The Anchor Protocol community has submitted two proposals aimed at restoring the US Terra stablecoin (UST)’s peg to the US dollar at $1, as it is currently trading at $0.49 despite the efforts of the Luna Foundation Guard (LFG) to restore it.
Called “Emergency Measures to Restore the Terra Peg”, the main proposal recommends lowering the Anchor Protocol minimum interest rates to 3.5% and the maximum deposit rates to 5.5%.
What is the Anchor Protocol
The Anchor Protocol is a decentralized funding (DeFi) protocol in which the majority of UST’s staking and lending occurs. It has seen total locked-in (TVL) volume decline to about $3 billion from nearly $18 billion before the UST collapse.
High Yields are not sustainable
According to the main proposal, the current 18% yield will be reduced – temporarily – to reach 4%, as according to a post from Anchor Protocol, “A UST in its current state can no longer sustain an 18% APY (interest rate per annum).”
The rate cut will prevent the depletion of the Anchor Protocol’s UST reserve and will contribute to the UST being able to be pegged back to the dollar so that it can first be saved and then get back on its feet.
The second proposal
Another proposed contingency measure is to increase the virtual liquidity for the Terra – Luna exchanges by a factor of 1,000 to avoid a prolonged disconnection of the UST from the dollar.
The TVL for the Anchor Protocol has fallen to $2.61 billion, down from last week’s high of $17.15 billion, according to DeFiLlama.
The protocol’s token, ANC, has lost 75% of its value in the last 24 hours and is currently trading at $0.21.