Currently there are two significant issues with the Anchor Protocol that I see.
Firstly, the anc token holds no significant value outside of the governance polls. Even here, someone wishing to vote on a governce poll can purchase anc, vote, and then immediate sell. When the rewards for anc-ust LP and staking decrease, holders will have less incentive to hold these tokens and we may see a significant decrease in price.
Secondly, the growing chasm between the borrow/earn and the depletion of the yield reserve. This has been spoken about on several other threads. The issue that I see here is the lack of Initiative and foresight. Many of the comments have stemmed back to the APY currently being able to support 17-18% and therefore the earn percentage will be lowered. This is accepable in the short term as the 20% is significant. This thinking however does not address the unlying cause of the reduction. Currently the protocol may be able to support 17-18% but what about in 2 months, 6 months, a year. Other stablecoin interest platforms have the advantage of lending out those assests to larger organizations for interest. The anchor protocol is reliant on staking rewards, which in the long term, unless addressed could lead to less apy than other competitors.
I have seen the idea of tiered rewards brought up on other threads prior to the current concerns that we have now. I wanted to bring this up for guage the thoughts on the program under the current circumstances. Tiered rewards are used frequently in the industry and appear to be a way to influence the two concerns I brought up above.
An example of tiered rewards under the anc protocol
Percentage of anc held vs earn return.
15% or more 20%
We could also offer incentives to borrowors under this same format. Under the current model the borrow apy always adjusts, so it’s difficult to narrow down a static reward without adjusting the model. However under the current model the tiered borrow rewards could be plus or minus the borrow apy.
As an example
Borrow Apy currently sits at approximately -2.5%
Percentage Anc vs Borrowing Rates
15% or more 1.5%(+4%)
Looking forward to having some good conversations on this topic.