Anchor Protocol and high yields

Anchor Protocol has attracted a number of people because of its high yield of 20%. It is important to note that the protocol is a decentralized yield protocol that gives a fixed yield to investors on the deposition of Terra's own stablecoin, Terra USD (UST). It is one of the major reasons why Terra's TVL boomed and broke records. 

There was the dawn of a new proposal in February which asked the Luna Foundation Guard to inject $450M into the Anchor Yield Reserve. This is because the author of the proposal believed that the chances of survival of the protocol are slim without additional funds being injected. 

However, the author also pointed out that from November, the Anchor Protocol will become self-sustaining with an increase in adoption and v2 iteration. The Luna Foundation Guard complied but the tension in the Terra community did not vanish. This is where came a new proposal which was spearheaded by Polychain Capital and asset manager Arca. 

New proposal

The new proposal decided to decrease the high yield that is generated by the Anchor Protocol to enhance the sustainability of the platform and improve the functioning of the protocol. The proposal stated: 

After successfully bootstrapping UST adoption with a 20% Anchor Rate, it's time to focus on protocol sustainability by bringing down the overall yield earned by depositors and maintaining high yields for small-and-medium-sized users.

As per the proposal, if approved, the APY will be as follows:

1) Deposit amounts up to 100,000 UST: 19.56% APY

2) Deposit amounts above 100,000 and up to 500,000 UST: 17.50% APY

3) Deposit amounts above 500,000 UST: 10%

The new proposal said that the implementation of the 2nd and 3rd points in the list above will start "linearly over 1.5 years beginning on April 1, 2022 (0:00 UTC). Rate revisions will take effect every 30 days." It is important to note that the end time of the poll will be Mar 17, 2022, 1:34:23 AM.

Many people in the Terra community have come together to vote against the proposal. Alice.Finance, a payment network to send money to friends and family, has urged the entire community to vote against the poll. On the other hand, at the time of writing, the vote details can be seen in the image below as opposition prevails.

[caption id="attachment_205340" align="alignnone" width="1566"] Vote results[/caption]

Do Kwon enter's the picture

Do Kwon entered the debate to give his own views on the topic. He talked about the huge growth in the active wallets on Anchor Protocol and also how it has become the largest lending market in Decentralized Finance.

The founder of Terraform Labs said that as mentioned in a discussion, "the Anchor Rate will likely adjust to something dynamic" and the yield reserve might be "favored to operate at surplus in long term."

While the discussion is still going on, the Terra community remains in a stalemate. It can be expected that the variable APY might just be the solution that the community is satisfied with.