Anchor contributors consider cutting UST yield to 4% from 19.5%

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Contributors to the Terra-based Anchor Protocol have proposed reducing to 4% a yield of 19.5% on terraUSD (UST) deposits in an effort to make its yield reserves more sustainable. 

The governance proposal is now undergoing a community vote, and comes at a time when the UST stablecoin has been struggling to maintain parity with the US dollar. The algorithmic stablecoin is currently trading at about $0.50, half of its supposed dollar value. 

The crisis surrounding UST’s dollar peg has seen users make large withdrawals from Anchor. Since last Friday, Anchor's UST deposits have plummeted from 14 billion UST to about 2.5 billion UST. 

Anchor depends on UST for its operations, and the failing peg is a major cause of concern. To mitigate some of the negative effects of the depeg, the proposal calls for sharply reducing the high yield offered on UST.

On Thursday, Terra contributor Daniel Hong wrote the "emergency proposal" and posted it on Anchor's governance forum. In it, he made the case that "a depegged UST cannot sustain 18% [to 20%] APY any longer." Rather, he advised that Anchor revise its interest policy to help protect its yield reserves from depletion. 

The voting will end on May 18. If the proposal passes, the targeted 4% rate on all UST deposits will be implemented on Anchor. Still, it will not have a fixed yield. Depending on demand for the service and the amount of yield reserves, the rates will range between 3.5% and 5.5%.

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