Capitalising Anchor's Reserve with $450m

There’s also the potential for the billions of UST sat idle on deposit to be productive and deliver a yield back to the protocol.

The main issue will be gathering consensus on how to safely deploy it.

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Thanks, Do Kwon. Maybe future substantial funding initiatives could consider DCA Luna into UST if it makes sense.

the 19.5% was never sustainable, even less with the bigger picture where you onboard non defi and more traditional users on platforms such as Alice etc where you have deposits but not enough loans.

But of course, this is for Anchor to decide, but looks like the team still believes they can make it sustainable with more bassets, which I doubt.

If only they didn’t had TFL on their back supporting their lack of execution, I believe they would have realized this a long time ago.

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Hello haven’t you said you were going to inject 300m on twitter?

+1 | strong support on the marketing and content creation side

I am more or less a crypto newbie but an advocate of smart ideas. And I’ve stumbled over Anchor via a wom rec from a friend.

Crypto bubble needs to put their heads out of crypto bubble to “onboard the next 100 Mio users”.

In reference to this research by Pedro Ojeda https://twitter.com/pedroexplore1

"Anchor Protocol bLuna Collateral: 50% of the total $3.3B Luna collateral belongs to 4 borrowers, all private wallets. There are 25,500 borrowers, but 25,100 of them account for only 18% of the total collateral. The largest smart contract is Nexus in 17th place with 0.63%.

Cumulative bLuna collateral: 3 wallets = 45% total collateral. 4 wallets = 50%. 10 wallets = 61%. 30 wallets = 70%. 160 wallets = 80%."

Does TFL know who owns these top wallets? I ask because the wallets are not behaving rationally.

https://finder.extraterrestrial.money/mainnet/address/terra1885dgdvn5u8sjfaefvr39arssaxgqmd29ht0aa
This wallet has 416M in UST (earning no yield) and a 450M loan with a LTV of 50%. The bLUNA yield they are giving up is about 85M per year for a loan they are mostly not using. 85M / 450M = 18.89% + 4.99% Anchor net borrow rate = 23.88% effective interest on a loan they are not using. Who would do such a thing?

https://finder.extraterrestrial.money/mainnet/address/terra1p54hc4yy2ajg67j645dn73w3378j6k05v52cnk
This wallet is worth 1.59 billion and is running a 77M loan against 300M worth of luna. They are giving up 29M in staking rewards for the privilege so 29M / 77M = 37.7% + 4.99% = 42.7% effective interest.

How many billionaires do you know that pay such high interest on their money? Wouldn’t a billionaire run a bot to maintain a high LTV so any unused bLUNA was sitting in their wallet gaining yield? By running a 40% LTV they would get an extra 10.2M per year in staking yield. With that kind of money you could hire a team of people to manage your loan manually. But they choose not to. Why?

If these top wallets are irrational or generous anonymous investors who wish to subsidize the yield reserve then we have HUGE concentration risk. If they decided to pull their bLUNA then the yield reserve is in trouble.

If these top wallets are Do / TFL then the reality of the subsidy going to Anchor is much bigger that just this 450M top-up. Perhaps as a marketing cost, this is justified. Perhaps this is how you bootstrap a trillion-dollar company. Fine.

We really need to know either way though. Are these wallets anon and could exit at any time or are they known and controlled?

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thanks for this. great write up, super rational assumptions.

my 2cs would be for a DCA approach as i believe,

  1. Anchor would hold less % of UST slowly as Tefi grows/innovates
  2. More flexibility for re-iterations
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To best compete against other stablecoins, whatever
decision u’ll take pls do not loose this magnetic promise/brand: “19,5%”.

I think @farmerdbrown 's point is an extremely good one. We want to be able to discourage bad actors who will just be able to take advantage of what is essentially a massive subsidy. I like the idea of a maximum deposit amount for non-whitelisted wallets or tieing the purchase of ANC to the amount of yield you can generate. How do we stop some levered monster from depleting the reserves?

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100% agree. I don’t understand why nobody is commenting on the issue of high and not sustainable borrowing rate.

Adding bATOM or sAVAX will not do anything as I can borrow on BENQI against AVAX at 1-3-5% instead of 35%.

Hope team will thing about creative way to decrease a borrow rate, the only way to make Anchor sustainable. I loved 19.5% but it’s time to decrease it down to more sustainable 10% and subsidy effective borrow rate to get closer to 5-7%

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I think you guys are getting overly concerned. TFL are willing to subsidize the current yields to achieve their growth objectives.

If and when they’ve hit their objectives or if they can no longer sustain it then hopefully yields will be gracefully tapered.

Think of it like UBER giving everyone free and discounted rides for a few years. Now they’re the world’s largest taxi company.

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If we are in the business of giving out free money though then why not something more sustainable like an endowment? For example, $450M worth of bLUNA posted as collateral to Anchor borrowing $50M of UST to sustain the yield reserve short term.

I think they are already doing something similar according to the analysis done on the top wallets by collateral.

Perhaps it’s a touch more difficult to pull the plug on collateral than it is to top up the reserve that has a finite end.

Hey @fig, Vic is right below on the rationale for CWGR. Anchor has been around for just over 10 months so the most granular growth rate to use would be on a compounded weekly basis. We could look at it on a daily basis but it projecting that for 364 datapoints (52weeks*7days) would be cumbersome.

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A yield reserve only serves it purpose if it’s a stable store of value. Probably ideal if it appreciates, but assets are volatile and we have to cater for the movement downwards too no? If we enter a multi-year bear market and the asset in which the yield reserve is denominated in draws down in value by 80% – where then is your yield reserve?

This thread has become quite long so I apologize if this idea has already been brought forth, but instead of a one-time cash infusion to the reserve, why something more akin to an endowment?

TFL and/or LFG could deposit $450M worth of bLUNA as collateral to anchor and borrow $50M to top off the reserve. If LUNA goes to $5 again, then this show is pretty much over with anyway.

I believe the additional revenues could help in the long-term as well.

That would be ideal, like using the idle reserve money to seed new DEXes and get liq mining incentives. But deploying that on another protocol means external protocol and smart contract risk on billions of $$. Not sure if there’s a safe-enough way to justify the extra %, might end up being penny wise pound foolish.

Yield reserve top-up has to be independent of the mechanics in Anchor. Using your suggestion, if there were to be a big drawdown on LUNA’s price, collat that is backing that “yield reserve loan” is in danger of being liquidated. New money would need to re-collateralise that loan (defeating the purpose of this suggestion in the first place) or repay the loan (which is depleting the yield reserve in itself). Don’t think this will work.

Why don’t we have wrapped stables like USDC, DAI or BUSD on the Terra chain?

Users can then bridge in / out directly via Terra Bridge. Anchor can effectively own all the liquidity for those LP pools, perhaps in Astroport (UST-USDC, UST-DAI, UST-BUSD).

All fees collected can be redirected back to the yield reserve. This would also be a better UX than using expensive 3rd party DEX’s on other chains.

The option mentioned here is to just inject $450M worth of UST into the reserve, which is admittedly independent of Anchor dynamics, but if $450M worth of bLUNA borrow isn’t going to help solve the revenue problem in the short term, then I’m worried about just how unsustainable the current source of borrow is for Anchor. As in, I’m missing what the eventual state is where Anchor becomes self sustaining. Or is 20% really just a marketing play in which case I’ve always felt that 15% is very reasonable and 20% unnecessary even for marketing purposes.

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