[Proposal] veANC: Evolving Anchor Tokenomics

Summarising the discussion so far: it seems to me most people agree that veANC is a good idea, and most of the debate is about whether to provide “boosties” on the borrow side or the earn side. Retrograde’s proposal preferred borrow-side incentives whereas Arca/Polychain’s proposal and Pedro’s proposal prioritise earn-side incentives (albeit with different implementations)

Instead of choosing between borrow side and earn side incentives, why not have both and let the governors decide? The simple design would be to have gauges for aUST as well as all collateral assets (bLUNA, bETH), allowing veANC holders to vote on where they think ANC incentives should go. This has a few advantages:

  • Preserves aUST composability since yield would be paid in ANC on top of base earn rate
  • Preserves simplicity as earn depositors still earn 20% and don’t need to interact with veANC if they don’t want to
  • Allows boosted rewards for depositors that have skin in the game, achieving the incentive alignment objectives highlighted by @josh_rosenthal and @Matt_Hepler of Arca
  • DAOs like Retrograde would still look to accumulate ANC in order to maximise earn rate for users and minimize borrow costs for borrowers
  • Doesn’t dictate whether incentives should go to earn or borrow side but instead allows governors to decide based on the needs of the protocol at the time

Thoughts?

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I haven’t really engaged in this topic as I believed to be unable to have a proper discussion around it, but the more I read and listen regarding this the more I’m against it, it complicates the already difficult to justify part of the protocol, borrowing.

Today in the AMA @josedelphi asked what everyone thought regarding the impact this would have in borrowing attractiveness, a question that has been proposed by a few other people too. Everyone went on to give their answer but I heard no actual answer… only people beating around the topic. This has left me fairly concerned, while I can understand why Retrograde wouldn’t think about it, their own protocol needs this mechanism on Anchor so they can use it, I’ve only today come to realize the conflict of interest they have. I truly hope this is a concern within the Anchor team, because as much as we discuss here, in the end if the team proposes/endorses a change we all know it’s gonna pass… regardless of ongoing discussions on the forum.

It’s my opinion that this proposal revolves around the premise that borrowers will need veANC to vote on their own collateral for higher incentives while ignoring the obvious and free choice (in price and time) of simply choosing another protocol.

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Its great we are finally looking at utility of ANC. As i understand the main issue with anchor right now is the unbalance of depositor versus borrower. I see new proposal trying to reduce the earn rate of depositor which will downgrqde the quality of the attractiveness of depositing on anchor. what if we use a system that owning ANC, staking / locking would earn you lower fees for borrowing? What we should focus on is increasing borrower, not peanilizing depositors. So why not use the ANC token for that.
Ideas:

  • Holding ANC give you a rebate on borrowing rate (like a VIP membership)
  • Providing Liquidity for ANC increase that VIP level and in turn reduce your borrowing cost.
    Turning around basically that VeANC does not give you increase reward but reduce your cost of borrowing
    Make borrowing attractive and competitive.

I am in full support of this proposal! Long-term stakers should be rewarded, especially for locking up protocol-native tokens. Especially for a protocol that is one of the main reasons for how much Terra has grown and expanded.

I also believe that Anchor Earn depositors should have to lock up $ANC > $veANC in order to receive the full 20% APY, and should receive 10-15% (still better than any TradFi savings solution) unless they choose to stake governance.

I can’t wait to vote on this proposal on Anchor!

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Of ways that use the earn side, I think this makes the most sense. There are a lot of other proposals up right now that miss the simplicity found in this interation.

As mentioned, I think this can be brought up again after the borrowing side and semi-stable algo rates are implemented.

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Do we have an update on what is next for this proposal? AMA discussion? Vote?

Good idea.

However, Anchor Protocol’s current revenue is difficult to pay interest to depositors, and Yield Reserve covers huge costs. In short, it is in the red.

I don’t think veANC can encourage $ANC holding or locking when there is literally no revenue from the protocol.

It also makes borrowers take more risks. It doesn’t sound interesting to them.

It’s a good suggestion, but it’s meaningless at the present stage.

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I hate to say but 19.5% is already unsustainable, we all know that.

Whatever you propose, please consider that protocol integrity and sustainability is more important than sticking to close 20% APYs by all means. ANC will inherently gain most of its value long-term if the underlying Anchor project stays self-sustainable.

I don’t support another pyramid scheme, where you have to pay big bucks in order to earn bigger bucks in an ever-inflating token. Do this one smart. And don’t rush it.

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Does this solve the recursive parasitism problem?

@bitn8 when we poll this proposal?

Thinking that will come in the coming weeks.

bETH LTV 75% next. then probably after that.

beth ltv is live here: Anchor Protocol

Lets deploy this.

Hey, please find my suggestions in this forum topic:

Figured this one is getting sort of large and there’s some adjustments the community would like to discuss with OP’s before launching this so we don’t end up with another polychain problem where the poll goes live and then things come out of the woodworks after marketing is done on the poll.

I think @davidkohcw is very right the runway is too narrow and incentives not strong enough for this model, the 2 suggestions provide stronger reasoning for holding veANC and extends runway to a reasonable timeframe for big players to get in on the borrow.

Overall a great suggestion.

This might be a personal risk appetite, but I’m not sure people will borrow more by incentivizing higher ANC emissions. I wonder if we can do some sort of a vote for this to get an idea of what people think.

Do we expect the flywheel effect(lock>emissions) to overcome the higher inflation rate by increasing anc emissions for borrowing?

What about exploring the idea of higher rewards for basset providers as this generates more revenue?

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veANC would let us direct where to send the rewards ANC emissions for borrowers, so that we can pick the best collaterals to have the best borrowing rates.

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I have to say this proposal looks too complex and complicated to understand the future impact on the project.

True, we have to give the token extra utility so holding increase.

Also true, locked ANC for long periods of time exchanged for veANC for greater voting power is good because who locks for 4 years is more interested in long term sustainability rather than the ones who lock for 1 year and by far the ones that don’t even lock.

veANC locked for 4 years needs yo have greater voting power than locked for 1 one year.

But, Even not locked ANC (regular ANC) needs to have voting power (fewer, but needs to).

VeANC can have higher staking benefits than regular staked ANC. But has to be carefully determinated.

A portion of Protocol earnings directed to veANC holders is a yes for me, only if there are more incomes than expenses and treasury increases ( right now is inverse) so they understand that bad decisions in poll voting or not putting work (seeking continued improvement) will lead to no earnings. But, first is the buying of ANCs tokens from the extra yield/earnings to pump the price. And then, if theres money left, pay them.

About borrowers, I don’t like the idea that by locking the given ANCs will receive veANCs and could Boost by 50% their ANC emissions. THIS ONE IS A NO GO FOR ME.

The “free ANCs for borrowers” is the main token price problem. When they see that ANC token price is getting higher, part of them will start to hold.

Also, when borrowers realize that is way better to ask for a loan in Anchor Protocol because of the “free next gem token” they Will migrate from other platforms.

If this strategy doesnt work and they keep selling ASAP, then we can talk about giving them opportunity to lock veANCs but not to receive 50% more ANCs. Instead, they could get lower interest rate for borrowing. Thats what they really want at the end of the day.

Thanks for reading.

This proposal isnt that complex. It has previous examples we can borrow off (Curve) See my post about proposed modifications, albeit no interest on them.

This prop is currently our best running prop for modifying Anchor tokenomics and the economic model of the anchor token. It is well focused and addresses major problems. There are some good counter points brought up by @davidkohcw but these have been / can be addressed in discussions and are not a reason to kill the prop for another running one.

We could probably bring this to poll now but I’d like to see some modifications based on com. feedback by @atari @tetris @Pong before it’s propped up. They’ve also stated likewise on the OP. Team has been dark for some time since discussion started on this prop, most of the combined prop. has been executed at this time (wbtc we can easily push in, any one of us can poll for it right now if wanted). So maybe its time we get some information from stakeholders leaked to the community.

@narco78 do you know anything about what’s rolling on behind the scenes regarding TFL / LFG / and Anchor team at this time? Your observations have been on point from everything I can see.

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The code for the ve-tokenomics has been written and is being audited by Bt-block. There are some ways to make the ve-tokenomics stronger which I am researching and hope to share soon.

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Small users don’t benefit from this proposal and those that seek to “diversify risk” by adopting ANC governance in different wallets to those they use for borrow are not advantaged in any way.
I like Pedro’s earlier analysis on this whole topic and that borrower attraction is key to anchor’s long term sustainability proposition but disagree that its earners that need incentivising.
Curve works on liquidity provision - ANC is not a liquidity provider in the same sense.

Adopting principles and theories and supposed market forces for an apple are not fit for an orange and therefore do not benefit the average

Large wallets and providers of collateral benefit for a while - is there any empirical evidence supporting the veModels post the first unlock periods unwinding? Not yet as none have got to the point of unlocks occurring. So we have another ‘unnatural’ period before the locked liquidity returns to market by which point the entire space has changed.

veModels provide short-term outcomes - but maybe thats acceptable and for the large wallets, the $ value of ANC required to influence outcomes is not material.

This is wonderfully thought through and we have some great feedback here. Let’s try it. The best way to see if this works is to make it happen and make adjustments along the way.

1 Like