Anchor Protocol, one of the most prominent platforms in the Terra ecosystem, has updated its Earn Rate. Instead of the previously fixed 20 percent annual percentage return, the latter will begin to work in a semi-dynamic fashion (APY).
The new models aim to make Anchor “more sustainable” by radically altering the protocol’s reward mechanism. As a result, users began earning an 18% APY as of the 1st of May. For the foreseeable future, the earning rate will be adjusted monthly.
For the foreseeable future, the earning rate will be adjusted monthly.
The Terra project’s team stated the following on their official Twitter account:
”The Anchor Earn rate adjusts dynamically by up to 1.5% each month based on if the yield reserve appreciated or depreciated. The floor is 15% APY & the ceiling is 20% APY.”
Changes in Anchor’s earn rate are triggered by the protocol’s yield reserve. A 25 percent change in this element will be followed by a 25 percent change in the Earn Rate.
On March 24, this year, Proposition 20 authorized a change in the Terra procedure. Anchor Protocol said at the time:
”The implementation of a semi-dynamic Earn rate will contribute to Anchor’s long-term sustainability and will benefit protocol users by allowing yield reserve expansion while maintaining an attractive yield on UST.”
The amount borrowed against total deposits on Anchor demonstrates a large disparity, as shown below. This is why the protocol’s yield reserves on the protocol tend to trend downward, particularly during periods of bearish price action on larger cryptocurrencies. Some users feel that this pattern may result in a UST depreciation event, putting the entire Terra ecosystem in jeopardy. The introduction of a semi-dynamic rate is the first step toward preventing this possibility.
Is Terra not the most attractive venue for stable coin yield?
Some users believe that the new earn rate may be insufficient and have proposed the implementation of investing ideas that can contribute to the yield reserves. Another segment of the community appears to be focused on increasing Anchor’s borrowing rate.
Deposits on the Terra protocol, on the other hand, have been going to the upside at a rapid speed, as shown in the figure above. Meanwhile, the number of borrowers has been trending sideways, with a minimal increase in recent months.
During the same time period, other networks established their own stable coins that served as alternatives to Anchor. NEAR and TRON stand out due to the buzz around them as well as the APY that they provide to their users.
TRON appears to have the most attractive incentives, as it offers depositors a 30 percent APY. Many Terra users, like Anchor users, wonder if the incentives will be sustainable.
Terra (LUNA) is currently trading at $83(R1 332 ) with a 6-percentage-point profit in 24 hours.