In a disastrous situation for Terra’s ecology (LUNA), a proposal was put to a vote to reduce the Anchor protocol’s interest rate to 4%. One of the previous developers of Anchor’s initial contract and current Terra contributor presented the concept directly.
The Anchor protocol, noted for its 19.5 percent APY on Terra’s UST (LUNA), has not been spared by the new terrible events.
Indeed, the majority of the cash deposited in the pool was taken by its users, raising the total value locked (TVL) from about $19 billion to $2.7 billion at the time we write these lines.
The price of the UST initially suffered as it moved away from its benchmark value of one dollar on the evening of May 9, before initiating a plummet into hell that dropped to $0.22 on May 11, unheard of for a stablecoin of this scale.
Since then, it has oscillated between rising and dropping, but it is still a long way from its headline value of one dollar, which has already undermined the market as a whole, with Bitcoin now trading below the symbolic level of 30,000 dollars.
In addition, in order to have better control over the USTs in circulation and to restrict the possibilities of an attack on the Anchor protocol, a proposal was put to the platform for a vote in order to drastically reduce the yields offered thus far, dropping them from 19.5 to 4%.
This suggestion, titled “Emergency measures for restoring Terra peg,” was posted directly on Anchor yesterday by a former developer of the initial Anchor contract and will be put up for community voting until May 18.
The general concept is to aim for a minimum interest rate of 3.5 percent rather than the present 18 percent (originally 19.5 percent, but recently readjusted from 1.5 percent).
“A UST out of its $1 peg can no longer sustain an 18% annual interest rate. The temporary drop in Anchor interest rates should prevent the depletion of the Anchor reserve, thus preventing new USTs from entering circulation. Interest rates could be recalculated when the depeg is resolved. »
Other, more technical remedies included in the proposal include doubling the virtual liquidity of the Terra > Luna virtual swap pool by 1,000 or modifying its reset rhythm with each block to limit the possibility of slippage ( slipping).
“Although some may claim that higher interest rates assist lower the number of UST in circulation, people would try to get out anyhow when the stablecoin has already lost public trust owing to a two-day depeg.”