I tried looking all over the place for the answer to this question. Let me know if I overlooked something.
What is the UST that is deposited into Anchor Protocol earn side being used for, besides being lent on Anchor Borrow? As of right now, we have an excess amount of UST deposited, 7.8 billion UST(10.4 billion deposited in earn minus 2.6 billion being borrowed). Question is, what is that 7.8 billion UST being used for?
Is it just sitting there idly waiting for a borrower? Is it being reinvested in other parts of the Terra ecosystem? LPs? Other defi yield generating protocols off Terra? Maybe even CeFi?
In TradFI sense, a bank that has an excessive amount of depositors $ sitting around, won’t just sit around waiting for more lenders to come around, they would actively invest those funds elsewhere to generate $ for shareholders of the bank.
As a part owner of Anchor protocol(ANC staker), we are missing out on a huge opportunity for sustainability if we just only look at the borrow side to solve our current problem of depleting reserves. The solution might just sit in all that money being deposited on the earn side.
A basic example:
Anchor protocol currently pays approximately 4.3million daily in UST to depositors on 10.4 billion.
By taking the 7.8 billion in excess UST deposited and putting it into a CeFi stablecoin(USDT, USDC, GUSD etc.) yield account generates 8%, Anchor Protocol would bring in: 1.7 million in interest daily.
That 1.7 million daily would help bring us one step closer to sustainability of the Anchor Protocol until we are able to generate more borrowing. By no means am I advocating for taking UST and moving it to some CEFI platform. I’m just using this as a basic example of what is available to the Anchor Protocol at this very moment.
TLDR: We should take the UST that is deposited on Earn side that isn’t doing anything, and invest it.
Absolutely 100% in agreement. I have raised this exact issue of idle capital for months.
What we need to do is start brainstorming all potential opportunities to safely allocate the capital. We will likely need a monthly vote for ANC holders to decide how to deploy capital. OUSD have a similar model for this.
Anchor should have a significant stake in stable LP’s on Astroport. The protocol can capture all the fees for USDC/DAI/BUSD to UST conversions for funds coming in/out of the Terra Ecosystem.
Capital can also be redirected to other LP’s on safe and proven platforms like Curve, Convex, Compound, Bancor, Aave etc on other chains. We can also have an allocation for Liquidity as a Service.
Seems TFL are already doing something similar to build out UST adoption using community funds. Why not use idle Anchor funds instead?
We should also setup an insurance or a fund in the ‘unlikely’ event that there was a issue/hack on one of the third party platforms. This can come from in the form of a small deposit/withdrawal fee, the community fund or even LFG.
Given the accelerating decline of the yield reserve, there’s no time for delay.
Inside the Anchor Protocol they link to some third party insurers where you are able to purchase insurance for both depegging and smart contract risk for about 7.32% a year total.
Ultimately the insurer decides what they will pay out
The idea of using idle UST to generate yield outside of borrowing has been mentioned a few times, by myself included, the trick is how to do it… it can’t be done in a centralized way, or in a way that requires a lockup, and it has to be risk free, so that limits our options on Terra to nothing right now.
Using CEXs requires centralization, LPs with other stables exposes depositors to bridge, depeg and smart contract risks, I’d be fine with the smart contract risk as that’s a given but the other two nobody signed up for.
I’m keeping my eyes peeled for Vertex Protocol, that may introduce a way to generate yield on a part of the UST and also open up the possibility to use other denoms.
Capital allocation would need to be well diversified to avoid protocol, network, peg risks etc. Anchor would need to build an insurance fund to cover any issues.
Managing billions of dollars of funds would likely need a dedicated team of research analysts / risk manager etc. Allocations for funds would need a DAO, a vote and a multisig deployment.
I think it can be done, but we’d need to crunch the numbers to see how much yield we can safely produce.
By all accounts there are people over at TFL have who have the credentials to assist here. They are already doing similar using community spend.
The main purpose of anchor protocol is providing a high usage stable coin in decentralized system without regulation (ig. Unfair fiat currency regulation in China can be avoid). To deposit in Cefi is not good idea. This may ruin whole terra ecosystem. I recommend the YFI mode to gain additional revenue.
OK. in matter of maths makes sense. But, where could be used that is 100% safe? Right now, can’t think one place. DeFi apps and Smart contracts are, day by day, hacked. Is it worth risking all that money? I mean, theres a day by day list of collaterals being included. And, in a few days Will be a poll to discuss including BTC as Collateral. Imagine all the borrowing that Will create that. Just imagine.
1.Uncollaterilzied lending to intuitions - institutions are looking to borrow UST. Creating an Anchor loan board of sorts to whitelist smart contract addresses to loan out the idle UST might be a good idea.
So Anchor protocol would pay 18% to depositors, then lend out the UST presumably for less than 18%. Whoever borrows it can then deposit it for 18% at Anchor. Are you trying to figure out ways to lose even more money?
Because the methods he suggested are not able to be deposited back? flash loans have to be settled in one block and institutional lending to smart contracts means its cant be leant out again to anchor, since that can be coded in.
