I recently found out that the ~$8.5 Billion of $UST that is the current difference between the Deposit and Borrow amounts is entirely idle and earns no yield.
Given the recent concerns about supporting the yield rate by boosting borrow, adding bAssets, etc, it seems that keeping 100% of that cash idle is missing a huge opportunity to enhance the yield.
Tradfi US banks maintain a very slim (and regulated) margin on their cash, as they are backed by the FDIC against bank runs; I would not support going that narrow, but perhaps we can improve on 100% idle cash?
My original thought was: buy and stake $LUNA, earning fees toward Earn yield, but someone pointed out that’s highly recursive as $LUNA is reflexive with $UST as it generates it.
OK, so now we have other bAssets, could we hold bATOM/sAVAX/bETH (after merge) with 50-70% of the deposit margin?
What would be the risks, and would those risks be mitigated by raising the margin of safety?
What else could we do with the $UST without introducing too much systemic risk?
I am generally supportive of this. When people have suggested this in the past I think the main issues are how do you invest the ~$8.7B. Do you do it in a centralized way or decentralized way. Also a lot of concerns raised about loss of principal if you invest in something that blows up. However I agree with you a big reason Anchor isn’t sustainable is you’re paying 20% on deposits that are earning 0%.
Here’s a thread on Twitter that I thought more elegantly has discussed this:
It would have to be actively (i.e., human) managed. That would need a central entity, and should be in a well-regulated place with clear fiduciary duty that the fund managers have to the depositors.
It’d be something like ousd.com , where the yields are actively managed in various DeFi pools to maximize yield and minimize risk (well, as much as is possible within DeFi - the inherent security, counter-party, regulation and cliff-edge risks are still there).
It makes sense, but it goes against the ethos of Anchor I think. That being said, it’s the most realistic way to make Anchor work and keep an APY at least around 10%: investing the excess funds (deposits>loans) in stable DeFi pools. I think it’d have to be other stablecoin pools (like OUSD is doing), as any variable-price crypto, be it LUNA or ATOM or AVAX or what not is far, far, far too risky and could lose principal - fast. The investment criteria would have to be that it’s the next closest thing to FDIC insured principal protected investments, which basically means either a complicated delta neutral strategy or other stablecoin DeFi pools. The problem is that Anchor is too big and where ever it would put any significant portion of its funds, it would by its sheer size push down the yields.
You can’t hold the collaterals borrowers deposit and lending margins for the idle collateral that’s double spending. Their already collateralized for open borrowing positions it would change the risk significantly.
I think we should arrange work with other yield farming protocols (that don’t use anchor earn, there are plenty with good returns). That are looking for leverage. Another option is whitelisting their governance tokens (if their yield bearing / backed) for deposit as collateral, then direct the voting power acquired by the collateral to enable the protocols to deposit their POL to leverage anchors UST deposits. reference my post here: Fixing the Anchor Rate - #10 by atebites
With right smart contracts may not even have to be actively human managed but adjustable via gov vote.
Terra LUNA governance has put community funds to work spreading both UST to other ecosystems and earning yield/fees (Curve liquidity pools, etc).
Makes a lot of sense to me if Anchor were to do similar. Stable coin pools a great way to go AND facilitates trade to/from UST.
Actually… rather than just UST, Anchor could jump start liquidity pools cross chain for other Terra stables such as EUT, etc.
Edit: One day, pools of other stables will be desired accessible to other chains and not only minted within Terra when needed by individual users. May as well set it up or have a plan ready.
However, what Anchor can start looking at is uncollateralized smart contract lending. There is a lot of institutional borrowing demand that could be tapped into via whitelisting smart contract borrowing. For instance, Anchor could create a new governance arm that works like a defi version of loan brokers where they have to stake a certain amount of Anchor and 75% of the decentralized loan board has to approve the loan and make a certain small percent on the of the yield. Would require a lot more thought to stop adverse selection and moral hazard but this is the gernal framework.
Allowing uncollateralized - or leveraged collateral lending depending on the risk - would open a lot of posibile institutional borrowing demand that we are seeing a lot of.
It would. It would also make Anchor function like CeFi and remove visibility and transparency. Greed and corruptability of those making decisions (on both sides) may, sooner or later, lead to problems.
This makes sense and is the best (and may be the only) way to deal with the 10s of Billions worth of deposits, however. But I think it strays too far from what Anchor is.
I think it would be most appropriate for Anchor to fork. Have a true DeFi Anchor that’s true to its original ethos, with a likely lower yield. Then have an institution run Anchor Plus (or Anchor Max or what not), where each lender and borrower has a clear contract with the governance entity making these lending decisions, and the entity has a legal fiduciary duty to its depositors, is duly registered and regulated, audited, etc. Higher yields there, but no more true DeFi, rather a blend of both De and Ce.
The problem with your suggestion is that during a bear market, this would deplete reserve even faster, if the price of luna or other assets goes down, so does treasury value with it, but the core of your idea is good.
I suggest that we don’t sell all of the assets yields, but only around 80-90%, we keep the other 10-20%, and then sell 50% of this yield and let the other 50% compound, this would make treasury generate value even if collateral in the system doesn’t increase, and in bear markets, it would give protocol positive cash flow no matter number of users.
It seems to me there are enough stablecoin swap Dex’s coming online that we should be able to integrate 70% of idle $UST in some of them (Thor, Vector, Echidna, Curve) to provide additional yield without having a centralized manager.
The main risk would be trusting bridge technology and contracts outside Terra’s network to be solid, but perhaps Loop or Astro’s implementations will have similar stablecoin swaps soon?
Conceptually I am in favor of this. However, there are large counterparty risks (human, smart contract, etc) that could lead to insolvency on the protocol. Doing so would deal a death blow to Anchor.
It is not uncommon for lending/borrowing institutions to lend out their reserves for greater capital efficiency. This currently happens with large CeFi platforms - such as Celsius and Voyager, who lend out their reserves to firms such as Jump to guarantee yields for their users. It is also ubiquitous in traditional banks.
As someone focused on Governance, I am keen on this idea:
Allowing greater decision-making via Governance, especially financial ones, activates a large community and encourages more robust long-term strategic thinking.
This idea has merit but requires a lot more thinking before execution.
A good suggestion to put those UST to work. Buying LUNA or other non-stable assets is too fraught with risks to the principle depositor value as pointed out by others. Additionally, as others have said as well counter party risk is real in defi, especially cross chain (which lets be real is where the majority of the deep liquidity is… cough curve). However, one thing I would really like to see which I believe is consistent with Anchor ethos would be providing liquidity on native terra on Astroport in a stable pool for something like kUST (Kinetic protocol) - i’m sure there will be other protocols too - I think the counter party risk is minimized in these types of situations as these teams and efforts are well aligned and often times even partnered together within the native terra ecosystem. Obviously the kUST-UST pool isn’t going be able to eat the 8.2b but 2-3% of that 3-5 times is a healthy, in my eyes, for the whole ecosystem.
Personally I think if we do go with arranging deals like @fig alluded to then like he said we will have to do a lot of planning, preperation, human legwork, and as a decen. protocol this would be hard to do without becomming a DAO, which anchor is not.
I wouldnt mind if we made a Anchor DAO arm / branch that handled deployment of idle capital but I mean if we’re going to do all of this work there are a lot of coding based props that remove the human risk element that are floating around the forums with plenty of community support of equal or lesser difficulty.
I think whitelisting governance tokens is a far simpler way to enable safe deployment of liquidity and we’re already at that stage where we can do it. Other than that flash loans and contract based lending (like how mars protocol has implemented them) are the next go to’s in terms of cost efficiency and feasibility for the protocol. There is ongoing discussion on the forum found here: