Terra's Anchor Protocol Internals

It is over three weeks since I last wrote about Anchor's yield reserve being an issue. Post I write 3 weeks ago on Anchor protocol.

Back then Anchor had a yield reserve over $64 million but since it then it is now barely over $30 million. The is not ideal for Anchor but it appears there are big changes coming soon.

Vote To Deleverage

There are two proposals currently on the table in Anchor. The first one is to increase collateral threshold from 60% to 80% before it liquidation would occur. This is intended to lure more people to borrow on Anchor and earn more for the platform.

The second proposal is to remove Magic Internet Money (MIM) from being able to leverage into Anchor. Prior to the Wonderland fiasical there were degenerates looking for bigger yield on Anchor. One approach they did was leverage aUST on a protocol call Abracadabra. With lending aUST to the platform and in return get MIM to invest back into Anchor. At the time MIM was set to be pegged to USD however since it has been volitale.

MIM volatility came from Wonderland's deterioration and since then it had triggered some liquidation over on Anchor. Bottom line the second proposal is not to allow MIM to be borrowed from aUST. This would mean aUST can not be used on Abracadabra.

Currently there are four days left to vote and it requires 1 ANR token to put in the vote. Both are leaning toward approval of the proposals but they have yet to cross 10% of votes to get approved automatically.

Anchor's Internals

In the past couple of weeks the UST deposits into Anchor has drop significantly which reduces the protocol's daily interest payments. On the other hand the borrowing on Anchor has also been dropping but ever more so in recent weeks. The drop in activity is not ideal for Anchor however a large part of this drop in activity is likely the deleveraging of MIM.

The drop on yield reserve is a concern but founder Do Kwan had some solid action plans.

Do Kwan is staying calm with Anchor's yield reserve stating it is doing its job as it is being used. On the other hand if there is a need to replenish the reserves Kwan has stated there are plans in place to do so. In the mean time Kwan wants Anchor to have more assets to borrow and in turn yield more for the platform. Right now the platform only allows bETH and bLuna as collateral.

Conclusions

Although Anchor seems to be in turbulent waters actions are being taken to try to calm the water. It remains to be seen if anything will work but at least actions have been taken and we will only be able to see how this all plays out down the road.

On a optimistic outlook if Anchor can get through this turbulence the whole Terra blockchain can potential go exponential in value. Do Kwan a founder of the Terra blockchain and many protocols piggy back of Anchor. To see Anchor succeed we will see Terra succeed. I will be keeping an eye on the situation as it progresses and update anything that is worth mentioning.

None of what I write is financial advice. It is for entertainment purposes only. Thanks for reading!