TFL will be capitalizing Anchor’s yield reserve with 50 million SDT (~70 million UST) from its Stability Reserve Fund.
As a lynchpin of the Terra ecosystem, capturing ~22% of UST’s outstanding supply, this enables sufficient time for the introduction of more collateral types and self-sustainable protocols improvements coming in the next couple of weeks and in V2. Extending support to Anchor and the Terra community is the prerogative of TFL and is in the long-term interest of the overall Terra ecosystem.
Assuming a 35% utilization (current) with a 35% average loan LTV, the reserve boost will enable Anchor to support a 20% APY of $500 million worth of deposits for an additional period of around 1.5 years.
The deployment is a one-off solution that will prevent the need for future intervention, allocating a significant runway for the protocol to introduce self-sustainable mechanics even during periods of low borrowing demand. Note that this replenishment is funded by TFL and causes no burden on the LUNA community fund. UST will be acquired via on-chain swaps, thus incurring no downward pressure on LUNA.
Replenishment of the yield reserve will occur in ~1 week.
bETH is currently on the testnet, and is almost ready for deployment, unlocking a significant chunk of cross-chain borrowing demand on Anchor via ETH 2.0’s staking derivative from Lido Finance.
bETH will be deployed on the Anchor mainnet later this month.
Smart contracts that pool bAssets and generate UST borrows (with auto-repay) will be created, augmenting borrower confidence and increasing borrowing demand.
A novel bid-queue-based liquidation mechanism that incentivizes liquidators to bid for liquidations at competitive premiums. This should drastically lower liquidation premiums, reducing the damage to borrowers in events of liquidations.
Increasing the max LTV parameter to 60% will allow users to further decrease the likelihood of liquidations while stimulating additional borrowing demand.
Following bETH, other PoS staking derivatives including bATOM, bSOL, and bDOT will be added as collateral to Anchor. The combined market value of those chains sits at roughly $300B. Capturing ~5% of the value will allow Anchor to potentially support around $10B in deposits without relying on reserves.
Other yield-bearing assets as collateral are also being explored.
The current Anchor rate is a governance-set parameter, unable to properly reflect current market/protocol conditions. An algorithmically set rate will improve this, where yield is determined via on-chain economic values (e.g. total deposits, yield reserve size, collected bAsset rewards, and borrow interest).
The Anchor rate will be a fixed APY, updating every long-term period (e.g., 6-months), similar to what existing commercial banks offer, ossifying the protocol’s sustainability without explicitly relying on governance proposals to change the Anchor rate amid dynamic market phases.
A large portion of UST in Anchor remains underutilized. At 35% utilization, 65% of capital remains idle and not used in yield generation.
Instead, Anchor will deploy underutilized capital to yield-generating capital markets such as money markets (Mars Protocol), derivative markets, low IL pools, delta-neutral strategies on Mirror, and various other avenues for additional yield collection.
Look out for the official launch of bETH later this month and more details about the upgrades to Anchor above to follow.