The Anchor Protocol also has risks for starters
The anchor protocol is amazing but it also has its fair share of risks for starters there's the risk associated with the UST Stable coin. UST's peg effectively depends on the price of Luna and this is something that can and has been affected by crypto market crashes. UST has held its peg quite well despite the recent crypto market crash and some would say it's even more stable than centralized stable coins.
UST also doesn't run the risk of being shut down by regulators because it's fully decentralized but there are still some regulatory risks involved regardless. Now another risk on Anchor Protocol relates to the integrity of its smart contracts in plain. It's possible there's a bug somewhere in the code that could result in a massive loss of funds.
The thing is that there is more than double that amount currently deposited on the Anchor Protocol and the yield reserve is being slowly drained. The Anchor Protocol might not be able to afford to pay a 20 interest rate to UST savers in the not so distant future.
If and when that happens ANC token holders will likely vote to change the Anchor rate to something that's more sustainable or more accurately an anchor rate that can be achieved with the incentive mechanisms the protocol has at its disposal namely ANC Token issuance to entice borrowers.
In a worst case scenario however this anchor rate adjustment and associated incentives wouldn't be enough to bring balance to the anchor protocol at which point we could potentially see a massive ust sell-off which would throw it completely off its peg causing havoc across terra's ecosystem.
Now luckily it looks like this is unlikely to happen and that's because the terra community recently passed a proposal to refill anchor protocol's yield reserve with 450 million ust using funds from the recently formed lunar foundation guard a non-profit that coordinates terror's development.
This should make it possible for Anchor Protocol to maintain a 20% interest rate on deposited UST for another year and upcoming upgrades should improve the protocol's efficiency as well this just goes to show you how powerful cryptocurrency governance can be especially when there's a big treasury.
Links:
What is Anchor Protocol?
https://fcnmn.blogspot.com/2022/02/what-is-anchor-protocol.html
How Dose Anchor Protocol Work
https://fcnmn.blogspot.com/2022/02/how-dose-anchor-protocol-work.html
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