Anchor Protocol reserves are nearing exhaustion due to lack of credit demand

Anchor, the Terra Luna (LUNA) ecosystem’s flagship savings protocol, has seen its reserves drop 35.7% over the past seven days, according to Terra.Engineer. Since the beginning of December, the amount of Terra USD stablecoin (UST) held in the terra1tmnqgvg567ypvsvk6rwsga3srp7e3lg6u0elp8 smart contract has fallen by more than 50%, leaving just $35.7 million.

As a savings protocol, users deposit their UST funds through their wallets and earn up to 20% returns as their capital is lent to borrowers who pay interest on the loan amount. Borrowers are required to provide collateral to ensure the lender can recover their money in the event of a default. In addition, Anchor uses the collateral received to generate rewards for depositors.

When there is a shortfall between the interest income generated by borrowers, collateral staking, and yield fees paid to depositors, Anchor must draw on TerraUSD (UST) reserves above to make up the difference. Last July, its creator, Terraform Labs, injected 70 million UST into the reserve log and its value remained relatively stable. But in the last 60 days, the total amount deposited has increased from $2.3 billion to $6.1 billion, while the total amount borrowed has only increased from $1.2 billion to $1.5 billion.

Anchor Protocol reserves are nearing exhaustion due to lack of credit demand
Anchor Protocol reserves are nearing exhaustion due to lack of credit demand

In bear markets, investors often give up volatile assets in search of stable ones such as B. high-interest savings protocols. However, the growing mismatch between Anchor’s deposits and loans has put severe pressure on reserves. If the trend continues, the reserve would be exhausted in the coming months, and Terraform Labs would have to inject another round of UST to maintain liquidity or sharply cut Anchor’s promised interest rate.

Similar Posts