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This step is designed to maintain the profitable profitability of the stablecoin savings protocol at about 20% per year.
In a tweet posted early Friday, Do Kwon, founder of Terraform Labs, an organization developing the Terra Luna (LUNA) and Terra USD (UST) stablecoin ecosystem, announced an infusion of 450 million UST ($450 million) into the Anchor protocol reserves.
The proposal was accepted by the Luna Foundation security on February 10. Anchor serves as the flagship savings protocol of the Terra ecosystem, offering users up to 20% per annum on UST deposits paid by borrowers.
Funded. pic.twitter.com/NLvnSa0bBu
— Do Kwon 🌕 (@stablekwon) February 18, 2022
The protocol's reserves have recently decreased to $6.56 million, as there was not enough demand for loans to keep up with the influx of creditors. When such an imbalance occurs, the protocol must use its reserves to pay creditors the promised income. From the beginning of December to the end of January, Anchor's reserve funds decreased by about $35 million.
At the time of publication, this gap continues to widen. Over the past few weeks, the total amount of funds deposited has increased by about $480 million, and the amount of borrowed funds has increased by about $ 180 million. However, since Terra also relies on borrowers' collateral to generate income, in addition to interest payments to compensate lenders, these two numbers do not have to equal in order to achieve equilibrium.
The Terra developer acknowledged that such harvests cannot be sustainable in the short term. To solve this problem in the long term, Terraform Labs plans to introduce the use of composite liquid derivatives as collateral in Anchor v2. Liquid staking involves "double-dipping" users with their crypto assets, i.e. placing their crypto assets in one pool and using their staking assets to generate income in a pool of liquidity providers. Theoretically, users' collateral grows over time as they borrow funds, which encourages more borrowers to enter the Anchor protocol to restore balance.
