As the title says, anchor needs to come to terms with reality and own opt to the fact that it’s current system is 100% unsustainable.
It is not MIM degebox fault, nor is it the lack of borrowing. It’s reality, its market efficiency and its also a consequence of risk to reward ratio.
Anchor is being parasitized because it lends itself to that situation. For example:
Nexus protocol exploits the inconsistencies in the borrow/lend ratio (borrow being drastically lower than deposit). Which in turn leads to a depletion of the yield reserve. This does not happen anywhere in crypto but here…
People don’t generally want to expose themselves to risks and the bast mayority will always be more inclined to become a depositor than a borrower. This is the very reason why the deposit APRS in protocols like AAVE and COMPOUND end up dropping so much (and could even drop a LOT more with massive adoption).
MIM leveraging UST is a consequence of the markets doing what they do best. Find equilibrium, and there is no way get around it. If it is cheaper to borrow and a deposit APY is higher that borrowing people are going to leverage the power of DeFi to get the best yield out of their money. Why wouldn’t they?
With greater adoption it becomes increasingly difficult to subsidize borrowing APRs with ANC. As more people borrow (which probably wont happen given the unfortunate low LTV of the protocol) incentives become less and less impactful and thus the market will end up choosing which is the best borrow APR.
The same applies to the earn side, why would people take on additional risk when the can confortably get a 20% yield on their stablecoins? Thats 3x higher than the historical stock market average. The protocol should expect massive amounts of cash being inyected into the system as it is currently happening. Look at the current traditional financial system and there is a massive amount of money sitting in bank accounts doing nothing, thats what people do, they look the best paying place to deposit their savings and they just keep it there without taking risks they dont care to take.
Having said this people here should own up to the fact that a 19.5% APY wont be sustainable for too long. Nor will it be a 18, 17 or 15%, thats how it is. The current sustainable APY is 14% and thats WITH anchor incentives on the borrow side which with greater adoption will start to become less and less useful…
The yield reserve shouldn’t be used to subsidize unsustainable APYs waiting for a miracle to happen. Anchor has grown, thats a great thing, but it also means that from now on APYs will get nothing but lower and lower. A much better way to use the reserve should be to pay back people who got screwed with the oracle fund. And to make absolutely fucking sure that it doesnt constantly bleed reserves. APYs should be lowered immediately until reserves start to grow back up.
In the future such reserve should be used in adjunction to a complex liquidation algorithm to not only insure people’s loans in case of an unfortunate event but also give a time buffer for people to add collateral back (just like margin loans work).
If you people want to see APYs increase on EARN the protocol needs to make sure to treat borrowers as best as it can. Increasing LTV, providing liquidation bumpers, as well as having borrowing interests that are on par with the rest of the market (this last one isn’t a current issue as anc subsidizes borrowers at the time being)
I love anchor, I love the mission it stands for and I understand the willingness of people to want to keep it the best protocol out there but the current proposals that have been appearing are simply useless and absurdly complicated and evenetually doomed to failure.