Likely change of course for the Anchor protocol
the Anchor protocolknown for its yields (APY) of 19.5% on the UST de Terra (LUNA), has not been spared by the latest unfortunate events.
Indeed, most of the cash that had been deposited in the pool was withdrawn by their usersthereby increasing the total latched value (TVL) by approximately $19 billion to $2.7 billion at the time of writing these lines.
Fig. 1 – Anchor protocol TVL from February to present
The reason for this impressive decline is due to the price of the UST, which initially struggled in moving away from its benchmark value of 1 dollar the evening of May 9, before beginning a descent into hell which brought it down to $0.22 on May 11, unheard of for a stablecoin of this size.
Since then, it has oscillated between rising and falling, but still significantly off its flagship value of $1which strongly stirred the market as a whole, already weakened by a bearish trend and Bitcoin now below the symbolic threshold of $30,000.
Fig. 2 – UST courses from May 8 to today
Also, in order to have more control over the USTs in circulation and to limit the possibilities of attack on the Anchor protocol, a proposal was submitted to the vote on the platform in order to greatly reduce the yields proposed so far, the thus reducing from 19.5 to 4%.
👉 To understand what stablecoins are
The proposal in detail
This proposal, issued directly on Anchor under the name ” Emergency measures for restoring Terra peg (emergency measures to reinstate Terra’s peg) was posted yesterday by a former developer of the original Anchor contract and will be subject to community votes until May 18.
Broadly, the idea is to aim for an interest rate of 4% instead of the current 18% (previously 19.5%, but recently readjusted from 1.5%), with a minimum interest rate of 3.5%.
“A UST out of its $1 peg can no longer sustain an 18% annual interest rate. The temporary drop in Anchor interest rates should prevent the depletion of the Anchor reserve, thus preventing new USTs from entering circulation. Interest rates could be recalculated when the depeg is resolved. »
The proposal includes other, more technical measures, such as multiply by 1000 the virtual liquidity of the swap pool virtual Terra <> Luna or to change its reset rhythm with each block to reduce the chance of slipping (slippage).
For Daniel Hongwhich submitted the proposal to the vote, this is a measure to limit damage, and which a priori will not change anything as to whether or not investors are attractive:
“Although some may argue that higher interest rates help reduce the supply of UST in circulation, when the stablecoin has already lost public confidence due to a two-day depeg, people would try to get out anyway. »
At the time of writing these lines, 267,000 ANC (token required for voting on Anchor) were used to vote “Yes” to the proposal, and only 3,462 for a “No”. The opinions are therefore overwhelmingly favorable, but are still far from the necessary quorum of 10%.
👉 Also read: Why did the UST stablecoin collapse and what is the future of the Terra ecosystem?
Source: Anchor Forum
Graphic sources: Fig.1 – Grafana; Fig.2 – TradingView – UST/USDT
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