Anchor Protocol, one the most well-known platforms within the Terra ecosystem has made a significant change to its Earn Rate. Instead of the 20% annual percentage yield (APY), it will operate semi-dynamically.
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With a massive shift in the protocol’s reward mechanism, the new models aim at making Anchor “more sustainable”. Since yesterday May 1, Anchor users have been earning 18% in APY. For the future, users will see the earn rate change each month.
Terra Project Team saidThe following is available via their official Twitter account
Anchor Earn rates can be adjusted dynamically each month by up to 1.5% depending on the yield reserve appreciation or decrease. The floor is 15% APY & the ceiling is 20% APY.
The changes in Anchor’s earn rate are triggered by the protocol’s yield reserve. The Earn Rate will adjust to reflect a.25% increase in this component.
Proposition 20 approved this shift in Terra protocol on March 24, 2019. Anchor Protocol stated at the time:
The addition of a semi-dynamic Earn rate will contribute to the long-term sustainability of Anchor & will benefit users of the protocol by enabling yield reserve growth while continuing to provide an attractive yield on UST.
The divergence in total loans versus Anchor deposits can be seen in the following graph. In times of bearish price movement on bigger cryptocurrencies, the yield reserves for the protocol tend to trend downwards.
Some users fear that the trend will trigger a deppeging episode for UST, which could threaten the whole Terra ecosystem. This possibility can be avoided by introducing a semi-dynamic rate.
Terra Doesn’t Offer The Best Stablecoin Yield Location
Some members feel the rate of the earn rate is not sufficient. They suggest creating investment strategies to boost the yield reserve. Anchor seems to be focusing on raising the interest rate.
The chart shows that deposits to Terra Protocol have trended upwards at an accelerating pace. The number of borrows, however, has been trending sideways in the interim with an increase in the last few months.
Other networks launched stablecoins in the same time frame, offering alternatives to Anchor. TRON and NEAR stand out due to the high-profile and the APY they offer their users.
TRON offers the highest incentives with its 30% APY. Many people wonder whether these benefits will last, just like Terra users using Anchor.
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Terra (LUNA), at the time of writing trades for $83 and has a 6% profit after 24 hours.
