Expand the role ANC plays in helping Anchor Protocol achieve its vision of becoming the foundational money market in Terra and DeFi broadly.
If adopted, this proposal seeks to:
- Progress the role ANC plays in Anchor Governance through the following components
- Vote-Escrowed ANC: introduce vote-escrowed locking of ANC as a replacement of ANC staking, where a longer locked duration grants a greater share of voting power and boosted ANC emissions in the form of subsidies to the borrow rate. ANC would be locked up for up to 4 years in a contract to mint veANC
- Voting: suggest veANC to replace ANC in governance voting. Introduce gauges which dictate ANC emissions directed towards each Anchor-approved collateral type as an ongoing governance topic
- Improve Anchor Protocol incentive alignment by driving value accrual to the ANC token
- Direct a portion of protocol earnings as rewards to veANC token holders
- Direct a higher portion of future ANC emissions to veANC token holders in the form of subsidies to the borrow rate
- Incentivize Long Term Supporters: veANC holders will support the protocol over a longer term horizon rather than speculate on price fluctuations in the short term. Those with strong conviction are rewarded the most over time.
- Ecosystem Growth: veANC creates a flywheel effect where emissions drive higher TVL, in turn generates more fees, and leads to greater value accrual to the ANC token. This better aligns incentives between ANC holders and the core stakeholders for the Anchor protocol.
- Increase incentives for 3rd parties to accumulate ANC: Protocols will be incentivized to lock up ANC to vote and support the base borrow rate for their preferred collateral asset. Given the massive sway of Anchor in the Terra ecosystem, directing ANC emissions can often be a more efficient use of funds for 3rd parties than native incentive programs.
- Locking Anchor Supply: Longer lockups of ANC contribute to a lower ANC supply (less is available on the open market to sell). ANC will maintain a more stable price as a result of the new design.
- Improved Security: In its current state, Anchor is susceptible to attacks via borrowing ANC, and voting with ANC to make adverse changes to the protocol.
- Lacking Incentives: Anchor may not generate enough fees or governance value may not be enough to motivate ANC holders to lock into veANC.
- ANC can be locked up to 4 years into vote-escrow ANC. This locking mechanism will replace ANC staking
- veANC is non-transferrable, but could be converted to a transferrable NFT in future improvements
- Lock period will be in a range of min 1 year to a max of 4 years
- Locking duration corresponds to linear weights, so if max duration is 4 years, voting weight for year 4 = 100% and year 1 = 25%
- Voting weight decay as the remaining ANC lock duration decreases and can be extended back up to the maximum lock duration
- Borrowers stake assets like bLUNA and bETH as collateral and receive boosted ANC emissions on their UST borrowings according to their veANC holdings
- Based on their amount of veANC, users can boost their ANC subsidies on UST borrow rate up to 1.5x proportional to the amount of tokens locked.
- ANC staking rewards will be redirected as rewards to veANC holders
- A portion of protocol earnings are directed to veANC holders
- Once veANC is introduced, only veANC is accepted voting power in Anchor Governance
- Gauges represent each Anchor approved collateral type
- ANC emissions are distributed to gauges based on biweekly governance votes. Each gauge can receive a different amount of ANC to emit to its respective collateral type
- As Anchor expands its universe of collateral assets, controlling ANC emissions will become paramount in the ecosystem
veANC incentive alignment can be subdivided into economic and governance incentives:
- veANC rewards holders by subsidizing borrowing APRs with greater ANC emissions (higher distribution APR)
- veANC holders receive a portion of Anchor Protocol earnings
- ANC staking rewards are redirected to veANC holders given staking will be replaced with vote-escrow locking
- veANC holders are eligible to vote on how future ANC emissions are distributed across Anchor collateral types on a biweekly basis (every two weeks)
- veANC holders can vote to change borrowing parameters (asset listings, collateral parameters, liquidation parameters)
- veANC holders can vote to change lending parameters (market parameters)
We welcome any feedback and would like the community to discuss our proposal. We will incorporate ideas as needed before an on-chain poll is introduced.