The Anchor Protocol Will Modify Interest Rates Every Month, And The ANC Will Drop By 5%

Following a community vote on Thursday, Anchor protocol, the decentralized money market built on the Terra blockchain, will dynamically change interest rates each month.

Payout rates would rise by 1.5 percent if yield reserves rose by 5 percent, and fall by 1.5 percent if yield reserves fell by 5 percent under the proposed proposal. The change in payout rate will be capped at 1.5 percent, which means they will only be able to increase or reduce by that amount.

The move is intended to make Anchor Protocol more long-term viable

Anchor Protocol used to pay out up to 20% of UST, Terra’s dollar-pegged stablecoin, when you deposited it.The amount of money retained on Terra to maintain its current return rate of 19.5 percent is referred to as yield reserves. According to tracking data, Anchor holds approximately $14.76 billion in tokens and is the largest lending tool on Terra.

Anchor Protocol’s interest rates are generated via staking rewards from major proof-of-stake blockchains and are hence considered more stable than money market interest rates.

Meanwhile, some Anchor users criticized the development on the proposal’s official discussion forum. “Anchor’s competitive advantage is a STABLE deposit rate. If we switch to a dynamic rate we’re giving up on that advantage,” pseudonymous user ‘fulltimecrypto’ wrote. Other users were more upbeat. “We’re big enough now. It’s time to mature a bit and realize 20% on stables is excessive,” said ‘DefiantProtocol.’ “Cutting the rate in half wouldn’t lead to a significant flight of capital.”

Rates are currently set to drop by 1.5% as the yield reserves fell last month. Anchor’s native ANC token dropped as much as 5% in the past 24 hours following the development and trades at $2.56 at the time of writing.

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