Introduction

A recent governance proposal offers a dynamic Earn Rate as one solution to the problem of Anchor Protocol’s sustainability. Due to the large amounts of deposits, Anchor is quickly burning through its Yield Reserve to pay the 20% APY. The governance proposal suggests a dynamic Anchor rate based on fluctuations in the yield reserve. With this proposal, the Anchor rate could change a maximum of 1.5% per month based on changes in the yield reserve. In this dashboard, we provide insight into what a sustainable Anchor rate could be based on assumptions about the growth of Anchor. To calculate to Anchor rate in each situation, a Google Sheets document was made that could be used for simulations. Also, we'll look at what a decline in the "earn rate" has done for other protocols like Aave and Compound on key metrics such as TVL, unique users and marketcap.

- Collateral value at 10B

What would happen if the collateral value would increase to about 10B and the rest would stay the same? In the sheet below we can see that the Anchor rate, in that case, would quickly increase to about 11%.

Current health of Anchor Protocol

The sheet below shows that Anchor protocol is currently not healthy. The sheet shows that the current rates (March 24th) would deplete the yield reserve in around 3 months. Also, without the yield reserve, the Anchor rate would be only 5.89% with about 5.7B in collateral value and about 11.5B in deposits in the Earn section.

Future scenarios

Because the current health of Anchor is quite bad with the current rate of 20%, we will now look at what a more sustainable Anchor rate would be. Therefore, we will look at possible rates that are possible without the help of the Yield Reserve. This would be the most sustainable.

- Future scenario

Finally, we have another future scenario. In this scenario (maybe half a year into the future) the price of LUNA is $300, ETH is $7000 and AVAX is $150. The number of total LUNA, ETH and AVAX has also increased, bringing the total collateral value to about $25B. We also assume that there are about $20B in deposits in the Earn section. As can be seen in the sheet below, the Anchor rate in that case would be about 15% without the yield reserve.

With this in mind, I think a sustainable Anchor rate would be between 10-15%. This does assume the collateral value must go up substantially. Preferably, the total value of the collateral is more than the total deposited into the Earn sector. If that is the case, like in the sheet example above, the Anchor rate should be able to be around 15%.

Impact of decreasing earn rate

In this section, we will look at the impact of decreasing the 'earn rate' on key metrics for other major protocols. We will look at AAVE and Compound on Ethereum. These protocols are both money markets where users are able to deposit and borrow assets. For key metrics, we will look at unique daily users, total value locked on the protocol and the market cap of the protocol token.

Total value locked on AAVE over time (DefiLlama)

The market cap of the AAVE token over time (CoinMarketCap)

Although I was not able to find data for historical data of the rates on AAVE, we can still see that all key metrics have been trending downwards over the last few months.

Total value locked on Compound over time (DefiLlama)

The market cap of the COMP token over time (CoinMarketCap)

We can see the same situation as AAVE for Compound. All key metrics have been trending downwards over the last few months. Also for Compound, it is unknown when rates started to drop exactly, but it is clear that users are less interested in Compound and AAVE with the declines in the earn rates.

Key findings

• The Yield Reserve will be depleted in about 3 months with the $11.5B deposited and 20% APY
• A sustainable Anchor Yield seems to be between 10-15%
• Decreasing the earn rate has had a negative impact on other major protocols such as AAVE and Compound.