The Anchor Protocol (ANC), a Terra-based programme that has become one of the most profitable stablecoin systems, has launched a vote that may reduce its annual returns by roughly 20%. To help sustain the protocol’s reserves, the community recommended a dynamic yield rate. Terra’s creator anticipates that yields will become dynamic. The early voting results have been mixed. This month marks the second vote on Anchor’s results.
The vote, which began on March 18, aims to establish a semi-dynamic yield rate depending on changes in the protocol’s reserves. ANC provides a than 20% return on TerraUSD deposits (UST). While yields are typically supported by interest payments from UST borrowers, the protocol’s extraordinarily high depositor-to-lender ratio has forced it to cover yield payments from its reserves.
Deposits on the platform are roughly four times as large as borrowings. The yield reserve is around 417 million UST in comparison to total deposits of over 10 billion UST ($10 billion). Given the large number of deposits, it is expected that if adopted, the plan will reduce the yield. Currently, around 2% of total ANC holders have voted, with a slightly greater percentage of voters opposing the plan.
The Anchor Rate will likely adjust to something dynamic like this, where the yield reserve is favored to operate at surplus in long term: https://t.co/ZQcezaLqZX
But it will happen at #Lunatic terms, when soon there are no defi farms left to conquer
— Do Kwon 🌕 (@stablekwon) March 13, 2022
The vote will be open until March 23 and will require at least 10% of total ANC holders to participate in order to be considered. This is the second time this month that the community has voted on lowering yields. The first was on a proposal by Polychain Capital and Arca Prop to reduce rates by up to 50% depending on the quantity of UST deposits. The plan was roundly rejected by ANC members.
The protocol has witnessed a significant increase in depositors as a result of its 20% yearly return rate, which is now among the highest returns given by a stablecoin. In comparison, yields on leading stablecoins like Tether, USD Coin, and Binance USD may reach 12%.
This increasing demand has helped to raise the price of ANC’s governance token, as well as Terra’s native token, LUNA, which can be used to stake on the system. Both tokens are about to increase in value. The new influx of deposits prompted the Terra community to take steps to boost ANC’s reserves, including a $1 billion capital raise and LUNA burning.
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