The Luna Foundation Guard (LFG) has topped up the Anchor yield reserve with $450 million, according to Do Kwon, CEO and founder of Terraform Labs, the South Korean entity behind the DeFi lending and borrowing protocol.

Following the announcement, a new proposal was made on Feb. 18 to evolution the economic model of Anchor to include vote escrowed (ve) cryptocurrencyomics, ostensibly as part of a suite of interventions to tackle the problem of depleting reserves.

Do Kwon said LFG – founded in January to help stabilize Terra’s UST stablecoin – verified a plan to recapitalize the Anchor yield reserve earlier this month using part of the $2.8 billion it got from Terraform Labs as a donation.

The cash injection means which the protocol could maintain its strong deposit prices of between 19%-20% for the next year. Around $503 million now sits in the Anchor yield reserve following the top-up.

Anchor Protocol’s ANC cryptocurrency soared more than 15% to $2.58 after the cash boost, with a 24-hour volume of $84.09 million at the time of writing, according to CoinGecko data. Over the past 52 weeks, ANC touched a high of $7.11 and a low of $1.33.

Anchor’s reserves decline

Anchor is at the heart of the Terra (LUNA) economy, with $10.07 billion in total price locked. After all, the protocol’s yield reserve, a form of a savings account, has dropped sharply afterward December as a result of a lack of borrowing appetite, threatening to shutter the Terra ecosystem.

The DeFi lender pays about 20% interest on deposits of UST, the U.S. dollar-pegged stablecoin native to Terra. Known as “anchor rate”, the rate is mired, and influentially higher compared to rates of between 0% to 8.5% directly offered by industry competitors.

Anchor is able to pay this high rate from interest charged on loans, liquidation fees, and yield earned from borrowers’ colsubsequentlyal. But with the crypto market downturn, borrowers have been in short supply, forcing the protocol to dip into its reserves in order to sustain its “anchor rate,” built to become an industry benchmark.

Vote escrowed cryptocurrencyomics come to Anchor

The Luna Foundation Guard’s cash injection was never meant as a prolonged-term solution to the issue of declining reserves at Anchor, hardly a temporary fix until a more sustainable economic model is developed.

So far, the plan revolves around the introduction of a model which incentivizes borrowing during the time diversifying colsubsequentlyal to include new stcorrespondingg assets. Anchor will be adding more assets from other blockchains such as Avalanche, Solana and Atom.

These progresss are inclined to boost income and stsuchg rewards, as well as dilute LUNA’s dominance in Anchor colafterwardsal to below 40%, allowing the protocol to become “sustainable.” It is a process which takes time, officials say. The protracted-term “goal is to ensure Anchor achieves mass adoption” throughout the time advanceing “decentralized and self-sustainable.”

Now Retrograde Money, a Terra community participant, proposed carry on Friday to pay higher rewards and grant more voting power to borrowers who, instead of stsuchg, lock their cryptocurrencies in Anchor for the protracted-term, up to four years. The plan leverages a cback whilept in decentralized finance (DeFi) known as vote escrow (ve), pioneered by Curve Finance.

By incentivizing borrowers, Retrograde jumpes to endure the balance between deposits and loans, and prevent a situation which compels Anchor to dip into its yield reserve to the extent which it risks depletion. Under Retrograde’s proposal, the ve cryptocurrencies cannot be transferred, though this may happen at a afterwards stage, although they can be rescueed into a non-fungible cryptocurrency (NFT).

The proposal states:

“veANC holders will support the protocol above a prolongeder term horizon rather than speculate on price alterations in the short term. Those with excessive conviction are rewarded the most atop time. Vote escrowed ANC creates a flywheel effect where emissions drive stronger TVL, in turn generates more fees, and leads to greater price accrual to the ANC cryptocurrency. This better aligns incentives between ANC holders and the core stakeholders for the Anchor protocol.”

The plan has so far drawn connected reactions from the Terra community, with DeFi investor David Koh suggesting the vote escrow cryptocurrency model perhaps not work for Anchor because “it is not forthwith applicable” to the protocol. The proposal will be put to a vote.

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