[Proposal] veANC: Evolving Anchor Tokenomics

I agree with most of @davidkohcw 's take on the veToken model and having it applied here on Anchor, but I believe this proposal may have tackled the wrong issue. Borrowers are what’s feeding the platform, attracting and maintain borrowers is an issue, but adding an extra step and year-long commitment isn’t likely to fix that issue. Curve’s war is fought between those that need the platform, not those that make it work.

On Anchor those that need the platform would be depositors, I’d love to explore the ve model applied to the depositor side, the full rate could be assured to a certain deposit threshold and after that using the veToken model to unlock the full rate for higher amounts, maybe even having different thresholds between wallets and smart contracts. And yes, I know and understand that this would be downright impossible with the current model, so perhaps an hard cap would be one solution, not one I’m happy with to be honest. I do realize this would be bypassed by bots and multiple wallets, so I’m not proposing this as a solution to adopt, but rather as a challenge to explore on how to engage depositors in holding and locking ANC, rather than making it harder on borrowers.

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I like the ANC subsidies on lockup, but I question how much more they will encourage deposits since if there is a 1 year minimum commitment and the upside seems limited.

I’m also not sure how much value gauges on collateral types will have. As David pointed out, subsidies on collateral isn’t nearly as important to other chains/assets as liquidity is, which is the the veToken model is traditionally used for. Seems like we would just stack rewards on LUNA and maybe the second most deposited asset. Which I guess would be nice for those depositers but can’t see it increasing ANC demand much.

I also like the Platypus model where veTokens accrue over time. Seems to be working well and I think most would prefer that over 1-4yr lock ups.

I also don’t think there is anything wrong with having variable rates for Earn depositors based on staked ANC. A combination of variable earn rates with borrow subsidies could be nice. Adding additional fees somewhere for more rev could be considered, even if not ideal. Removing collateral, opening a loan, withdrawing from Earn, etc.

Significantly better than current tokenomics but I think there is room for improvement.

Nobody (in this entire thread) has actually defined what the problem we are trying to solve, or why it’s a problem.

Until we can at least get to that stage this proposal makes no sense.

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Great idea, locking anc for veANC and veANC for boost.
I’m all for it.

Few things i think worth mentioning

  1. veANC locking for 4 years, so that borrower can earn up to 1.5x boost of distribution.
    ANC distribution will end at year 4. And we are currently close to the end of year 1. Are we planning to extend it? If so, how?

  2. Borrowers are the only source of revenue and they are the risk taker.
    ANC yearly distribution for borrower incentive stays the same 100m/year. In my opinion, this could backfire and have the unintended consequences, like the loss of revenue from borrowers that do not wish to lock for 4years for obvious reason. “ANC borrower incentive distribution only last for another 3 year from now, why lock for 4 years?”

I agree with veANC lock and incentive for borrower. But is it possibe that we make it a little easier for them? Perhaps introducing less requirement.

  1. We have tons of easy depositor. Earning nice 20%.

For profit company doing easy business. Making fat margin. Offer 10% to user, while earning 20% from anchor. We have few example of it.
Can we actually introduce veANC boost for depositor?
I can guess, tampering with target rate is off limit.
But we can actually add boost on top of the target rate.
That boost is going to be paid for with UST and in my opinion, is in fixed percentage terms.
For example : add 2.5% If wallet have veANC worth at least 10% of the deposit amount. If target rate is 20%, for a wallet with 10K in deposit.
In one year, the wallet will earn $2000 (20%x10K) + $250 (2.5%x10K). Additional 12.5% (250/2000).

2.5% on top of 20% seems small.
However, i believe we can agree, that long term, target rate will be much lower.

If we have “fixed percentage” for boost. The lower the target rate goes, the bigger the impact will be.
In my previous example with 10K deposit, if we have target rate of 10%. The impact will be bigger.

1000 (target rate) + 250 (boost).
25% (250/1000) additional interest.

It will be even bigger impact for a for profit business fighting for profit margin.

When the times comes for lower target rate, it will most probably be in part of market cycle where mood is risk-off. Like we currently have now.
We could have for-profit companies actually fighting for veANC for bigger profit margin.

And this way, we can support ANC price and borrower incentive will stay relatively higher than if there is no buying support.

They are for profit business. Let them fight and compete against each other?

  1. Also worth mentioning. Borrower will only hold veANC because it makes them borrow cheaper, and even farming and earning more than the rate.
    However, saver/depositor are in for the long haul. They will make better target for veANC.

There are projects that build on top of Anchor borrow, farming it. (Nexus, Neptune)
There are also projects and companies that build on top of anchor earn. (Glow, Sayve, Kash, WhiteWhale UST vaule, outlet, alice, just to name a few)

If the goal is Anchor wars. Saver/Depositor and borrower have different priorities.
Why not have those two group battle each other?

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Second this.

Also a gentle reminder 50% of borrowing is done by only 4 whale wallets. I doubt veANC will make that big of an impact, but I could be wrong.
Boosting Anc rewards will also dry up the reward pool more quickly, which might actually be counter-productive.
Increasing reasons to hold on to ANC is a great idea, but I don’t see this proposal as a particularly good solution, atleast not in its entirety. Good brain-food though!

In general, this proposal seems to take a lot of assumptions on user behaviour without any data to back it up. Who borrows long-term? What are their incentives? Who sells ANC? Why do they do it?

I’m not an expert, just a humble observer, but here some comments to consider.

Benefits

  • 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.
    It’s the borrowers who support the protocol, ANC holders only support it in secondary terms when not selling, increasing the rewards when denominated in UST.
  • 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.
    How does a higher ANC TVL generate more fees? It’s the bAssets who generate value accruel through buy-backs. Suppose veANC increases bAsset TVL, this would be a secondary mechanism not a primary one.
  • 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.
    The idea of locking ANC for veANC to direct emissions towards specific bAssets, and to reward long lockings with more voting power, that seems fine. I’m just not sure why we would want to increase ANC emissions drying up the ANC reserve faster.
  • 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. Quite the opposite. I’d reckon only the people who hold on to their ANC anyways at this point in time will make use of multi-year lock-ups. Short term borrowers paying off their loan with the emissions will remain in play. In addition, long term holders might favor veANC over the LP, reducing liquidity and increasing volatility.
  • 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.
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I agree wholeheartedly with @Jae999 that Depositors are EASY to come by but revenue-producing Borrowers are hard. There is a reason Anchor is running at such a deficit. TFL and the entire community wants to keep 20% Earn APY and we should. I would argue a 2.5% boost in APY for any Earners holding veANC is the best solution to ANC value.

Success Loop: In the future if Anchor cannot make 20% and we vote to drop Earn APY to 10%, that 2.5% boost beceoms a 25% APY boost! That makes veANC even more valuable to depositors, driving ANC price up, and driving borrower incentives up simultaneously! This will drive Anchor profitability up and we will be able to return to 20% APY faster.

The solution @Jae999 benefits ANC by increasing the value of ANC and making borrowing cheaper via incentives.

Finally: Earners are LONG term customers. They will hold veANC for years, and locking 4 years makes perfect sense for them. Borrowers are short term customers, coming and going with market sentiment. veANC in their hands would not make sense as they will take on long-term investment for short-term debt benefits. veANC and earner time periods align, and makes more sense.

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Currently we have a 3.68% Net APR on the Anchor Borrow tab. I love being “paid to borrow” but would be encouraged to see that extra capital utilized to replenish the Yield reserve or to fund Anc buybacks. This could meaning capping the NET APR at 0% which would be pretty fantastic. Anything above and beyond goes back into Anchor to support its health and growth. Thanks

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danku_r made a nice video on contract-2-contract lending of Mars which enables a virtual credit line

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Can wee add the external incentive function for preferred collateral. The more intense war above preferred collateral can lead to more borrow amount which mean more revenue for us.

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Sounds good, but it’s all based around ANC emissions, which end in less than 4 years. What then?

Sorry for the delay here. Traveling and just catching up.

A ve Model vested over four years seems to have merit. Especially as it linear vests voting power.

I will respond to some comments above:

I wouldn’t say they are experts. They are community members like you and I envision a stronger future for Anchor. As for why now, Anchor is taking on a new light.

Capitulated by LFG and expanding across networks, Anchor is sure to attract new participants and users. Let’s embrace them and make the proposal better together

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We’ve seen a few references to the vePTP mechanism that Platypus Finance has implemented. To help the community better understand the vePTP model we’ve included a short walkthrough of its mechanisms and some pros and cons below.

PTP Core Tokenomics

  • Deposit stables (usdc, e.usdc, e.usdt) into single sided liquidity pools to earn
    • stable yield (in PTP)
  • Stake $PTP to earn $vePTP (longer you stake= the more $vePTP you earn)
      • boosted yield for vePTP holders (in PTP) on top of stable yield.
    • The more $vePTP you have the higher the booster APR to earn more $PTP
  • vePTP is non-transferrable and you will lose ALL of your vePTP if you unstake ANY of your PTP.

3 different pools for liquidity mining

Base pool: rewards $PTP based on the amount of stablecoins you have deposited. The more you deposit = more $PTP you earn

Boosting Pool: Depositors can earn addition rewards by staking $PTP. The more $PTP you stake (and the longer you stake it for) and the more you deposit, the more vePTP you earn.

Only vePTP token holders are eligible for rewards in the boosting pool. vePTP will also be used for voting in governance in the future as well as allowing you to share in the revenue generated by the protocol.

Booster Calculator included in the protocol to calculate earnings.

PTP Staking for vePTP

  • vePTP is non-transferable
  • each staked PTP generates .014 vePTP every hour.
    • It takes 10 months to reach the vePTP cap
    • Maximum vePTP help from a deposit is 100x the vePTP deposit.
  • You can always stake more PTP to earn more vePTP
    • doesn’t affect previously earned vePTP
  • You will lose ALL vePTP if ANY PTP is unstaked.

vePTP Pros

  • Far more liquid than veCRV.
    • No locking requirements, but heavy unstaking penalty.
  • Early adopters/long-term stakers have governance control
  • Offers better governance protection for retail investors, protocols, and DAOs
    • vePTP takes time to accrue → whales/funds cannot immediately accumulate voting power regardless of how much money they have.
  • Buyside pressure for PTP
    • Combats inflation from PTP rewards/minting by disincentivising users from selling.
    • Same function as veCRV tokens, but cost associated with withdrawal instead of depositing (veCRV - locking)
    • Boost depends on the size of collateral position

vePTP Cons

  • Disincentivizes later entrants into governance participation due to the accumulation period.
    • 1 PTP can generate a maximum of 100 vePTP over a time period of 300 days.
    • After 300 days, no more vePTP will be generated from that “fully-spent” staked PTP.
  • Wallets lose ALL accrued governance power if they unstake ANY of their PTP.
    • PTP Stakers are unable to “partially sell” their positions without losing everything.

veCRV and vePTP similarities

  • Insulates protocol governance from sudden acquisitions
    • veCRV high upfront cost of a fixed locking term. (but possible)
    • vePTP long time-horizon cost of accruing over time. (impossible
  • Creates buyside pressure for ANC
  • Reduces selling pressure
  • Increases utility for ANC

Key Differences

Gov power when?

  • upfront (crv)
  • accrued (ptp)

Which is more liquid?

  • vePTP is more liquid but strong penalty for withdrawal
    • complete loss of yield and voting power from any partial withdrawals.
      • can be accrued again.
  • veCRV less liquid
    • Increases upfront cost for a new entrant to enact governance

Which is better for Retail?

  • vePTP model is liquid, no locking required.
  • Holding grants higher governance power.

Which is better for DAOs/Protocols?

  • vePTP model prevents large players from making immediate changes to governance.
  • vePTP model is liquid, no locking required.

Which is better for Funds?

  • veCRV model allows funds to immediately buy voting power
    • Through buying/locking.

We hope this analysis helps drive forward our community’s initiative to improve Anchor tokenomics.

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Hey David, thanks for the well thought out response to our ANC tokenomics proposal.

We agree that Curve veTokenomics is not an apples-to-apples analogy for Anchor Protocol’s proposed veTokenomics. It also isn’t immediately obvious whether the demand for governing the proposed collateral gauges will be the same as current demand for governing Curve gauges. Regardless of the demand, this proposal is intended to 1) add a fundamental governance function to the ANC token, and 2) align incentives between ANC governers and the protocol itself.

We also agree that adjusting ANC emissions to be more sustainable and increase incentive to lock the ANC token would synergize well with the new token utility in our proposal, but we’ve decided to keep this particular proposal focused on that new utility itself.

Much of your response is based around the idea that other L1’s and application layers projects will not have significant incentive to compete in governance of Anchor Protocol. We don’t want this proposal to be particularly tied to speculating on that competition, but we do think that liquid staking protocols on other L1s will have a strong desire to vote on the proposed gauges in order to compete between each other, due to the liquidity moat and network effects required to be a market leader in that space.

Thanks so much for the thoughtful response, and sharing useful resources for those who are interested in the pros and cons of veTokenomics.

Good work with the proposal, guys. Thanks for taking the time to do the research.

I am actually interested in your background, for the sake of transparency. You three just joined the space; your twitter accounts were created a month or weeks ago. I do not care about people wanting to be anonymous, but this just feels like you might be part of the anchor or tfl team, adding a proposal as a community idea, while the decision has already been made by insiders.

I find it odd that you just started posting days ago and you have already been invited, all you three, to an anchor AMA tomorrow.

I do not want to discredit your work, but I would like some transparency, that’s all. Thanks in advance.

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I just curious, who are you guys?

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It’s a fair question to ask. I am quite fine for TFL/Anchor to give things a steer to ensure continuous improvements are made.

However, it was interesting to hear Nate recently talk about large wallet borrowers as being the target for the new tokenomics. We also know from Pedro’s recent analysis those borrowers (with a huge amounts of deposited collateral) are highly likely to be TFL.

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We also have to keep in mind the new anchor borrow model, i.e. a plethora of liquid staking derivatives across all chains.

On Polygon you will have stMatic and MaticX, on Terra you have both as well, on Polkadot you will have Acala’s and lidos/moonbeam, on ETH you have aETHc, stETH, liquid stake, eventually pETH etc. More striking is Solana:

This trend is not likely to stop. The increasing fragmentation of liquid staking derivatives will force protocols to prove their value through KPIs, mainly, how much of the staked supply is captured. Shard labs entered revenue-sharing deals with Lido where increased revenue share thresholds are met based on these benchmarks. Anchor is borrowing is one of the most compelling use cases to help hit these types of KPIs and will increase the number of protocols vying for Anchor rewards to capture staking derivative market share.

Next, we consider listing strategic LP pools such as the 3Crv pools, Frax, etc. Again, providing LPs with further capital efficiency through borrowing can increase the liquidity in these pools and increase TVL and the growth of the protocol.

As Anchor moves more strategically, there will be plenty of demand for the veANC gauges.

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When is this proposal going live?

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how can you get comfortable locking up tokens for multiple years if there is no clear value accrual yet?

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With the v2 Borrow change, our only revenue is from open loans. No longer from collateral just sitting there. We need mechanisms that incentivize loans across Anchor, not just for specific assets.

I like the Platypus model because it allows flexibility for holders, and ANC only gets staked when the user is trying to reduce interest rates. This way there isn’t a need to incentivize long locks, just get the users who would be benefitting from the higher emissions to hold their ANC.

Protocols are still incentivized to stake if they want to create other, lower rate front ends.

The gauges sound like they have potential, but it doesn’t directly increase revenue. Down the line the increase in ANC price can increase emission APR but unless borrowers have a reason not to, they’ll still dump the distribution APR. Borrowers don’t have a reason to lock or hold ANC in the ve model, even with a liquid token, without valuable emissions or value accrual then its better for the user to sell and lower their interest rate.