Home Altcoins News Anchor’s Yield Reserve on Terra Protocol With Improved Sustainability

Anchor’s Yield Reserve on Terra Protocol With Improved Sustainability

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Anchor’s Yield Reserve: 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 enables sufficient time to introduce more collateral types and self-sustainable protocols improvements coming in the next couple of weeks and V2.

Assuming a 35% utilization (current) with a 35% average loan LTV, the reserve boost will enable Anchor to support a 20% APY of $500M 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. In addition, UST will be acquired via on-chain swaps, thus incurring no downward pressure on LUNA. The planned upgrades to Anchor on the short-term horizon:

Introduction of bETH as collateral. 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 later this month.

Yield farming bAsset vaults: Smart contracts that pool bAssets and generate UST borrows (with auto-repay) will be created, augmenting borrower confidence and increasing borrowing demand.

New liquidation mechanism (liquidation queue): A novel bid-queue-based liquidation mechanism incentivizing liquidators to bid for liquidations at competitive premiums. This will drastically lower liquidation premiums, reducing damage to borrowers in events of liquidations.

Increase bLUNA max LTV to 60%: Increasing the max LTV parameter to 60% will allow users to decrease the likelihood of liquidations further while stimulating additional borrowing demand.

Other new collaterals: 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.

Algorithmic adjustment of long-term Anchor rates: The current Anchor rate is a governance-set parameter, unable to reflect current market/protocol conditions properly.

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 gov proposals to change the Anchor rate amid dynamic market phases.

Diversification of yield sources: A large portion of UST in Anchor remains underutilized. At 35% utilization, 65% of capital is left idle and not used in yield generation.

Instead, Anchor will deploy unutilized capital to yield-generating capital markets such as money markets Mars Protocol,  derivative markets, low IL pools, delta-neutral strategies on Mirror Protocol, and various other avenues for additional yield collection.

Yield reserve replenishment will occur in ~1 week. Look out for the official launch of bETH this month and more details about the upgrades to Anchor above to follow. Onwards.

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James

James T, a passionate crypto journalist from South Africa, explores Litecoin, Dash, & Bitcoin intricacies. Loves sharing insights. Enjoy his work? Donate to support! Dash: XrD3ZdZAebm988BfHr1vqZZu6amSGuKR5F

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