Concerns surrounding the sustainability of the Anchor protocol are exerting selling pressure on Terra (LUNA)
It is currently the worst-performing cryptocurrency among the top 100 coins by market cap. Bitcoin and Ethereum are flatlining at press time. Binance Coin (BNB) is up nearly 5%.
LUNA is now down 52.25% from its all-time high of $103.34 that was recorded on Dec. 27.
Anchor’s depleting reserves
The significant drop comes amid growing concerns over the sustainability of Anchor, a lending and borrowing project on top of Terra. The protocol’s yield reserve recently dropped to $35 billion UST, shrinking by 50% in roughly one month. At this rate, the reserves will be completely depleted in several weeks, which would be disastrous for the Terra ecosystem. Anchor has $7.32 billion in total value locked, which makes it the seventh biggest DeFi protocol overall.
Anchor offers a highly compelling stable annual percentage rate of 19.5%, but some critics argue that it might not be sustainable.
Do Kwon, co-founder of Terraform Labs, recently tweeted that he was willing to subsidize the yield reserve in order to assuage investors’ concerns. He has hinted that he’s willing to inject up to $300 million, which could be a short-term solution.
13/ But in the meanwhile, I am resolved to find ways of subsidizing the yield reserve.
Anchor is still in the growth phase, and maintaining the most attractive yield in DeFi stable will strengthen that growth & build up moats.https://t.co/1MmAVfIzCY
— Do Kwon 🌕 (@stablekwon) January 28, 2022
The sell-off has pushed the TerraUST (UST) stablecoin slightly off its peg.
Recently, UST surpassed Dai (DAI) by market capitalization, vying to become one of the leading stablecoins.