Terra’s native stablecoin, $UST, is used as the basis for Anchor, a decentralized return protocol that provides users with a fixed annual return of approximately 20% on deposits made to UST. During the first week of February, a governance proposal called for the Luna Foundation Guard (LFG) to inject $450 million into the Anchor yield pool to keep yields high. This caused problems to the protocol.
Due to recent downward pressure in the markets, as well as ongoing uncertainty over the long-term viability of Anchor’s performance, Terra’s LUNA has been one of the few coins to show signs of recovery. LUNA price has doubled in less than three weeks, reaching a new all-time high of over $100 on March 11.
Terra’s total locked value of $25.5 billion is currently based primarily on Anchor, which accounts for 51.6% of that total.
The Terra community is in the midst of yet another conflict over the future of Anchor, the network’s primary protocol. The question of how to keep high-yield payouts at scale is at the heart of the entire discussion.
At stake is Terra’s ability to sustain high-yield payments, which have become the backbone of its entire transaction model.
Terra developers have proposed several possible payment solutions, but the debate has focused on the best way to guarantee the future performance of the network.
Proposal rejected
Recently, a proposal was proposed to improve the long-term viability of Anchor’s performance and reliability. The deposit rate for deposits over 100,000 UST would be 19.56% if the community voted for it; the deposit rate for deposits between 100,000 and 500,000 UST would be 17.5%; and the deposit rate for deposits over 500,000 UST would be 10%.
It is proposed to apply the schedule to all deposits with a value greater than US$100,000. Using the example above, let’s say you had a deposit of $1,000,000 UST. A yield of 19.56% would be applied to the first $100,000, or 10% of the deposit, while the remaining 40% received 17.5% and the remaining 10% generated 10%. Additionally, the proposal proposes that interest rates on medium and large deposits be reduced linearly over 19 months in 30-day increments.
Twitter user “Westie Capital” urged its 11,200 followers to vote ‘no’ on the proposal. In his opinion, the big wolves will simply “split the deposits into different wallets”, causing the composition of the Anchor aUST token to be negatively affected in the process. “Simply reducing performance altogether, or having dynamic interest, is a much better solution,” they argued.
Ultimately, the proposal was rejected.
But then what to do with Anchor Protocol?
On Reddit, Klowd09 suggested:
Although I appreciate the concept behind this proposal, it does not provide a comprehensive solution to the problem. What is stopping someone from simply creating multiple 100k coins at the same time? Nothing’
Another user, alias Sovarius, replied:
And this math is horrible. Let’s see, do I want to earn 10% on 500k, or do I want to earn 17% on 490k? 
Others applauded the proposal for trying to increase the long-term viability of the protocol, even if they opposed the proposed methods. “There are always alternative routes to achieve the same goal,” added other users on Twitter.
Other commenters suggested that the annual percentage yield (APY) be lowered to 15% for all deposits. One user on Twitter suggested lowering returns to 15% across the board but introducing higher returns for users who lock up their funds for specific periods during the year.
Ok_Piano_9789, also on Reddit, welcomed the community’s concern for the sustainability of the protocol and suggested getting $ANC and going to vote:
I’m glad the community is focusing a bit on how to be sustainable. This proposal clearly won’t work, but people are thinking. That is good.
Get some Anchor and go vote.
© 2024 Cryptopress. For informational purposes only, not offered as advice of any kind.
