Staking Yield, Movement - II

Analysing a future possibility: Imagine it is February 20 and the Anchor yield reserve has reached 0. Using data to support your answer, assess what the APY on Anchor Earn would be, based on LUNA staking yield and ANC incentives. How might this compare to stablecoin yields that are currently available from other protocols (not limited to Terra)?

[A lot if inferences will be taken from Part 1 of this analysis: https://app.flipsidecrypto.com/dashboard/staking-yield-movement-1-the-basics-ohKWz- ]

In Part 2, we try to assess previous chart data to analyse a possible future event based on overall market sentiment around LUNA prices.

Future event: Anchor yield reserve reaching 0.

Key fundamentals of Anchor: It makes money through borrowers. More borrowers = More money in the yield reserve.

March-May: Bullish sentiment June-September: Bearish sentiment

At the launch of Anchor Protocol, the Terra staking yield was significantly higher due to premium on ANC and MIR prices. The period of March-May 2021, saw a steady increase in staking yield which fell towards the start of June.

Here's a break up on staking yield for reference.

[Credits: Sam's dashboard for Loop - https://www.loop.markets/breakdown-of-luna-staking-yield/]

Conclusion:

If Anchor yield reserve reaches 0, it will have implications on the staking yield directly - firstly because the ANC prices will nosedive due to negative market sentiment. And secondly, The staking rewards will be mainly driven by block rewards.

If the Anchor yield reserve reaches 0, then anchor protocol would start to operate like a money market, the borrow and lend rates would be decided by the market participants, rather than incentivising the lenders from the anchor reserves.

Scenario comparison: Borrowers