Anchor, one of the biggest lending protocols in the DeFi space, is depending on Terra’s Luna Foundation Guard (LFG) for $450 million to overcome losses. Through this, Anchor wants to maintain the protocol’s industry-high annual percentage yield (APY) of up to 20% in deposits. Lending on the protocol came down as the market crashed in December and January.
But deposits continued at the same rate. Most of the capital inflow which was the result of Anchor’s high-interest rate fell. This resulted in a higher outflow. As such, the reserves lost between $1 million – $1.6 million every single day since December. The same reserve now stands at $12.6 million.
With the $45 million boost from LFG, Anchor hopes to maintain the yield reserves long enough to cancel out the payout with the revenues. It plans to extend the $45 million reserves for the next 47 weeks. Projections suggest a return to their earlier structure of higher revenue over payouts by January 5 of 2023. To improve its mechanisms, Anchor is looking to introduce its new v2 borrowing model. The platform’s spokesperson highlighted that the refinement process will take time. It believes in having a sufficient yield reserve to continue scaling UST’s growth to newcomers. The platform also wants to inspire the confidence of existing users to benefit the stakeholders.
The LFG acts as a non-profit organization authorized to build reserves for the USDT peg amid volatile market conditions. Its governed independently by an international council of leaders and experts to uphold transparency.