With so many depositors chasing high yields and a lack of borrowers, anchoring rates seem to have become unsustainable.
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Anchor, the flagship saving protocol of the Terra Luna (LUNA) ecosystem, has seen its reserves drop 35.7% over the past seven days according to Terra.Engineer. Since the beginning of December, the amount of Terra USD Stablecoin (UST) held in the smart contract “terra1tmnqgvg567ypvsvk6rwsga3srp7e3lg6u0elp8” has decreased by more than 50%, leaving only $35.7 million.
As a savings protocol, users deposit their UST assets via their wallet and earn up to 20% return when their principal is given to borrowers, who pay interest on the borrowed amount. Borrowers must deposit collateral to ensure that lenders can get their money back in the event of default. In addition, Anchor puts collateral it receives to generate depositors rewards.
Whenever there is a shortfall between the income generated through the borrower’s interest, the collateral deposit, and the cost of profits paid to depositors, Anchor must tap the reserves, UST said. above to cover the difference. Last July, the creator of Terraform Labs injected 70 million UST into the reserve protocol and its value is relatively stable. But in the past 60 days, total deposits have increased from $2.3 billion to $6.1 billion, while total borrowing has only increased from $1.2 billion to $1.5 billion.
During a bear market, investors often flock out of volatile assets in search of stable ones, such as high-yield savings protocols. However, Anchor’s growing disparity between deposits and loans has put heavy pressure on its reserves. If this trend continues, reserves will dry up in the coming months and Terraform Labs will need to pump out another round of USTs for liquidity or a sharp drop in Anchor’s promised interest rates.
My thoughts on @anchor_protocol and productivity reserves are running out
1/ Just 2 months ago, the yield reserve is actually growing every day and today’s problems are not even considered. When accepting $ UST actually started to increase and deposits (loans) in pic.twitter.com/fTH4WecPr9
– Productivity Lab (@YieldLabs) January 27, 2022