The latest market analysis confirmed that Anchor, the flagship saving protocol in Terra Luna (LUNA) ecosystem, has experienced massive depositors chasing high yields and a long fall of people borrowing loans in the past few months, making interest rates unsustainable.
According to Terra Engineer, the flagship saving protocol has seen its reserve declining 35.7% in the past seven days. Since early December, the amount of Terra USD Stablecoin (UST) held in “terra1tmnqgvg567ypvsvk6rwsga3srp7e3lg6u0elp8″ smart contracts has also plunged more than 50%, with now only $35.7 million remaining.
Launched in 2014, Anchor is a saving protocol that allows users to deposit their UST and earn up to 20% yields. The protocol lends the deposited assets to borrowers who return them with interest. The Anchor requires borrowers to deposit collateral to warrant money back in case of a default. Moreover, the saving protocol stakes the collateral it receives to generate more rewards for depositors.
In that context, whenever there is an imbalance between incomes generated through borrowers’ interests, collateral staking, and yield expenses, the Anchor protocol must stimulate Terra USD (UST) reserve to make up for the difference.
Buy Bitcoin NowIn July 2021, Terraform Labs, the creator of Anchor protocol, injected over 70 million UST into the reserved protocol to stabilize its valuation. However, in the past 60 days, Anchor has seen increased deposits from 2.3 billion to $6.1 billion, while the total borrowed amount only increased from $1.2 billion to 1.5 billion over the same period.
In any bearish market, many investors avoid volatile assets and move to search for high-yield savings protocols, like already happening in Anchor protocol. In that case, increasing discrepancies between deposits and interests place severe pressure on its reserves. If the current bearish trend continues, the reserve interests will run out in the coming weeks, demanding a similar injection of UST to stabilize the liquidity.
