{"id":60659,"date":"2022-04-27T07:00:00","date_gmt":"2022-04-27T04:00:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=60659"},"modified":"2025-09-05T04:37:38","modified_gmt":"2025-09-05T01:37:38","slug":"how-anchors-problems-could-destabilise-terras-economy-and-the-crypto-market","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/how-anchors-problems-could-destabilise-terras-economy-and-the-crypto-market\/","title":{"rendered":"How Anchor&#8217;s problems could destabilise Terra&#8217;s economy and the crypto market"},"content":{"rendered":"<p>Anchor \u2014 the largest protocol <a href=\"https:\/\/forklog.com\/en\/news\/what-is-terra-luna\">of the Terra ecosystem<\/a> \u2014 continues to grow TVL amid persistent demand for the stablecoin UST. The latter has already <a href=\"https:\/\/forklog.com\/en\/news\/terras-ust-surpasses-binance-usd-in-market-capitalization\">overtaken Binance USD<\/a> in market capitalization, taking the third place in the ranking of stablecoins by this metric.<\/p>\n<p>Clearly, the popularity of <a href=\"https:\/\/forklog.com\/en\/news\/algorithmic-stablecoins-how-alternatives-to-usdt-and-usdc-are-evolving\">the algorithmic stablecoin<\/a> is largely linked to the nearly 20% annual yield offered by the Anchor protocol. In this context a number of questions arise:<\/p>\n<ul class=\"wp-block-list\">\n<li>how long can such a high rate be sustained?<\/li>\n<li>how resilient is the Terra economy?<\/li>\n<li>would a potential decline in Anchor&#8217;s rate lead to capital outflows to other protocols and divert UST from its $1 peg?<\/li>\n<li>will the stablecoin <a href=\"https:\/\/forklog.com\/en\/news\/terraform-labs-to-commit-more-than-4-billion-to-terra-ecosystem-development\">Bitcoin reserve from LFG<\/a> help?<\/li>\n<\/ul>\n<p>ForkLog has looked into these and other questions.<\/p>\n<h2 class=\"wp-block-heading\">Astounding success<\/h2>\n<p>In just a year, Anchor&#8217;s TVL rose almost 25-fold\u2014from $0.6 billion to $16 billion. The platform now ranks third in the overall ranking <a href=\"https:\/\/defillama.com\/\">of the sector<\/a>, behind only Curve and <a href=\"https:\/\/forklog.com\/en\/news\/what-is-lido\">Lido<\/a>. The latter supports a wider range of networks.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"604\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/1-DeFi-Llama-2-1024x604.png\" alt=\"\u041a\u0430\u043a \u043f\u0440\u043e\u0431\u043b\u0435\u043c\u044b \u0441 Anchor \u043c\u043e\u0433\u0443\u0442 \u043e\u0431\u0440\u0443\u0448\u0438\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u043c\u0438\u043a\u0443 Terra \u0438 \u0440\u044b\u043d\u043e\u043a \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\" class=\"wp-image-171400\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/1-DeFi-Llama-2-1024x604.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/1-DeFi-Llama-2-300x177.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/1-DeFi-Llama-2-768x453.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/1-DeFi-Llama-2.png 1364w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>\u0414\u0430\u043d\u043d\u044b\u0435 <a href=\"https:\/\/defillama.com\/\">DeFi Llama<\/a> \u043f\u043e \u0441\u043e\u0441\u0442\u043e\u044f\u043d\u0438\u044e \u043d\u0430 24.04.2022.<\/figcaption><\/figure>\n<p>Given the rapid growth, Anchor is likely to become a leader among DeFi ecosystems soon.<\/p>\n<p>Recently the protocol added support for <a href=\"https:\/\/forklog.com\/en\/news\/what-is-avalanche-avax\">Avalanche<\/a>. However, this network&#8217;s share of total TVL is small\u2014only <a href=\"https:\/\/defillama.com\/protocol\/anchor\">$158 million<\/a>.<\/p>\n<p>The figures underscore Anchor&#8217;s critical importance to the Terra ecosystem. The TVL of the latter stands at <a href=\"https:\/\/defillama.com\/chain\/Terra\">$29.29 billion<\/a> (as of 24.04.2022). The Anchor dominance index is 54.45%.<\/p>\n<p>In other words, a large portion of activity in the Terra ecosystem is tied to Anchor, which accounts for 72% of the total UST supply.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"338\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/2-UST-Total-Deposit-1024x338.png\" alt=\"\u041a\u0430\u043a \u043f\u0440\u043e\u0431\u043b\u0435\u043c\u044b \u0441 Anchor \u043c\u043e\u0433\u0443\u0442 \u043e\u0431\u0440\u0443\u0448\u0438\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u043c\u0438\u043a\u0443 Terra \u0438 \u0440\u044b\u043d\u043e\u043a \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\" class=\"wp-image-171401\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/2-UST-Total-Deposit-1024x338.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/2-UST-Total-Deposit-300x99.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/2-UST-Total-Deposit-768x253.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/2-UST-Total-Deposit.png 1530w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>\u0414\u0430\u043d\u043d\u044b\u0435: <a href=\"https:\/\/app.anchorprotocol.com\/\">Anchor Protocol<\/a>.<\/figcaption><\/figure>\n<p>\u0412\u0441\u0435\u0433\u043e \u043f\u043e\u043b\u044c\u0437\u043e\u0432\u0430\u0442\u0435\u043b\u0438 \u0434\u0435\u043f\u043e\u043d\u0438\u0440\u043e\u0432\u0430\u043b\u0438 \u0432 Anchor 13 \u043c\u043b\u0440\u0434 UST. \u0421\u043e\u0433\u043b\u0430\u0441\u043d\u043e <a href=\"https:\/\/www.coingecko.com\/en\/coins\/terra-usd\">CoinGecko<\/a>, \u043e\u0431\u0449\u0435\u0435 \u0440\u044b\u043d\u043e\u0447\u043d\u043e\u0435 \u043f\u0440\u0435\u0434\u043b\u043e\u0436\u0435\u043d\u0438\u0435 \u0441\u0442\u0435\u0439\u0431\u043b\u043a\u043e\u0438\u043d\u0430 \u0441\u043e\u0441\u0442\u0430\u0432\u043b\u044f\u0435\u0442 18,1 \u043c\u043b\u0440\u0434.<\/p>\n<p>\u0423\u0441\u0442\u043e\u0439\u0447\u0438\u0432\u044b\u0439 \u0441\u043f\u0440\u043e\u0441 \u043d\u0430 UST \u043e\u0431\u0443\u0441\u043b\u043e\u0432\u043b\u0435\u043d \u0432\u044b\u0441\u043e\u043a\u043e\u0439 \u0434\u043e\u0445\u043e\u0434\u043d\u043e\u0441\u0442\u044c\u044e \u043d\u0430 Anchor. \u0418 \u044d\u0442\u043e \u043f\u043e\u043b\u043e\u0436\u0438\u0442\u0435\u043b\u044c\u043d\u043e \u043e\u0442\u0440\u0430\u0436\u0430\u0435\u0442\u0441\u044f \u043d\u0430 \u043a\u0443\u0440\u0441\u0435 LUNA, \u043f\u043e\u0441\u043a\u043e\u043b\u044c\u043a\u0443 \u0434\u043b\u044f \u0432\u044b\u043f\u0443\u0441\u043a\u0430 UST \u043d\u0435\u043e\u0431\u0445\u043e\u0434\u0438\u043c\u043e \u0438\u0437\u044b\u043c\u0430\u0442\u044c \u0438\u0437 \u043e\u0431\u0440\u0430\u0449\u0435\u043d\u0438\u044f \u0441\u043e\u043e\u0442\u0432\u0435\u0442\u0441\u0442\u0432\u0443\u044e\u0449\u0435\u0435 \u043a\u043e\u043b\u0438\u0447\u0435\u0441\u0442\u0432\u043e \u043d\u0430\u0442\u0438\u0432\u043d\u043e\u0439 \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\u044b Terra. \u041c\u0435\u0445\u0430\u043d\u0438\u0437\u043c, \u0432\u043e \u043c\u043d\u043e\u0433\u043e\u043c \u043e\u043f\u0438\u0440\u0430\u044e\u0449\u0438\u0439\u0441\u044f \u043d\u0430 \u0430\u0440\u0431\u0438\u0442\u0440\u0430\u0436\u0435\u0440\u043e\u0432, \u043f\u043e\u043c\u043e\u0433\u0430\u0435\u0442 \u043f\u043e\u0434\u0434\u0435\u0440\u0436\u0438\u0432\u0430\u0442\u044c \u043f\u0430\u0440\u0438\u0442\u0435\u0442 \u0441 \u0430\u043c\u0435\u0440\u0438\u043a\u0430\u043d\u0441\u043a\u0438\u043c \u0434\u043e\u043b\u043b\u0430\u0440\u043e\u043c.<\/p>\n<p>\u0414\u0440\u0443\u0433\u0438\u043c\u0438 \u0441\u043b\u043e\u0432\u0430\u043c\u0438, \u0447\u0435\u043c \u0431\u043e\u043b\u044c\u0448\u0435 \u0432\u044b\u043f\u0443\u0441\u043a\u0430\u0435\u0442\u0441\u044f UST \u0438 \u0437\u0430\u0445\u043e\u0434\u0438\u0442 \u0432 Anchor, \u0442\u0435\u043c \u0431\u043e\u043b\u044c\u0448\u0435 \u0441\u0436\u0438\u0433\u0430\u0435\u0442\u0441\u044f LUNA \u0438 \u0442\u0435\u043c \u0441\u0438\u043b\u044c\u043d\u0435\u0435 \u0440\u0430\u0441\u0442\u0435\u0442 \u0435\u0435 \u0446\u0435\u043d\u0430.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"520\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price-1024x520.png\" alt=\"\u041a\u0430\u043a \u043f\u0440\u043e\u0431\u043b\u0435\u043c\u044b \u0441 Anchor \u043c\u043e\u0433\u0443\u0442 \u043e\u0431\u0440\u0443\u0448\u0438\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u043c\u0438\u043a\u0443 Terra \u0438 \u0440\u044b\u043d\u043e\u043a \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\" class=\"wp-image-171402\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price-1024x520.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price-300x152.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price-768x390.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price-1536x780.png 1536w, https:\/\/forklog.com\/wp-content\/uploads\/3-LUNA-Price.png 1813w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>Weekly chart of LUNA\/USDT on Binance. Data: TradingView.<\/figcaption><\/figure>\n<p>As a result, UST&#8217;s market capitalization and LUNA&#8217;s price are closely correlated. <\/p>\n<p>In early November, the total market value of the stablecoin <a href=\"https:\/\/www.coingecko.com\/en\/coins\/terra-usd\">stood at less than $3 billion<\/a>; now the figure exceeds $18 billion. Over the same period, LUNA&#8217;s market value <a href=\"https:\/\/www.coingecko.com\/en\/coins\/terra-luna\">roughly doubled<\/a>.<\/p>\n<h2 class=\"wp-block-heading\">Not for long<\/h2>\n<p>Digging deeper, the Terra ecosystem&#8217;s prospects are not cloudless. <a href=\"https:\/\/app.anchorprotocol.com\/\">Anchor Dashboard<\/a> shows that total deposits exceed the value of borrowings in circulation by more than three times.<\/p>\n<p>The project is experiencing a sharp asset shortage needed to sustain interest accrual for lenders. The distribution of the native token ANC among borrowers is not particularly effective and does not smooth out the imbalances.<\/p>\n<p>As of 24.04.2022, the actual borrowing rate on Anchor stands at -5.62% (UST loans issued at 11.44%, and the annual ANC yield is 5.81%).<\/p>\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/4-Distribution-APR.png\" alt=\"\u041a\u0430\u043a \u043f\u0440\u043e\u0431\u043b\u0435\u043c\u044b \u0441 Anchor \u043c\u043e\u0433\u0443\u0442 \u043e\u0431\u0440\u0443\u0448\u0438\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u043c\u0438\u043a\u0443 Terra \u0438 \u0440\u044b\u043d\u043e\u043a \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\" class=\"wp-image-171403\" width=\"414\" height=\"225\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/4-Distribution-APR.png 414w, https:\/\/forklog.com\/wp-content\/uploads\/4-Distribution-APR-300x163.png 300w\" sizes=\"auto, (max-width: 414px) 100vw, 414px\" \/><figcaption>\u0414\u0430\u043d\u043d\u044b\u0435: <a href=\"https:\/\/app.anchorprotocol.com\/borrow\">Anchor Protocol<\/a>.<\/figcaption><\/figure>\n<p>In March, the project community voted for a proposal, according to which the yield rate on deposits can change by up to 1.5% per month depending on the reserve volume on Anchor.<\/p>\n<p>The current crypto-market climate is not characterised by high activity. In an environment where fear dominates greed, many investors favour stablecoins, borrowing reluctantly against crypto collateral due to liquidation risk.<\/p>\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"756\" height=\"329\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/5-Fear-and-Greed-Index.png\" alt=\"\u041a\u0430\u043a \u043f\u0440\u043e\u0431\u043b\u0435\u043c\u044b \u0441 Anchor \u043c\u043e\u0433\u0443\u0442 \u043e\u0431\u0440\u0443\u0448\u0438\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u043c\u0438\u043a\u0443 Terra \u0438 \u0440\u044b\u043d\u043e\u043a \u043a\u0440\u0438\u043f\u0442\u043e\u0432\u0430\u043b\u044e\u0442\" class=\"wp-image-171404\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/5-Fear-and-Greed-Index.png 756w, https:\/\/forklog.com\/wp-content\/uploads\/5-Fear-and-Greed-Index-300x131.png 300w\" sizes=\"auto, (max-width: 756px) 100vw, 756px\" \/><figcaption>Fear and greed index. Data from <a href=\"https:\/\/alternative.me\/crypto\/fear-and-greed-index\/\">alternative.me<\/a> as of 24.04.2022.<\/figcaption><\/figure>\n<p>Low business activity, often punctuated by panicky mood, will only favour deposits over borrows and further shrink reserves. Consequently, the yield rate is likely to fall to 1.5% soon.<\/p>\n<p>Critics argue that a decline in the attractiveness of UST deposits would push funds out of Anchor into other protocols, increasing demand for alternative stablecoins.<\/p>\n<p>This, in turn, could dampen arbitrageurs&#8217; incentives to maintain the peg to the US dollar. As a result, its volatility would rise, potentially triggering a larger outflow of funds and, possibly, catastrophic consequences for the entire ecosystem due to an irreversible loss of the peg at $1.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u00abCould reserves of $2 billion really defend a $17 billion stablecoin from collapse? No, of course not,\u00bb emphasised Hartmann.<\/p>\n<\/blockquote>\n<p>Researcher Ryan Clement(s) is convinced that the backbone for algorithmic stablecoins should be a sustained demand for ecosystem products. The latter determines the efficiency of the arbitrage mechanism. <\/p>\n<p>The parity to the dollar could be broken if the traders backing the peg lose confidence in the system. This risks a \u201cdeath spiral.\u201d<\/p>\n<p>Clements also questions whether UST can be considered a decentralised asset.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>&#8220;The fact that Terraform Labs needs a centralised structure (LFG) to inject capital, buy reserve assets and continually take steps to strengthen Terra&#8217;s ecosystem (and create more use cases for UST) calls into question Terra&#8217;s decentralised nature,&#8221; said Clements.<\/p>\n<\/blockquote>\n<p>Messari analyst Dustin Teander, on the contrary, argues that UST remains decentralised despite the above processes.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>&#8220;BTC is effectively considered only after Jump Crypto&#8217;s proposal is implemented. And when that happens, Bitcoin would be used in a decentralised protocol, not a centralised organisation,&#8221; he emphasised.<\/p>\n<\/blockquote>\n<h2 class=\"wp-block-heading\">Conclusions<\/h2>\n<p>Terra&#8217;s success has spurred various projects to create <a href=\"https:\/\/forklog.com\/en\/news\/tron-to-launch-algorithmic-stablecoin-usdd\">similar stablecoins<\/a> and <a href=\"https:\/\/forklog.com\/en\/news\/frax-finance-to-create-reserve-crypto-fund-modeled-on-terra\">reserve crypto funds<\/a>. However, potential issues with Anchor, including a decline in yields and capital outflows, could lead to serious consequences for the ecosystem, the DeFi sector, and the entire crypto economy.<\/p>\n<p>The leading Terra platform and the stablecoin UST require tokenomics revisions aimed at a long-term horizon. Otherwise, mounting dislocations could drive capital toward other projects, coins and ecosystems.<\/p>\n<p>This is likely to shake the UST price and trigger a \u201cdeath spiral,\u201d as it would deprive arbitrageurs of the incentive to sustain the peg with the US dollar.<\/p>\n<p>Subscribe to ForkLog news on Telegram: <a href=\"https:\/\/t.me\/forklogfeed\" target=\"_blank\" rel=\"nofollow noopener\">ForkLog Feed<\/a> \u2014 all the news stream, <a href=\"https:\/\/telegram.me\/forklog\" target=\"_blank\" rel=\"nofollow noopener\">ForkLog<\/a> \u2014 the most important news, infographics and opinions.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Anchor continues to grow its TVL amid persistent demand for the stablecoin UST.<\/p>\n","protected":false},"author":1,"featured_media":60660,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[1144],"tags":[952,852],"class_list":["post-60659","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-longreads","tag-anchor","tag-terra"],"aioseo_notices":[],"amp_enabled":true,"views":"38","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/60659","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=60659"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/60659\/revisions"}],"predecessor-version":[{"id":60661,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/60659\/revisions\/60661"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/60660"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=60659"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=60659"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=60659"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}