On May 1, Anchor’s famous 20% APY had changed to 18%. This may have left some users of the platform confused and a little worried about the platform’s future. So, let me break it down what had happened that resulted to this change.
This change was the result of Proposal 20, approved in March 24. The proposal suggested a semi-dynamic earn rate for the platform to move the protocol towards sustainability. I briefly talked about this proposal back in my Anchor earnings article here.
What is Proposal 20?
Proposal 20, titled, “Dynamic Earn Rate,” is a proposal by user bitn8. The proposal was given thought at the beginning of March in Anchor’s forum.
Here’s a breakdown of Prop 20 according to Anchor’s Twitter account:
This new semi-dynamic rate has a floor and ceiling of 15% and 20%. No matter which way the rate change is, it will never go beyond those parameters.
What is the Cause of Proposal 20?
In the recent months, Anchor fans have been worried about the platform’s future, questioning the sustainability of the 20% earn rate.
The total deposits have been growing faster than the total borrowed UST in the protocol. This divergence is alarming to a lot of users because it could jeopardize the entire Terra ecosystem if left unchecked.
One of the many factors that allow Anchor to provide their earn rate is through the interest they make from users borrowing UST. Simply think of a traditional bank lending the savings people have deposited.
At the moment, the only incentive for people to borrow UST is to get rewarded ANC tokens. With the drop of its price from $3 to $2, what is pushing people to borrow in Anchor?
None that I can think of.
What do People Think of this Change?
This change had garnered mixed reactions from many users. Many Anchor fans have praised this move, while others are doubtful that it will move Anchor to mass adoption.
Users who are for this move cite sustainability and utility as being the factors that will help push Anchor to newer heights. People against the move cite making ANC more useful, lowering APY will stagnate adoption, and the proposal being implemented too early as detrimental factors to Anchor.
What Does This Mean for Anchor?
While the drop in its APY is a big turnoff to many users, Anchor’s future is still up in the air. We don’t know how this will play out for the platform since the reaction by the market is mixed.
I do agree on some of the sentiments by those against this move because it does feel like we’re making steps backwards from mass adoption. However, if we wanted to make Anchor a protocol that is sustainable, the APY needs to be changed too.
It’s hard to pick a side, to be honest, since there are good points on each. As for me, I’ll be sticking with the platform and get those extra gains for the meantime.
While many are offering alternatives for higher stablecoin APYs (TRON and NEAR) and ditch Anchor, why not just include those new offers to your overall strategy?
I believe doing that is more feasible since you’re simply depositing stablecoins that don’t fluctuate in price, as opposed to liquidity pools. No matter what the APY will be, the return will always be their without the fear of losing your deposit’s value.