buying or trading for it on the open market does not compare!

In the shared PDF via our Google Drive, we go additional detailed considerations to cover important aspects. This list includes the following:

  1. Why is our proposal focusing on ANC tokenomics vs adding more cross channel capabilities like bSOL, bATOM, etc?
  2. What about veANC tokens?
  3. Why are people taking outsized risks borrowing then? They should be more responsible with their assets?
  4. How about the potential liquidity issues that will arise on decentralized exchanges (Astroport / Terraswap) if “Earn Interest” is used to purchase ANC tokens on the open market?
  5. During a downturn, why would users continue to hold UST deposits and not just withdraw so that they do not need to buy more ANC Tokens?
  6. There are a number of implementation challenges here due to the current simplicity of a UST / aUST conversion ratio. How would these proposals be implemented in the current system?

I believe that any proposal that recommend to use a part of the earn deposit to support the ANC token is on the right path as long as it doesn’t reduce the total yield the protocol is currently offering to his earn.

Your proposal as the advantage to start getting the full 20% yield without deposit. We could also suggest a smaller ANC deposit at the start to qualify the user to get 100% UST right away. Like the subscription to any insurance products were we buy the amount of coverage, buying your ANC threshold qualify the user to start earning the great 20% yield that Anchor offers. It also creates a relation between the success of Anchor and his ANC token which is used to attract borrowers that would get better rewards value.

Could Anchor also uses the 5% ANC like they do with bLuna assets to generate staking asset for the protocol? This way, your proposal ends up adding a new asset to the protocol in proportion to the amount deposited.

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This will have the same issues as proposal 18. There is no current way to do a tiered system without redesigning anchor from the ground up and it will completely destroy aUST as there is no need anymore since it wont function at all in the defi space as collateral because there is no actual price for it as it will be worth more or less based on the wallet holding it.

If you want to continue with the ANC distribution to earn users a better solution would be a single tier that takes the 20% payout and instead split it so 75% of it goes into ust under aUST so aUST still appreciates like it currently does and then send the other 25% to the wallet directly. Removing the tier system simplifies the entire process so the anchor earn contract only has that one rule to follow and keeping it via percentages keeps the same ratio no matter what we change anchor earn interest in the future. Having aUST still appreciate in the same manner via the 75% allows aUST to continue to function like it currently does but it now has an effective rate of 15%. This will still require smart contracts to update to take advantage of that ANC distribution if they want to be using up the entire 20% and anchor is still technically paying out if not that ANC will for all intent and purposes be burned as the smart contracts will be holding that ANC without any way to take it back out which will further reduce ANC actual supply.

I have no current opinion if this would be a good thing or a bad thing though as on one hand it will benefit the ANC token as there are now a lot of ANC purchases happening now but those people can also just sell their ANC when it is paid out. It will also increase the operations cost of the anchor earn smart contract as there will now be a lot more transactions happening for it to send out that ANC token to all the wallet holders.

A way around that could be making it so ANC needs to be “claimed/withdrawn” so there is only a single transaction on the anchor earn contract where it purchases the ANC tokens and then holds them and then the user will pay the transaction fee to claim them if they want to then stake them. Another option is to also split the underlying tokens of aUST from just UST to UST+ANC at the specified ratio but then that allows the possibility of it losing value and doesnt actually get ANC the end users so i would rather it go via the claim/withdraw route.

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What i will say is people need to move away from a tiered system, it adds needless complexity which is what we do not want in smart contracts. It also brings unwanted complexity to the end user that just want something easy to understand and use. Not to mention a lot of them can be circumnavigated in the defi space unlike in the TradFI world because defi doesnt require KYC so anyone can have as many accounts as they want to avoid any limits and requiring a special token to be held to get an extra % doesnt always make sense value wise if that token is tanking so theres no point.


If we ask earner to buy 1 ANC for each $1000 UST they want to invest in earn, do you consider it is a tier system ? Is it feasible ?

Hrm maybe. But start with the 19.5 to 20% APY. Tiers and ANC bonus ON TOP of that starting line, rather.than earn what was first advertised as a given. The incentives/profits may allow it? No numbers here. Also wait a bit as ANC price gonna rise anyway may open up more options or change knee jerk opinions, kinda a given given the influx, of accounts, capital, AUM .
. and see the effects of V2 etc. This is something though. Almost as if the Polychain and veANC proposals were a feel good see the community decentralised defi space works, here’s a softie follow up that’s the real to pass all along, straight from trustworthy devs. Might be good though. My opinion’s on the fence for now. Cynical and in my 40s, no regrets :stuck_out_tongue:

I think this is an excellent proposal. This along with the veanc idea seems like a super strong combination. While I am very much against the arca capital suggested idea, I think something like this is natural and reasonable. 5% isn’t too unfair at all. And given the timeframe necessary needed to get to 5%, it means ANC is being accumulated over time for a long time reducing anchor’s burden and making the borrow proposition more attractive. Furthermore, it becomes more valuable for people to hold the token to get closer to receiving all of their rewards in aUST. I really like the idea. It’s both clever and naturally promotes an environment where the ANC token is valuable to hold and isn’t just a dump or farm coin. It also helps more people in the community hold ANC which is necessary if we want to block malicious proposals like the ones we saw the other day. The more stake every Terran has in Anchor, the safer we are as a community. I support this entirely as is.


Fully agree on keeping the UST / aUST relationship, it is simple, elegant, and used by so many other protocols. We are still in the process of thinking thru what are possible development solutions that can be built on top. In the Google Drive link, at the bottom of page 5, we try to address it by suggesting implementing similar to PRISM.

We keep aUST, but it is automatically refracted upon deposit into paUST and yaUST. paUST is a reflection of the price of aUST when funds are first deposited and will always stay fixed. This representing the original principle that was deposited.

yaUST is the yield generation engine, and continues to grow according to the earn rate. We are thinking thru how mathematically this could work, but design wise it should address the big core issues … at least that is what we think.

As a team (and would love community feedback and involvement), we think this is possible, and it would address cross protocol / cross chain issues. But given the complexity, we know there are lots of details and scenarios that still have to be thought thru.


I thought after some of the recent proposals we were at the stage where adding complexity to the Earn side was a non-starter?

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Following the community … we came away understanding there are really 2 options here for Anchor.

Option #1: Reduce the Earn Rate % until it is at a point that is reflective of the Borrow demand + Collateral. Suggestions that have been shared are 15%, 12.5%, even 10%. This is the simplest form, and does not add development or additional complexity. But the loss of earn rate is unacceptable for us. Anchor is powerful because it has maintained 19.5% return on a stablecoin for 1+ Year.

Most importantly, what this did tell us is that the community is more than willing to accept an Earn Rate that is lower than 20% …

Thus … we are only considering …

Option #2: How can we sustain the 19.5% earn rate for years? We as a team, just don’t believe keeping the same system will cut it. There has to be some kind of substantial change, even if it means adding just 1 additional layer of complexity.

We don’t think adding a “Tier” system or it should be called more aptly, a “Reward” system will be difficult for users to understand. I believe that 90% of the user base or more is familiar with a reward based system from their everyday lives (i.e. Credit Cards, Airlines, Hotels, Grocery Stores, etc.) where additional actions will drive greater benefits. For this proposal, we intend to reward investment into the Anchor ecosystem … whether it be deliberate or via the automated buy mechanism suggested.

Core Reason for Automated Buys w/ 5% Threshold
It is to protect the small wallets. Big whales have the capacity to go out and buy the 5% ANC token requirement and automatically qualify for the 100% UST / 0% ANC split. Smaller wallets will mostly likely not have that capital unless they are willing to withdraw deposit funds. Our proposal is purposely designed to ensure smaller wallets have a straight forward path to achieving the 100% UST / 0% ANC split.

If a wallet was to buy at the 75% UST / 25% ANC split for the earn rate, it would take the wallet 1.25 years (15 months) in total to accumulate enough ANC tokens to qualify for the 100% UST / 0% ANC. This is assume ANC price does not move up.

In reality, with $10B of deposits generating $2B of annual earn, of which at MAX $500 MM is dedicated to buying ANC Tokens for depositors, we think most wallets will gather enough ANC tokens to qualify for 100% UST / 0% ANC split within months and not the 1.25 years.


Firstly, thank you for your proposal I think its a core idea that I have been thinking about and I just wanted to add a few questions and thoughts:

Question: Will the price of Anchor just go down with all the new borrowers? No. Rationale: New borrowers will tend to sell their ANC rewards in order to fund their interest payments, and therefore this will create additional price sell pressure on ANC. This decrease in ANC price will force more of the depositors to have to buy and top up their 5% wallet balance. This may create some equilibrium in the market, and as more and more use cases build on Anchor, more and more new depositors will come in and again create more buy pressure on ANC.


  1. Why do people borrow on Anchor?
  2. Who are these borrowers?
  3. What do they tend to do with the funds?
  4. Is there a flipside set of data that we could analyse the distribution of borrowers?
  5. What is the anticipated new influx of collateral borrowers that we expect to come over and for what reason are they coming in as opposed to using AAVE, Cream or a host of other lending protocols?

There are plenty of venues to borrow from in crypto if you have collateral, why would they choose to use Anchor as opposed to other platforms. If we can work out who these people are and what is their core use case, perhaps we can start to build features for them. My hunch is that just because the ANC price appreciates, this might create a positive borrowing return on anchor, but we still need to figure out who these borrowers will be. The bridge from other blockchains over into Anchor may potentially be the key bridge to simplify.

A portion of new borrowers will just stake collateral, borrow UST and then deposit it back into anchor creating a circular effect on ANC as there will be buy pressure from the deposit but there will also be sell pressure from the borrow too.

Fundamentally, what I think we should try and understand is:

  1. Will an increasing ANC price actually start to bring in more borrowing?
  2. What are the reasons why we think that is the case when there are other protocols which do similar things?

This is an excellent post.

I agree, most proposals (involving depositor ANC requirements) aim to provide a solution to a problem without defining what the actual problem is or how it fixes it.

Do we even have any evidence that driving up the price of ANC increases the appetite for borrowing? Even if it does, is that borrowing just finding itself being looped back into Earn due to yield arbitrage?

We really need far more information/ data about the actual issue we’re trying to fix before we try and propose a solution.

There is a Twitter post from Remi (LFG board member) that seems to suggest that 20% APY is going to be subsidized for 2 years. If this is the case, do we really need to change anything on the Earn depositor side?


Besides that the crypto market is down, we want to constantly aim to better existing systems to consistently provide value and to stay competitive.

We could contemplate about using the collected value via staking to generate more products and subsequent wealth over time. This could be done through trading in other assets or offers of other products, such as marketplaces for NFTs, music, employment platforms, education, social media, a rewarding system to encourage the use of ANC, brand boosting short term offers, and longterm offers. We can generate several markets in one place. The value will go up the more utilities are on offer. I am sure there are plenty of ideas out there. Give people the most attractive products (beautiful and easy to use design, utility) to grow bigger with an eye on sustainability. Speak with investors and other crypto projects to get interesting deals for both sides.

Nothing stands in the way of good leadership and good deals :slightly_smiling_face::heart:


This is by far the best thought through solution i have read here. Its also well written, i could easily follow your argument.
If you go forward with this proposal you should emphasize more, that the idea of a “small Adjustement” to tackle the problem is unrealistic.
Most people seem to be concerned of to many changes. They want a quick solution, like bSOL etc.

And you should bring your concerns about veANC first and add some more out of the forum. I have the feeling, its very popular because everyone knows the model, but most people do not seem to understand that it does not make muche sense for Anchor.

Good luck!


I wrote a thing that helps work out what implementation could look like for those interested: https://twitter.com/HappyBadger57/status/1503093520608870400?s=20&t=j0VJfEfHfJEiUkzHoBa9gQ


@HurleyIDK Reached out to me and asked me to think of a way to incorporate a new smart contract where a user deposits their aUST to get 20% while aUST appreciates at 15%.

I thought about it for a while and white boarded a possible solution that involves staking. Here is my white board Excalidraw | Hand-drawn look & feel • Collaborative • Secure at the top is my current understanding of how anchor earn currently works, a user deposits UST and they receive aUST, 20% from anchors revenue/yield reserve is all paid out to aUST underlying assets and thats how aUST appreciates in value for everyone.

Scrolling down on the white board under “New Smart Contract Method” is HurleyIDK idea with how i envision it working. User deposits UST and gets aUST like normal, that aUST instead appreciates by 75% of the anchor target APY or whatever you guys decide here on whats best, the other 25% of the anchor target APY goes to the new smart contract. Users/smartcontracts that want to receive that extra revenue will need to stake their aUST on that smart contract. The rewards for it will be in ANC if the users ANC in their wallet and how much they have claimable is less than or equal to 5% of their aUST value, 5% tied to target APY and the split ratio decided upon, 20% target APY 25% split comes out to 5%. If the users has more than 5% ANC in their wallet/claimable then the user is rewarded with aUST that can be automatically restaked. This will pay out the user in ANC most of the times unless the user already has a lot of ANC tokens in their wallet, or if ANC appreciates a lot in value and continues to appreciate at a higher rate than 15% that aUST is appreciating. With this method there will always be UST that is unused as not everyone is going to stake their aUST so the excess UST has to be dealt with by either returning it to the reserve or using it for ANC buybacks that are rewarded to ANC stakers or any other ideas you guys can think of.

Another option that i propose is to adjust the anchor earn contract, aUST will still appreciate 15% like hurley’s idea but wallets with aUST with receive a stacking “airdrop” of ANC that are purchased with the other 5%. This simplifies it so the user/smart contract only has to hold aUST in their wallet to qualify for the “extra” payout and the logic for it doesnt have to take into account user has X ANC in their wallet what is the current value and what is the current value of aUST, is there more than 5% of ANC value than their aUST value like it has to for the smart contract option. Of course this also removes the possibility of the user just receiving the full 20% in aUST as it will always be split 75% aUST and 25% ANC.

Important to note that neither of these options will prevent the user/smart contract from just getting their ANC rewards and selling it for UST to deposit it as aUST to essentially get the full 20%. Smart contracts that are not updated for this will only receive 15% APY on their aUST as with hurleys idea they would need to update to stake the aUST and claim the rewards and with my proposed solution they would need to update to send the claim message to the anchor earn contract to get the ANC rewards or else they would be there forever out of circulation which is technically them being burned. The option i recommended would be the easiest as it removes the step of staking so the end user just has to hold aUST.


I completely agree with Remi and Do’s points on how good of a marketing tool Anchor is for UST and continuing to subsidise the yield reserve is fine short term. However without addressing this demand for borrowers, it does not really matter if we move to a dynamic rate even as I see it, deposits are going to constantly outgrow borrow.

I think if we come at this from a logical perspective, then we have to see that the only reason to borrow right now is the ANC distribution.
Without it you are paying 12-15% in borrow apr currently which is very high for a lending platform compared to the 5% figures you would see on the likes of AAVE for eg.
On anchor the borrow rate is a function of the earn rate, utilisation ratio of anchor and the interest multiplier. The only one of these we can really change to have an impact on this figure is the earn rate, and if Remi suggests this isn’t going anywhere for 2 years…then we need to address keeping the borrow apr subsidised

Thus, through decreasing volatility and increasing value capture of the ANC token, we incentivise borrowing further.
I will also add a point I mentioned in our terralytics videohttps://www.youtube.com/watch?v=EBte6r6v1eU&t=1s

The amount of ANC distributed to borrowers has a cap with the current 3 years of remaining distribution. We are already at this cap with the amount we have loaned out right now. So going forward each additional $ loaned out gives less and less ANC in return. Making it absolutely crucial that we ensure a constant flow of value to ANC so the rise in price can make up for the decline in amount received.

Thanks for engaging, its great to have additional outlooks here

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I completely agree, veAnc is not the thing anchor needs right now. Would it be harmful…maybe, depends on implementation.
What we stress over and over is that ANC needs to benefit from the growth in both sides of the equation. Provided collateral results in buybacks from staking rewards. UST deposits…nothing.
ANC distribution is the main reason to borrow and so increasing value capture to ANC is critical.
Thanks for your thoughts, much appreciated.


@Gnawkz I appreciate this proposal Terralytics and the YT video explaining your rationale and values.
I offer ONE variation to be considered:

  1. KEEP: 100% (19.5%) for depositors that have 5% aUST value in ANC held/staked

  2. CHANGE: Instead of 75% UST and 25% ANC rewarded to depositors whose ANC balance is <5% of total aUST deposit…continue to reward 75% (14.625%) earn rate in UST depositors and
    THEN transfer the remaining 25% (4.875%) to buy ANC from decentralized exchanges and distribute that ANC to BORROWERS… which would further increase borrowing ANC yields. The effect may allow for longer-term borrowing behavior from current borrowers and attract new borrowers to Anchor…while continuing to incentivize ANC holding/staking for depositors.

Depositors will still benefit from the high 19.5% or 14.625% optionality and borrowers will be additionally incentivized to deposit their collateral to acquire even more ANC.

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BestStar, these are great questions and ones that the Terralytics team constantly debates about.

Regarding your questions around Borrowers … we don’t have enough data or the means to perform a statistically experiment that can provide answers with a high degree of confidence. Thus our methodology ended up focusing on the fundamental factors as we understand of the Terra ecosystem and other competitor protocols, hypothesize on their impacts, and determine what is the best way forward given these views.

Our fundamental view right now of low borrow demand is built on the these current broader crypto ecosystem factors:

  1. It is far cheaper to borrow elsewhere, thus new Borrow demand is going to other protocols that offer far lower borrow APR and higher LTV % for collateral.
  2. We don’t think new borrowers will come over from other protocols, mainly because the Borrow APR on those protocols are lower. New depositors will definitely come over because Anchor has the best stablecoin return rate and TFL/LFG that will now back it for another 2 years.
  3. The reasons for borrow are so varied … and will vary depending on when it was executed and the amount. I borrow to access capital and not sell assets. I’ve also borrowed to leverage up and invest in additional assets. There are others who borrow as part of a broader strategy to generate the highest return thru a variety of LPs staking, token staking, and UST earn.

Thus our focus shifted from understanding what Borrowers want, to what is something Anchor can provide that no other protocol can. That is where the concept of an ANC Token supported by automatic deposit buying to ensure price stability was born. With the knowledge that an ANC Token is supported by automatic deposit buys, then borrowers will stop selling ANC Tokens that were distributed as incentives and hold them. In addition, because we expect the buying pressure to be quite large, borrowers will come to borrow on Anchor because it becomes the cheapest method of acquiring ANC tokens.

This is all theory. We believe certain results can be seen immediately to validate this approach. Unfortunately, it will require the proposal to pass …

  1. If this proposal passes, after some education to Terra Borrowers, we should expect to see ANC token sales from borrow wallets decline … and hopefully dramatically.
  2. Once development is completed, we should expect to Borrow demand to begin increasing, in proportion to ANC price increases.

Once again the above statements are our hypothesis.